The Bootstrapper’s Compendium
Welcome to Zero to Sold. This companion guide will introduce you to the world of bootstrapping a sustainable business. It will make you familiar with how bootstrapped enterprises are created, ran, grown, and sold. It will guide you through all of the phases of a bootstrapped business, explaining key concepts and linking to articles on The Bootstrapped Founder that dive deeper into each topic.
This is a living document. Please reach out to me if you find any errors, omissions, or falsehoods.
To get started, please begin with the Introduction or use the table of contents to navigate to any section that you’re interested in.
The first sections will introduce you to bootstrapping in general and why I wrote Zero to Sold: my entrepreneurial journey with FeedbackPanda, from starting a bootstrapped business through running and growing it to $55.000 MRR, to finally selling FeedbackPanda just two years after founding.
Finally, the last few sections will deal with the world beyond bootstrapping and provide you with further resources on the subject, as well as a bonus section on the many roles of a bootstrapped founder.
An Introduction to Zero to Sold
Many people dream of having a business that makes money for them while they sleep. Yet, most people never turn that dream into a reality. Life gets in the way, they say, and they aren’t cut out to be a business owner anyway.
I believe differently. I think that everyone can be an entrepreneur and create a sustainable business that will allow them to live a life of freedom and financial independence. It will require some sacrifice, as building a business will take a lot of work and time. But it will lead to a life of control, a life of choice, and a life of opportunity.
The Bootstrapper’s Compendium will show you what the life of a bootstrapped founder will look like. It will teach you how to fill all the roles required to run a business and what you need to get done in each stage of your bootstrapped company’s evolution.
No matter if you are just starting to think about being an entrepreneur, are in the middle of running a bootstrapped company, or are a seasoned founder, you will find useful strategies, thought-provoking anecdotes, and insightful concepts in this guide.
Every section will have a condensed paragraph containing the essential facts and ideas. If I’ve already written a specific article on the subject, it will be linked there using the 🔗symbol. If not, I will write it eventually and add the link later, so don’t hesitate to sign up for The Bootstrapped Founder Newsletter, where I announce new articles the week they’re published.
Please understand that while this is a guide, a manual, and a compendium, it won’t absolve you of taking responsibility for your own choices and actions. Carefully reflect if the experiences and bits of the advice laid out here apply to your business. In the end, you are the agent of your own success. Read and learn as much as you can, but treat all guidance and direction as anecdotal. You will have to find your own combination of strategies and tactics. Zero to Sold will help you get there.
The FeedbackPanda Story
I wrote Zero to Sold because I’ve been through starting, running, and selling a bootstrapped business before. Within two years, I co-founded, ran, grew, and finally sold a Software-as-a-Service business called FeedbackPanda, a productivity tool for Online English teachers.
Of course, this wasn’t my first rodeo. I’ve been part of many internet businesses before, and I’ve had my fair share of failures. I was in businesses where we never finished building the product. I co-founded startups that fizzled out because we didn’t know how to market our service. I’ve been involved in companies that didn’t find a way to monetize their popular products, only to pivot to something completely different after many years of trying to make it work.
I’ll be sharing my experiences from both FeedbackPanda and the not-so-successful startups in this book, as I believe that you can learn the most at the intersection of experience and knowledge. So I will provide you with both.
Let’s start with the business that changed my life. Let’s take a look at FeedbackPanda, a service born out of necessity, a product that solved one critical problem for a well-defined audience, allowing me to experience and learn the things that I have compiled into this book.
FeedbackPanda was a collaborative effort between me and my girlfriend, Danielle Simpson, who was herself an Online English teacher at the time. We bootstrapped the business from day one, and when we sold it for what I would call a life-changing amount of money, the Monthly Recurring Revenue (MRR) of FeedbackPanda had just reached $55.000.
Within two years, we had built a niche service from a proof-of-concept into a thriving business that was attractive enough for a Private Equity firm to take it off our hands.
So, where did this all start?
It started with a leg injury. In early 2017, Danielle suffered an injury that meant she couldn’t leave the house for a while. For a trained Opera singer like her, that made regular work impossible. You can’t invite your audience into your living room for a concert.
So Danielle looked for work she could do from home, and she found something interesting. A wave of Chinese companies had emerged that recruited native English speakers to teach English as a second language to Chinese students. She tried it out and was hooked immediately: it was a fun job, it could be done using just a laptop, and the pay was alright.
Shortly after, she found that there were several large online communities of teachers who taught for various Chinese companies. Danielle joined those Facebook groups and forums and started hanging out with her virtual colleagues that numbered in the thousands at that point.
A few weeks into teaching on a full-time schedule, she noticed things that started as nuisances but quickly became painful problems. The teaching part of her job was great and fun, but certain formalities took way too much time.
The most noticeable problem was student feedback. After every 25-minute lesson, the teacher would have to write a few paragraphs of a lesson report that was supposed to inform the parents of what their child had learned, how well they learned it, and what they could practice at home. Having only five minutes between lessons to take care of this and everything else (ranging from grabbing a coffee to using the restroom), Danielle would defer this work until after she was done teaching for the day. It couldn’t be avoided, as the Chinese companies would not pay teachers for their teaching work unless the feedback was provided as well.
When Danielle started teaching 10-hour days, the added feedback time would often amount to almost two hours of unpaid overtime. That meant two hours less for spending time with me, meeting friends, or reading a good book.
So she did what everyone would do: she developed a system, using Excel sheets and Word documents to track information about what her students learned, how they did, and what to suggest to their parents. She started using text templates for the content of the lesson and the preparation hints, as the Chinese schools defined the curriculum, and it would be the same for every student.
We found out that many other teachers did the same when they started talking about their self-built solutions in their online communities. Teachers began to share their templates through Google sheets. It was clear that this was a shared problem in a very tight-knit community.
One day, Danielle and I talked about the painful experience of student feedback, and how her system, even though it helped, was clunky and overwhelming. I looked into it, and it seemed quite possible to build a web-based application that would do this work faster and more reliably.
We also saw that this would be a great business opportunity. There was a sizeable market with an apparent, shared, and critical problem. The problem was solvable, but no-one had yet built anything to make it noticeably easier. So we decided to build a validation prototype, see if it had a meaningful impact on Danielle’s day-to-day workflow.
