The Bootstrapped Founder Newsletter Episode 6 – December 20th 2019

Dear founder,

We’re inching ever closer to the New Year. Aside from an expected surge in optometrist jokes, I want to talk about one thing in particular.

Traditionally, millions of people will come up with New Year’s resolutions. And just as traditionally, they will break them within hours or days due to habits and ingrained behaviors. It just doesn’t work to only reflect once a year about the course of your life and making significant course corrections. People check on how their fantasy football team is doing every week but only think about the greater vision of their own lives in the last days of the year. Shouldn’t it be the other way around?

There was a discussion on Indie Hackers a while ago that got me thinking about the whole topic of validating a business over time. In looking at how I approached this in recent businesses, I noticed that we applied a concept that I had previously only seen in IT operations: Continuous Validation. It boils down to checking your alignment every few months:

  • Check if you are still solving the problem you set out to solve. Did the problem change? Are you solving an outdated version of what your customers encounter every day?
  • Check if that problem is still the critical problem your customers have. Did the environment change? Is there a new process or workflow that appeared after you solved it initially?
  • Check if you, as a founder, are still feeling passionate about the business. Did your priorities change, or did you dream up new ideas? Is your focus still on the company? Are your personal goals still aligned with the goals of the business?

I recommend asking yourself these questions about once every three months. After you’ve found your answers, adjust your business accordingly.

You can read more about this on the blog in an article called Continuous Validation: Staying in Touch with Your Market.

What Happened in the Bootstrapped World

This week, I happened to the bootstrapped world! Courtland from Indie Hackers had me on the Indie Hackers Podcast in an episode called Vital Learnings from Bootstrapping and Selling a $55k a Month Business with Arvid Kahl of FeedbackPanda. In over an hour, we chatted about the story behind FeedbackPanda, how to find a market to solve a problem for, and how to then approach building a product that allows for a sustainable business. I’d be very grateful if you’d give this one a listen.

There was an excellent discussion on Twitter about the benefits and incentives of bootstrapper funding started by the great Matt Wensing, founder of Summit. When Einar Vollset (of TinySeed, a wonderful accelerator focussed on bootstrapped businesses) picked up that tweet and mentioned risk profiles, people started talking about exits. In the replies was a founder who had a rather rare and interesting perspective: he had no interest in getting his business to an exit whatsoever. Joel had even written about this position in the past.

The fact that this was so surprising to me got me thinking. Why do we expect founders to work towards an exit? Why is it a rare occurrence in the SaaS space to see a founder who wants to run their business indefinitely?

Every founder has a goal. Build a lifestyle business. Have an impact through their work. Make a difference. I would argue that all founders share the same overarching goal: achieving financial freedom so they can do what they want. Financial freedom translates into free time; it translates into a life of security and stability.

That’s the net-worth difference Matt is talking about: investors are already wealthy, founders are aspiring to be. And the tool that immediately moves you from low-net-worth to higher-net-worth is the exit. It doesn’t always mean you become a millionaire, but it will make a significant impact on your life. Pay down that mortgage, catch up on that student loan, and life looks quite a bit brighter. For many, that’s more than enough.

It is the immediacy of this change that makes an exit so attractive to founders. It is the explosive and immediate gain of security and stability that makes founders build companies that are following the Built to Sell model, creating a business with making it sellable in mind.

But here’s the thing. You don’t have to sell a business to create wealth. You can build wealth through dividends along the way. In fact, many founders would want to keep ownership of their business forever. Why do so many founders, Danielle and I included, opt to sell their business when they could just keep it like Joel prefers to?

  1. De-Risking the Founder. If all of your net worth is locked up in your business, growing the company and your net worth also increases the risk of losing everything. What if you fall ill all of a sudden? What if there is a catastrophic change in the industry you serve and all your customers abandon ship? Having all of your eggs in one basket can create enormous psychological pressure. Cashing out and investing in diversified assets will undoubtedly allow for peace of mind.
  2. Founder Skill Ceilings. This is a personal one. I knew that I could build a great product and establish a business around it. I also knew how to grow it — initially. But at a certain point, the strategies and tactics used in the early days of a scrappy business don’t work anymore. You need to operate at scale, and I didn’t know how, nor did I care to fully immerse myself in that world: I love building new things, starting new businesses. The growth stage of a company just doesn’t interest me as much as figuring out how to get through the survival stage. Other people love that. So why not have them do it? You can create a new business all over again, this time from the point of financial stability.
  3. Time Horizons. Imagine you have a thriving SaaS business making one million dollars in ARR. Someone offers you four million dollars for your company. With your growth trajectory, you could likely pay yourself $250k in dividends for years to come, working full-time on the business. After eight years, you would have the four million and still own a business, likely worth much more. Now imagine you just had a baby. All of a sudden, the instant payout becomes much more interesting: being present during the formative years of your child’s life can be worth a lot more than money.
  4. The Ultimate Founder Sickness: Boredom. You might just lose enthusiasm for your business. You might have more ideas, other things you want to accomplish. Maybe you met a founder at a conference you want to work with, or you learned of a new field where you want to build something completely different. Converting the value of your existing business through an exit into something that can jumpstart your new adventure can make it happen quickly.

In the end, we are all looking for independence. We want to spend our limited time on this planet with as much purpose as we can, working on what we care about. Having an exit can facilitate that. A sustainable SaaS will get you there, too, in the end. It will just take a bit longer and involve more risk and sacrifices.

Bootstrapping Success Stories I Noticed – and a Failure

1HaKr from Visa List had an exciting week that he chose to share with the community. First, he released a completely revamped version of his tool that helps travelers figure how to get the visas they need for their destination. The next day, he received a $100.000 acquisition offer for the product. Talk about immediate validation.

It all starts with the first customer, and it did so for Ricky from Zlappo as well. He’s been building a Twitter automation app (which appears to be able to schedule Twitter threads, a holy grail of Twitter engagement automation), and finally landed a customer. I’ve been part of his marketing efforts, judging by the DM in my Twitter messages, so it’s clear he’s been hustling. To many more, Ricky!

In A Failed SaaS Postmortem, Matt from College Conductor takes the reader through the whole story of his EdTech startup, from beginning to.. well, failure. He’s reflecting on all the all-too-well-known problem that kept his business from providing sufficient value to his future customers: by focussing on keeping the tech stack up-to-date, he didn’t provide a useful product fast enough. For every technical founder, this should be a warning to heed: focus on providing the minimum value your audience needs as quickly as possible, not how technically perfect you want the product to be.

Links I Found Interesting

It’s tough to succeed in EdTech. FeedbackPanda was EdTech as well, and while we ended up selling it for a life-changing amount, it was a struggle. No one in education wants to spend money, and investment opportunities are rare. David from CodaKid has written about his struggle to bootstrap a company in the EdTech space. It’s a fascinating timeline, with a few great ups and a lot of devastating downs.

JetBrains is an example of a business that never took funding but has grown to gigantic size by building a reliable core business. In a tweet, Chetan Puttagunta points out that this 19-year-old bootstrapped developer tooling business has $270M in revenue and is still rocking 33% year-over-year growth. Good thing they never exited… and don’t seem to plan to.

Thank you for reading this week’s edition of The Bootstrapped Founder. If you like what I wrote about, please forward the newsletter to anyone you think would enjoy it too.

If you want to help me share my thoughts and ideas with the world, please share this episode of the newsletter on Twitter or wherever you like, engage on Hacker News, or reach out on Twitter at @arvidkahl.

See you next week!

Warm Regards from Canada (where Danielle and I spend our Christmas season),