It took me a week or two to build the system. When Danielle finally started using it, it was clear as day: she transferred her loosely structured Excel and Word files into the system, and the automation kicked in immediately.
Instead of two hours of extra work a day, it would take her less than ten minutes altogether.
We knew we were onto something big from that very moment.
I had built the software with potentially turning it into a SaaS in mind. It had an authentication system built on Auth0 that would allow users to log in using their Facebook accounts, after all, that’s where we knew they hung out. It had a rudimentary subscription system build on Stripe that allowed us to charge from day one.
So we released it to the public, built a landing page, and waited. Nothing happened. One or two people signed up for the free trial, but there was not much else. We hadn’t done any marketing, and we hadn’t made any sales. The service just sat there, idling.
And then, one day, everything changed. In a comment to a Facebook post about how teachers dealt with feedback, Danielle dropped the link to our product with an explanation of how she used it. Teachers started to respond, asking for more details, checked out the application, and came back to share their newly found discovery on Facebook.
Our growth had been almost entirely organic since that day. This one comment released an avalanche of word-of-mouth marketing that fuelled the growth of our business from its first couple of users to thousands of customers a few months later. It was surreal, but we had tapped into a highly active tribe. Once we understood that, we didn’t need to do much when it came to marketing our product: our users would do most of that for us.
Signups surged on that day, and there has not been a day without at least a few dozen new subscriptions ever since. Online teaching influencers discovered the product, talked about it through their channels, put links on their blogs, and our landing page started to receive more and more visitors.
Danielle was at the helm of product and design, while I managed the technical and infrastructural parts of the business. We shared most other jobs, particularly Customer Service. Over time, we automated the company as much as we could. We documented our internal processes so we could easily outsource or take over each other’s activities. We built the business as if we wanted to eventually sell it, even though that was never our goal. We didn’t set any goals at all; we just wanted to help teachers do their job better and have that pay our bills.
We had noticed that teachers loved to share, so we added a collaboration system where they could help each other out by sharing their templates. All of a sudden, we had a product that developed a strong network effect overnight.
And that made the business grow beyond our wildest expectations. Every day, new teachers would sign up, and since we provided a service that solved their problems well, we had incredibly high retention and conversion rates.
For many of our customers, teaching from home was a side hustle. Using our product enabled many of them to turn this into a full-time source of income. We priced our service to be affordable and easily justified. We even increased our prices by 50% a year into running the business, and it nevertheless continued growing.
So we coasted along, adding new customers every day, building features and making the service more reliable, and integrating deeper and deeper into the web-based teaching software our customers were using. Everything looked and felt awesome.
And then, things started to become stressful. The customer service load increased with more and more new teachers signing up. Maintaining integrations took time out of my feature budget, as the boom of online education in China meant a proliferation of online teaching companies that we needed to support. I had made a few questionable technical decisions that came back to bite me in the shape of unexpected downtime. I developed severe anxieties that took me a lot of willpower to work through. The more people I felt responsible for, the more it pained me when something went wrong.
That’s when I learned the true nature of entrepreneurial life. It is fun, but it is also painful at times. It is full of responsibilities, real or imagined, and it can bring great joy as well as significant pain. We never hired an employee throughout the lifetime of the business, and while we talked about it often, we never got to it. FeedbackPanda was just Danielle and me.
So when we started receiving the first acquisition offers, we began to consider selling the business seriously. We had never talked about this before, as we were quite happy to run the business as our full-time occupation. But more and more reasons to sell popped into our conversations, so that one day, when we got a particularly exciting offer, we decided to go for it.
We sold FeedbackPanda in mid-2019, just under two years after founding the company. It was an exciting and scary thing to do, and this book is the result. Having always been an avid reader and an admirer of the bootstrapped founder and indie hacker community, I write this in the hope that it will encourage founders and founders-to-be to start, run, and sell their own bootstrapped businesses.
I learned so much during the time from start to exit, from zero to sold. Now it’s time to share the lessons and experiences of that journey.
Let’s get started.
The Four Stages of a Bootstrapped Business in a Nutshell
Every successful bootstrapped business goes through four distinct phases: Preparation, Survival, Stability, and Growth, separated by revenue and profit levels. Every stage introduces new problems and situations to deal with. I’ll guide you through each phase in detail, describing what will happen to the business, the product, the founder, and the customers throughout the entrepreneurial journey.
In the Preparation stage, the focus will be on finding an audience, their biggest problem, and a solution that solves that problem in a way to make people pay for it. You will find out how to price your product initially and start selling.
In the Survival stage, the focus will be on finding a repeatable way to make money. You will learn how to work on the product, listen to your early customers, and start building out processes and automation to stay on top of your business.
In the Stability stage, you have found your way to generate revenue. At that point, you will look into offering a stable, mature product, hire people to help you run the business, and build long-lasting relationships with your customers.
In the Growth stage, you will find yourself at a crossroads: should you keep running the company, or do you want to sell it? You will discover strategies and step-by-step guidelines that will allow you to do either, as you will learn how to remove yourself from the business.
Finally, you will learn about other options beyond bootstrapping, including Venture Capital, bootstrapper-friendly funding options, and traditional sources of capital.
The Preparation Stage
Every business starts as an imaginary construct. To some, it’s an idea of solving a problem in a new way. To others, it’s the dream of managing a company from a beach somewhere. Whatever the initial spark is, there is a long way between that first fragment of a plan to a sustainable business that’s humming along nicely.
First, you will need to turn your idea into a product you can sell. Then, you will need to create a business: a system that allows you to sell that product over and over again.
In this stage, the you will work on the prototype of your product, the audience and problem analysis, solution ideas and validation, and audience verification and customer outreach.
From Idea to Product
Tech founders (like me) focus on products because that is what we use to solve our problems. That often leads to products that are mostly solutions looking for a problem. It’s no surprise that many of the products launched on ProductHunt fizzle out quickly after the launch.
Successful businesses are built by solving critical problems for an audience that will pay for a solution to their issues. The Preparation Stage is when you make these foundational choices. Once in motion, a business has certain inertia that makes these decisions hard to change. Even though pivoting your business into new markets is sometimes the right choice, it’s extra effort. That’s why it’s a good idea to spend considerable time on getting it right in the first place.
This section will offer a step-by-step approach for getting to a product. You will learn how to find your audience, their problem, a solution, and how to turn that into a product.
You Probably Have it Backwards: How to Start a Bootstrapped Business
Many businesses start with a product idea. They then try to find a market that’s willing to buy that product. They fail because there were not enough customers. They fail because the product solved the wrong problem. They fail because the product solved the problem the wrong way. And sometimes, they fail even though the product solved the customer’s problems.
That happens because many founders build their businesses with a product-first approach. But audience research, problem analysis, and solution validation should happen before you think about a product. While this might seem counter-indicative in a world of polished products that we use every day, it is much more likely to build a great business on a validated market, filling a validated need for people who will be able to pay enough for you to sustain your business and your life.
Many successful bootstrapped businesses start with an audience, a specific niche. They find their customer’s critical problems and provide valuable solutions that people gladly pay for. Their product is centered around continuously providing value to new and existing customers. Let’s look into the audience, problem, solution, and product one by one.
Step One: Audience
A business would be nothing without customers. You can have the best product in the world, but you won’t be able to build any meaningful business if there is no one to pay for what you offer. So, where do you find those paying customers? The first step to building a business is answering that question, and for bootstrapped founders, there is one big theme: finding the perfect niche. You’ll see why niches are essential, what makes a fruitful market, and how to figure out if it will be a good one for your business.
🔗 The Power of the Niche
If you have a company that has a multi-million budget for things like company-branded t-shirts, you might be able to sell to a mass market. As a bootstrapped business, you might need to think a bit smaller. Most successful businesses started in a very well-defined niche. They may have eventually grown into other fields, but when they began, they focussed on a small group of more or less similar customers.
This is the main property of a niche audience: they are homogenous in a specific way. They share certain attributes, they have the same problems, and they all crave for a solution that is custom-made for them. Inside a niche, you can find a problem and build a specific solution that makes a difference.
A niche is often defined by what it contains, but it’s interesting to think about what it doesn’t include. By understanding which issues you need to care about and which ones you don’t, you will be able to filter out the noise that makes more general markets so hard to navigate. You can focus on creating the most value and provide the most impactful solution to your customer’s problems, as people in a niche will have the same pains and problems.
Read the full article on The Power of a Niche.
🔗 Finding a Market to Build a SaaS
A good market has several qualities that make it attractive for a bootstrapped business. First, the market should be a niche that is large enough. You will need to have enough potential paying customers to allow your business to thrive. Second, the market should be a niche that is small enough. If it’s too big, you will end up with a lot of competition and a customer base too diverse for which to create an impactful product. Third, make sure the audience is capable of paying and willing to do so when presented with a valuable product. If people don’t see the need to pay for a solution to their issue, you’re not just trying to sell to the wrong market: there is no market.
There are good markets and bad markets for bootstrapped businesses, and they can turn from one into the other. A good market can be a newly created niche, an underserved audience, or a previously existing market that is being terraformed by significant forces. Bad markets are markets with few deciders and entrenched incumbents, which you will often find in the enterprise B2B space. Highly competitive industries with a lot of bottom feeders will make creating a sustainable business very hard as well.
🔗 Determining the Size of a Market
So if the market needs to be just small enough and just big enough, how can you determine how big it truly is? This is different for each kind of market, but it can be generalized for B2B, B2BC, and B2C markets.
In B2B, you can learn a lot about market dimensions from trade publications and conferences. For B2BC, communities, subject matter experts (or in some markets, influencers), and podcast hosts can provide a lot of good insight. If you want to know the size of a B2C market, your best bets are sales reports and government agencies.
In any case, talking to experts in the industry will give you some insight into available markets and their sizes. This will also allow you to determine if you can expect budgets to exist for your product. A huge market of customers who are not capable of paying you anything is not going to allow you to build a sustainable business.
Step Two: Problem
Once you have found a suitable audience, you can start looking for problems. The great thing about niche markets is that the issues in them are specific and shared by the people in the niche. Solving a common problem will help a lot of people. You already have the right people. Now you just need the right problem.
The essential action in this step is to find the most critical problem your audience is experiencing. You are looking for painful problems, and you want to solve the most painful of them all. You also need to validate that this is an actual problem that people need to have addressed. Sometimes, we just want to complain, but we don’t want to change our ways. You will need to find a problem so painful that we just have to deal with it.
🔗 Finding the Critical Problem: How to Work on The Right Thing
In every industry, there are many problems to be solved. Every day consists of many small issues that we need to deal with in our work. But not all of those problems are important enough for us to look at possible solutions. Sometimes, we just deal with them because we have bigger fish to fry.
Not critical problems. Those problems are so painful that we will jump at solutions when they appear. As a founder of a bootstrapped business, you want to be the one providing the answer to those problems.
Here is what sets a critical problem apart from all the unimportant ones: it’s painful, it can’t be avoided or deferred, it takes time or money to solve every time, it makes your customer’s lives harder, and it occurs frequently and repeatedly. When you find a problem that shows these properties, you have a critical problem on your hands. And that’s a problem worth solving.
🔗 Finding the Most Painful Problem in a Market
To find the critical problem, you will need to understand one vital thing: people are often not aware that they have a problem. Sometimes, they know they have a problem, but they think it can’t be solved. Other times, they understand that it could be solved, but they’re not aware that there are solutions already. The difference in awareness needs to be taken into account when you look into a market to find their critical problem.
Any problem where people are using makeshift solutions will be a viable candidate. Using traditional tools like Post-It’s or, more recently, Excel Sheets and Word Documents, many people speed up the painful parts of their job, which often can be accelerated significantly by a custom-made software solution. Finding that problem and building that solution is an excellent recipe for a bootstrapped SaaS company.
Generally, you will want to talk to people who are experts in your market. That doesn’t mean you’re looking at certificates or job titles. If you are building a business in the hobby cooking space, find people who love to cook at home and have a food blog. Want to build an EdTech company? Talk to teachers who talk about teaching all the time. Find the people who care.
Ask those people what they love doing and what feels like a chore. Ask them what they think their biggest problem is. A great way to get them to look at their issues from a positive angle is to ask where they want to be in their work and what is keeping them from accomplishing that.
🔗 Problem Validation: Making Sure You’re Talking To The Right People
Some people love complaining, but they don’t want things to change. You will need to figure out who these people are so you can safely ignore them. You need customers with skin in the game. The customers that care about receiving a real benefit from the tools they use are the ones you must find and talk to.
How can you determine whether a customer is a good fit for this? Find out if they care about belonging to the group of people in their industry that cares about the future of how things are done. Are they enthusiastic about where things are going? Do they want to participate in the change that makes their industry better? Those are the ideal customers to validate your problem with.
Avoid apathetic people and those who have nothing to gain or lose from a meaningful solution to their problem. Find the people who have stakes. Ask what do people risk by not acting. If they are risking being left behind or replaced, you have found someone worth listening to.
When you finally found someone to validate the problem with, ask them to describe how they deal with it today, how they dealt with it when they first encountered it, and how they wish they could deal with it in the future. Don’t ever propose your solution before your prospects have answered this set of questions, as it will limit the scope of the replies you will receive. Dig deep into their reasoning, and skip leading questions.
Step Three: Solution
With a worthwhile audience and a validated problem, you will now need to find a solution. A solution is not the same as a product just yet. A solution is a more general answer to the question “how could this be done better” where a product answers the question, “what do I use to deal with it.” The nuance here is in being specific enough to solve the problem without locking yourself into a corner by diving into building the first possible solution that comes to mind.
For example, let’s say you have chosen rural hairdressers as your niche audience and have validated that their critical problem is dealing with winter cancellations because their customers get stuck on snowy roads. Something will come to your mind as a great solution. You might think of helping them manage their booking, so it takes into account local weather data and routing information. You might think of letting the customer quickly inform hairdresser when this happens so they can reschedule. You might think of automatically rescheduling appointments when snowy days are expected. All of these solutions could probably make a meaningful impact on the lives of your customers. None of these solutions are products yet. They could be apps, services, processes, web applications, or just new ways to operate a business. You need to validate the solutions you find to get to the one that has maximum impact.
Solution Validation Doesn’t Happen In a Vacuum: How to Talk To Your Future Customers
To validate a solution, you will need to talk to customers again, just like you did with the problem. This time, you will want to talk about the solution, in terms of how your proposed change will impact their existing workflow. Sometimes, tools and services that seem only to have a single purpose are used at multiple stages of solving problems, often without your customer understanding how deeply integrated they are. Only when you try to embed your solution into their existing process will they figure out how much they depend on having that particular tool or service in their business.
The jobs-to-be-done framework is beneficial here. Every product replaces a job that someone or something is currently doing. Your solution might displace a human who’s presently doing an automatable job. It might supplant a piece of software that is integral to a completely unrelated task done by someone else.
Finding the immediate, as well as the second-order effects of your solution, will be the main task of solution validation. Making sure that your proposed solution has no unintended side-effects will make adoption much less risky as it removes reasons for people to revert to how things were done before.
Asking the Right Questions: Focus on Problems Instead of Solutions
When you talk to your customers or prospects, I have found that there is a question that always produces meaningful results: ask where they are now, where they want to be, and what stands in the way of getting there.
Focussing on the problems and complications at the same time as envisioning the optimal state of being will give you insight both into the priority of the issues as well as what the final product has to allow your customers to end up with.
The winning solution, and finally your product, is a result of this conversation, not a part of it. Treat conversations at this stage as a competition of ideas. In fact, “validation” may be the wrong way of looking at it after all: it’s about finding the most impactful, most value-producing solution with the least amount of friction and the highest possible chance of adoption.
Step Four: Product
Finally, and only after looking into the audience, problem, and solution, do we arrive at the product. This is the part that the technical expert in every entrepreneur finds most exciting: turning the idea into a real thing. Manifesting the potential into a tangible product. Only by having spent a lot of time and energy on shaping the idea through the previous stages can you be sure that when you dive into building the product, you can create a sustainable bootstrapped business from selling it to customers who will pay for it.
In the startup world, everyone is talking about the MVP, the Minimum Viable Product. There is an ongoing battle over what that really means. To some, it’s the first, very embarrassing version of the product that works. To others, it’s something they can be proud of. Some want to test the waters, and others want to be sure that they can make money on the most basic version of their product. No matter where you stand on these issues, there are a few general guidelines that will make sure you can create a product that stands a chance.
The Myth of The Finished Product
In software, no product is ever finished. Even when you release what you think is a feature-complete version of your product, you never know what you will have to change next year when Apple releases a new operating system, or the Chrome browser decides to change the API you use for providing an integration. Besides these technical reasons, your customers will also shift their priorities. Maybe their job specifications changed, or perhaps the industry is experiencing a quantum leap, ushering in big changes to how things are done.
Software is never finished. But at some point, it is good enough. Getting to that point early is essential for a bootstrapped business, as you will need one kind of validation more than any other: customers opening their wallets. A purchase is an ultimate validation. That’s why the concept of the MVP came into being: when should you start offering your product to customers? When is it too early? When is it too late?
I believe that you need to have two things in a product for it to be an MVP: 1) enough working functionality to solve the problem for your early adopter customers and 2) the means to charge them money for it. The first point fulfills the “minimum” part of MVP; the second point allows for the product to be “viable.” You don’t need to build out a fully-fledged billing system with all the bells and whistles. Being able to charge a credit card is all you need to get started. Build account cancellation components after you have your first paying customers. Do things manually until it makes sense to devote the efforts to build a solution.
Release early. Don’t work on a dozen updates for half a year and then release them all at the same time. You want to be able to receive immediate feedback from your customers, particularly in the beginning. When you are experimenting, you need to be nimble, and being able to revert a change quickly is very important. Your most engaged users will be a great source of information on how well your feature release fits their expectations and needs.
Release safely. Keep backups of user data and have the infrastructure in place to roll back to a working version if something goes wrong. Your business will survive a few outages and software bugs, but it won’t easily survive the loss of all of your data or being unavailable for a week. While experimentation is required to get your business onto the right track, you need to make sure you can take a few blows. Take this seriously, as a hasty, botched release has irrecoverably burned many companies.
The Boring Truth of Successful Products That Survive
Most products that you will see staying on the market have one thing in common: they do one thing very well. And not much else. Weber sells grills that are fantastic at grilling. The furthest they strayed into new territory so far has been by adding an app-readable thermometer. That and anything else is focussed on making using their grills a great barbequing experience. That’s what it is about: having a barbecue that grills.
In the SaaS space, Stripe is a great example. It provides a clean, well-designed, programmer-friendly service that allows you to charge your customers. While Stripe, as a company, offers a few adjacent services, their focus is always on making getting paid by your customers as comfortable and low-friction as possible. That also means that they won’t offer fancy, complicated products that integrate into your CRM or Marketing tools. For that, they started a third-party marketplace. Only when it benefits all of their customers will they add new features to their core product. Simple beats complicated.
Once you have solved your problem, keep it simple. That’s quite hard to do, as customers will always have requests and ideas on what you could add. They will never tell you to remove an unused feature, but they’ll gladly tell you about 20 things that they would love to see added. If you’re not careful and deliberately say no to most of those, you will end up with a Frankenstein’s Monster of a product that solves all problems equally badly.
Focussing on simplicity allows you to optimize your product and stay adaptive when things change. If you do one thing only and speed up your product by 10%, all of your users will benefit from that immediately. If you solve ten different problems and speed up one of them by 100%, you will still leave most of your customers receiving zero benefits from that.
When in doubt, go for the most overall impact. That often means choosing the harder problem to solve instead of just going for the low-hanging fruit. Good. That’s what the competition will go for first, anyway. Take the thing that is hard to solve, and do that every time. After a while, you will be so far ahead of anyone else.
Not in House: On Reinventing the Wheel
As a bootstrapped founder, you will have to be scrappy. You will want to spend as little as you can on expenses, particularly when you’re just starting. So anything you need to do, you want to do by yourself. Anything you need to use, you will want to build yourself. But in my experience, a few things should be excluded from that: if you’re not careful, they will blow up in the future big-time, putting the whole business at risk.
Don’t build an authentication system yourself. Keeping the personally identifiable information of your customers in your database is a giant risk, and will make your system a target. There are whole companies out there that take care of the security and privacy requirements of authentication, with teams of security experts making sure the data is inaccessible to those who shouldn’t see it. I recommend using Auth0 and their Identity-as-a-Service offering from the beginning. They have a free plan that will last you a long time without needing to pay, and even with thousands of customers, it will still be less than $100.
Don’t build a payment system yourself. Even worse than personal information, having credit card information touch your system gives bad actors a strong incentive to steal that precious information. Use a PCI-compliant processor where the card information never gets transmitted to your servers, like Stripe. The great benefit of this is that the payment processors have built-in fraud protection, which will make it easier for you to avoid troublesome customers.
Don’t build an invoicing system yourself. In the beginning, it might be easy just to generate your own invoices, as you have just a few customers and likely only a few plans or prices. But come tax season, you will find out that you should have added a particular field, for certain kinds of customers from a specific country. Invoicing is complicated, and there are dozens of companies that focus on offering a globally usable invoicing integration into Stripe alone. Leave financial things to the experts, and focus on your strength of providing a great product to your niche audience.
From Product to Business
A product is not a business. That’s an important thing to understand, particularly when you’re a technical founder. It’s the reason the book “The E-Myth” exists: the entrepreneurial myth is that if you build it, they will come. But they won’t unless you put in the effort to create a reliable system to continuously sell the product at a profit: a business.
Forget Goals, Create Systems: Foundations of a Sustainable Bootstrapped Business
When you’re starting with your business idea, you will be looking at how successful businesses have accomplished their success. You will see a lot of different sizes, markets, and business models. But they all have one thing in common: they’ve built a system that works. Their long-term and short-term goals may have changed through the years, but the system that kept them running never did. That system is the core of every business.
A sustainable bootstrapped business is successful when you have found a repeatable, reliable, and resilient system to continuously provide a value-producing product to paying customers at a profit.
Such a system will need to be continuously refined and improved. Your customers will change their methods. New regulations and requirements will need to be responded to. This is the heart of your operation. It must never stop working. You will never be done making sure it’s working correctly.
To build such a system, you will need to set a price for your product and then make people aware of it. Once you have interested customers, you will have to convince them to purchase the product. After that, you will need to make sure they remain customers for a long time. A product that solves a critical problem for a well-defined niche audience is a good candidate for such a system.
Since “system” is such an abstract term: look at it as a set of rules and guidelines, like a recipe. To make a tasty omelet, you will need to mix the right ingredients and cook them for the right time, at the right temperature, using a specific technique. A business is the same thing. Having a recipe in place will make the transition from the Preparation Stage towards the Survival Stage less chaotic. No plan survives the first contact with the enemy, but it’s still important to think of the core growth engine of your business before you start selling your product to your audience.
🔗 Your Initial Pricing Will Never Be Right, But Try Anyway
At the beginning of your business, revenue serves one purpose before any other: validation. A paying customer is validating multiple things at the same time: they are saying that your product is good enough to solve their problem, they are saying that it provides more value than it costs. They are saying that their problem is painful enough to pay for a solution. With that one payment, they validate the product, value, and problem.
That’s why the price is only secondary. As long as it is not higher than the value of the product, it will be fine. There are two rules to early pricing: it’s never perfect, and it can be changed. So get used to thinking that your price is a very fluid number with a lot of flexibility. It is not set in stone.
Still, it should reflect what you think the value of using your product is for your customers. This is tricky, as software products are continually evolving, and the value they generate evolves with the product. It also depends on the purchasing power of your audience. Selling to large entreprise companies will allow you to charge much more than when you’re seeling to online teachers. If you have competition or have comparable markets, looking at the pricing levels of similar companies will give you some good indication of what customers expect to pay.
Significantly underpricing your product will create a few problems down the road. While it will likely get you a lot of customers initially, many of them will be very price-sensitive. Once you raise prices later, even a little, those customers might be very vocal about their disappointment. While there are ways to deal with that, like time-limited subscription grandfathering, you’ll be limiting yourself. Price always communicates value. By pricing a product surprisingly low, you are saying that it is worth very little. That will scare away customers who are looking for high-quality products.
Overpricing your product, on the other hand, is not as bad. You’re communicating that you think your product is worth it, you indicate that it is a professional tool, something for experts, for the people who know what they are doing. With a high-price product, you only need a fraction of the number of customers to become sustainable. And you can always lower your prices if customers disagree with your value proposition. Don’t be afraid to charge more, particularly in the beginning. You may think that your product isn’t fully finished yet, but that is no reason not to charge the full value that people are ready to pay. For your customers, the result of using your product is what they pay for.
Find a good initial price for your product. If you offer subscriptions, make sure to provide a yearly subscription option, at a slightly reduced cost, from the beginning. Those subscriptions are an excellent signal for how much people think your product will be part of their lives. The moment someone commits to a year, you know that you are solving a critical problem well enough.
🔗 Do You Need a Co-Founder?
Building a business alone can be daunting. You might lack a few skills; in fact, I am sure you do. There is a lot to learn when you start a company, and you will never stop running into unexpected challenges that require the acquisition of new skills and knowledge.
So, should you find someone to make all of this easier? A partner, an equal, a co-founder? As usual, there is no clear answer here other than it depends on the circumstances of your business and yourself. Some founders are lone wolves and thrive on overcoming the daily challenges. Other founders want to work on the things they enjoy and leave the other things to someone who is better suited to that work. Some founders want to live a life of responsibility and share none of the spoils, while others would instead work in a more relaxed way and split the profit with like-minded people.
If you are looking for a co-founder, look for someone who can communicate well with you. There is the saying that you should find someone to have a beer with, but this rarely ever translates into an excellent entrepreneurial relationship. Find someone you can solve a problem with. Find someone who is equally excited when they talk about their work. Find someone who will glowingly speak about your business when they’re asked what they are doing.
When you start talking to potential co-founders, find out how much they care about empowering people. That’s a good indicator for several important things: their willingness to help your customers, their focus on building a problem-solving product, and their perspective on building and enabling a great team inside the business. If your co-founder cares as much as you do, you are aligned along a fundamental axis. They might be more into marketing or development than you are, but their real goal is to build something that lifts everyone. And that is what you can expect from a business that lasts.
When it comes to the skill set, you can go either way. Complementary skills are excellent and allow for separation of concern, but even if there is plenty of overlap, that will help your business. Two sales-focussed founders can sell twice as much. If both founders like to code, the codebase will be built maintainable and team-compatible from the beginning. If the lines between the founders are clear, then having excellent communication will allow you to create a company where people respect and listen to each other.
If you want to go at it alone, that is okay too. Just be aware that there is no one to help you when you’re sleeping or sick. You will need to build systems to deal with this much faster than with a co-founder.
The Survival Stage
Releasing a product for the first time is like jumping into a lake: the water might be too cold, and you don’t know what to expect. But once you’ve jumped, you’ll get used to the temperate quickly, and you’ll be having a great time swimming around.
Usually, the founders launch their product way too late. They tinker around for months and months, just to get things right. Some never start because they always find something else to build, just in case. Several things need to be healthy to build a business that thrives and survives.
In this stage, you will work on rapid product iterations, on building resilient systems to deal with the complexity of operating a business. You will look for reliable and repeatable processes to guarantee a profitable engine of sustainable growth and will work on helping customers first to find the product and then find their way through it.
Mental Health: It’s Not Optional
You will need to take care of your mental health, first and foremost. Running a company is hard. Running a bootstrapped company is particularly hard. Unlike a company with funding, every decision you make has an impact on the immediate survival of your business. That can take a toll if you’re not prepared. Learning about how to deal with perfectionism, impostor syndrome, and similar psychological hurdles will make you resilient to self-sabotage. Understanding that your work as an entrepreneur might also lead to social headaches will allow you to prepare for uncomfortable situations and conversations, and to focus on what matters most: building a life-changing bootstrapped business.
🔗 Real and Imaginary Responsibilities of a Bootstrapped Founder
If you’re part of the bootstrapper or indie hacker community, you will run into a lot of concepts over and over again. Marketing expert Seth Godin has a great phrase: “people like us do things like that.” That’s how groups define their rules and guidelines. But not all advice applies to your own business, and some behaviors and perspectives might actively harm your chances of creating a sustainable bootstrapped company.
Stay clear of perfectionism. Building a business from scratch means creating things that work just enough to be valuable. They don’t need to be perfect. If you try and create the best product ever, you will never release it.
Look out for impostor syndrome. There will be points like you will feel like a fraud, that you don’t know what you’re doing. The truth is: everyone is making it up as they go. That’s how you learn. And here is the most important thing to understand: true impostors don’t feel impostor syndrome. You’ll be fine.
Be aware of cargo-culting. “This is how it is done” is the most innovation-preventing way of thinking. Just because other founders chose a tech stack or a business model does not mean it’s right for you. All companies have different requirements. Make sure you build the company you need.
🔗 The Bootstrapper’s Plight: The Social Headaches of Building a Business
Founders often experience an unexpected change in how people interact with them. When you come from a 9-to-5 background, in particular, people who were supportive of your actions and ideas before can transform into your fiercest critics. You need to learn how to detect their often unconscious attempts at derailing your success.
People might not understand why you gave up a comfortable life in the office for a risky adventure like bootstrapping a business. In their minds, the safe choice is to be employed, and choosing an entrepreneurial life devalues their own decisions.
Others might not understand your passion and drive. They think that you will fail, as they can’t imagine themselves being successful if they’d attempt something like this. While they are trying to protect you, they will end up in the way of your success.
Understand that your time has value, and your vision deserves respect. Don’t let people distract you from your goals: find supportive people. There are a lot of communities like the Indie Hackers platform and on Twitter. Find your fellow founders. They’ll get you.
Product Evolution: Controlled Growth and Saying No
Once you have started selling a product, you’ll want to make sure it gets better and better at serving your customers. In theory, that means inventing new features and improving upon the old. In reality, founders that don’t spend a lot of focus on controlling the growth of their product turn it from a slim and focused offer into a bloated monster. Saying “no” to feature requests becomes a necessary skill to learn. In addition to making sure only the features that genuinely provide more value to the customers make it into the product, you’ll also need to make sure to build them in a way that allows you to change or remove them when needed. What is required today may be obsolete or harmful tomorrow. Maintaining the product with that thought in mind requires doing things a certain way.
Building the Right Things
When it comes to making things better, it’s essential to understand where to start. You want to figure out which items are more critical and which requests may sound vital but are not.
First Things First: Feature Prioritization Frameworks
There are several proven frameworks to help you prioritize which features to build for maximizing your outcomes.
Many companies use some sort of scoring to prioritize their feature development. Intercom uses the RICE method, which scores Reach, Impact, Confidence against Effort. Baremetrics uses the DIE method, scoring Demand and Impact against Effort in a publicly available spreadsheet. Scoring usually boils down to comparing the potential gains versus the possible effort in creating the feature, weighted for risk. This is an excellent choice for bootstrapped businesses, as including development effort is a real requirement for a company that doesn’t have funds for extensive R&D exploration.
Other prioritization techniques like the Kano Method, Opportunity Scoring, or Story Mapping are worth looking into. Just make sure to stick to one system once you have found it to be usable for your business. Switching around these methods will lead you to prioritization confusion, which will impact your capability to make sound, consistent product evolution choices.
Build for Value, Not for Applause: Product Management Under Heavy Constraints
A bootstrapped founder will have very little time to devote to building things that don’t matter. Everything you do in your bootstrapped business should have a meaningful impact on moving your company towards a state of stability and growth. Bells and whistles are the least of your concerns when you’re trying to get to profitability.
Whenever you invest time and money into a new feature or an improvement, make sure it impacts as many customers as possible at the same time. It should provide the highest potential value to the largest number of people. Don’t focus on something that only 10% of your customers can use. You will be able to add these things at a later point when you’re swimming in resources. Notably, in the beginning, any change you make to your product and business has to be a meaningful improvement over the status quo.
That does not mean your product should be ugly and look scrappy. A usable and clean interface is a valuable feature in itself. However, don’t go overboard with the optics. Remember that your solution has to be better than what your customers have used before using your product. It does not have to be the best possible version of itself just yet.
Building Things Right
When it comes to making things better, there are a few concepts that will save you a lot of headaches down the road. Building your product with abstractions and flexibility in mind will allow you to change it easier and more securely later. At a particular scale, a successful business will need to adopt new systems or processes, so having a product that can easily integrate those will be much easier to manage.
Here is a general rule for integrating a third-party-service: never integrate the service directly. A service should always be integrated through an abstraction. For example, let’s say you are integrating MailChimp into your backend server. Instead of using the MailChimp URLs directly in your code, build a class or module responsible for interacting with Email List services that handle all the specific calls internally. That way, your Email List module can later easily integrate a different service like Email Octopus, raw AWS SNS, or ConvertKit if you ever feel the need to change.
You would think that some services will never need to be changed. But even in the SaaS world, there are seismic shifts. Companies go out of business, they restructure their pricing to become prohibitively expensive, or they are pivoting towards solving different problems. Abstracting integrations will prepare you for all of these eventualities.
Make sure you are particularly aware of abstracting away these service categories: payment, authentication, notifications, chat, email, database connections, logging, and metrics collection.
Particularly when you’re building a bootstrapped business, you won’t start with a server infrastructure of twenty large servers in a data center somewhere. You will want to start small and cheap, scaling only when you need to.
I suggest setting up your hosting infrastructure in a cloud-native way: make it compatible with a large number of cloud hosts from the beginning by encapsulating your backend systems in Docker containers. That way, you can run them locally, on your VPC host, on small cloud providers or on the big ones, like AWS, Azure, or the Google Cloud.
Having your systems in immutable containers will force them to be mostly stateless, which allows you to save your data in a single source of truth, likely a database or in-memory storage system. It also allows you to test and quickly deploy new versions of your product without much hassle: in a Google Kubernetes Engine setup, updating the running version of your product is a single change to a configuration file. Reverting to the previous version is just as easy.
This flexibility extends to selling the business as well. An easy-to-run system is an easy-to-sell system — the less specific knowledge your acquirer needs to run your product successfully, the better.
Making Tech Choices: Don’t Add Risk to an Already Risky Business
Choose the technology that works best for you and your business. Don’t let the cargo-culting around the newest, hottest tech stack get to you. Many technical founders see a new startup as an opportunity to figure out a modern tech stack. That is a precarious move. Not only do you have to deal with the inherently dangerous nature of creating a new business, but now there is also the chance that the new and mostly untested tech stack might not be able to solve the problem you’re trying to solve.
When in doubt, stick to what you know. If you have built your last four projects with Laravel, the chances are that your business might benefit more from you getting up to speed quickly in Laravel than spending three months figuring out how to learn Golang.
For data storage systems like databases, use tried and tested systems like PostgreSQL unless your business absolutely needs a different kind of storage. Postgres has been adopting the right parts of NoSQL and Time Series databases over the last few versions, so there is no need to experiment with systems that may not scale well in production. You don’t want to encounter performance bottlenecks because the system you’re using has not been used at a certain scale before.
Customers: Building Relationships That Last
Once you have paying customers, you will notice one thing: it’s easier to keep a customer than it is to find a new one. Before the subscription economy, a transaction was over when the customer left your store. In the SaaS world, maintaining a relationship is critical, as it is an ongoing transaction between your customer and your business. In the Survival Stage, your primary goal is to help your customers as much as you can without spending all day doing it. You also want to learn how to keep them happy and move away from customers that are not right for your business.
🔗 How to Do Maximum Customer Service with Minimum Effort
The beautiful thing about SaaS products is that they are so scalable: every customer gets the same product, with little to no customizations. That makes Customer Service straightforward as well, as customers are likely going to have the same problems. There are a few methods that will let you help many of your customers at the same time.
Synchronous tools such as chat widgets will allow you to be there when people are experiencing real problems that they can’t solve themselves. Asynchronous tools such as automatic responses and resolution chatbots will help those customers who just need a nudge. Finally, self-help tools like knowledge bases will allow you to distill your 1-on-1 conversations and problem resolutions into articles that can be read and followed by every future customer that runs into trouble. Using a system like Intercom that interweaves all of these kinds of tools will increase your efficiency: you help a customer, then write the article, and the next time anyone asks, they get a suggestion to read it. Answer once, help a thousand times.
Generally, customers love to help themselves. If you can enable them to solve their own problems on their own time, focus your efforts on that. If you can offer them synchronous assistance, they will like that too, although some people shy away from conversations with strangers. Asynchronous support should be your last resort, as waiting for a response to a pressing problem can cause a lot of stress for your customers.
You May Be Barking Up the Wrong Tree: Re-Evaluating Your Audience
While most of your customers will likely enjoy your product, some won’t. Some customers will be complaining a lot, asking for features that you don’t intend to every build, or are generally very hard to please.
Your product might just not be for them. They might just not be your audience. Like a Death Metal band is not making their music for an audience of K-Pop fans, you don’t have to bend your product into a shape that works for a market that doesn’t value your vision. There will always be people who wish for things to be different and will be vocal about that. They need a different solution, but you are not the one that provides that, which is fine.
Of course, if all of your customers exhibit this behavior, you should stop and reflect if you are talking to the wrong audience altogether. Find the customers that don’t complain and see what makes them happy. Focus on finding more of those customers and replace the customers that don’t fit your audience anymore.
🔗 Churn, Retention, and Revenue: What Makes Customers Stick Around and Why That’s Important
Retaining a customer you already have is easier than finding a new one. You already have their contact information, for once. You also know their behavior patterns if you track usage, and you can infer how much and how effectively they use your product from your metrics.
So how can you make sure the customer sticks around? The first and obvious goal is to continuously provide them with a valuable product throughout their customer journey. Once your product does not solve their problem anymore, they will find another solution.
To get such a customer to come back to the product, many companies employ reactivation strategies. After customers have quit, an automated email offering them a free month or a discount is dispatched. That will allow you to reconnect with customers who are on the verge of quitting. Often, a conversation with those churned customers will be very enlightening, as it will surface reasons for churn that are still fresh in the minds of your customers. Mainly, in the beginning, reaching out manually will be extremely fruitful to find and resolve the issues that motivate customers to leave.
But there is also something you can do to prevent churn before it happens: Value Nurturing. It’s all about showing the customer the value they’re receiving from your product while they are using it. Show them how much time using your product has saved them this week. Slack sends out an aggregate statistics email every week, making it clear how much using their tool impacts your teams. Find something that reminds your customers of why your product is great, and make sure you periodically visualize this to your customers.
Pricing: Subscriptions, Plans, And Other Money Troubles
The great thing about revenue is that there are many levers that you can move to improve it. The not-so-great thing about revenue in a bootstrapped business is that it’s hard not to move the wrong levers. Adding more expensive plans might alienate your customers, increasing your prices might upset those who have been with you for a long time. Some strategies may work well at the beginning of your business, but prove to be fatal further down the road. In the Survival Stage, there is a high chance you’ll settle with non-optimal pricing plans because the ones you have worked well enough. In this section, you’ll find many strategies that will help you find the plans and prices that work best.
Price Is Not Set In Stone: Strategies For Increasing Your Revenue
It’s important to note that you can always change your prices. Most payment providers allow you to have an infinite number of plans, and you can add (and remove) as many as you like at any given time. Don’t hesitate to change the prices of your plans just because you picked an arbitrary number of dollars when you first launched the business. But keep in mind that this can be very disruptive for your customers, so there are a few things to keep in mind.
First off, never be sneaky about it. Inform every customer who will be affected by this change. If you offer a trial period for your product, make it clear when customers need to subscribe to get the prices they were told when they started their trial. If you raise prices for existing customers, inform them way in advance, so they have a chance to commit or complain. Having people frantically scramble to offboard their data because they can’t afford your product anymore will create a lot of bad press and sour the long-time relationships you so carefully built.
With enough value nurturing, customers will understand that a continuously maintained and updated SaaS product warrants a price increase. Some might not like it and protest, but in most cases, it will be a net benefit for your business and your customers: you catch up to the value you deliver, while they benefit from the additional resources this revenue increase generates.
Moving up-market is a common strategy for SaaS businesses: go after bigger and bigger customers. Find the bigger budgets and get your cut. While this is a great strategy when you have a mature company with a stable revenue stream, it is not recommended while you are struggling to survive. Enterprise customers are dangerous beasts: their purchasing processes are opaque, take a long time, and involve levels of commitment you may not be able to make. If you start in a particular market, stay there. Find more customers like the ones you could already convince to buy. That will be much easier as you already know the methods to sell and market to people like them.
Not All Subscribers Are Equal: How to Deal with Plans That No Longer Work
You may have started with subscription plans that turn out to be problematic. At FeedbackPanda, we had started with a $5/month plan. After a few months of offering that, we sunset that plan because we noticed that it attracted a kind of customer we did not want to serve: bargain shoppers. The customers on that very cheap plan were using our customer support channels significantly more than those who were on more expensive plans. They complained more and requested more features than anyone else. So we closed off that plan for new users.
If you remove a plan, you have a choice: you either upgrade all users to one of the remaining plans or you “grandfather in” their subscription, which means they get to keep their old plan even though it is no longer offered to new customers.
Grandfathering can be great to keep your early customers around, but there is a risk of underselling your product significantly. It can be a business risk not to be able to claim the real value of your product as revenue just because you think your customers are emotionally attached to a lower price. Expansion revenue is made impossible if the customers who happen to be subscribers already are receiving a life-long discount. An excellent way to allow grandfathering is making it conditional and temporary: allow them to keep the lower price for a year if they upgrade to a yearly subscription. Else, force them to upgrade to the new price. Understand that they should pay for the product they receive today, not the product they signed up for years ago.
Not All Subscriptions Are Equal: Offer Yearly Plans from the Start
There is something incredibly satisfying that happens when a customer chooses a yearly plan for your product. Not only do they pay up to twelve times as much as a monthly subscriber, they also communicate something powerful to you: they trust your business to be around in a year, they trust your product to provide value for at least another year, and they’re sure that they won’t find anything better until then. That is why having a yearly subscription option is not optional. It should be a choice from the beginning.
Besides the validation component, a yearly plan will allow you to borrow from future profits to invest in your business. Being able to invest the 11 months of advance payments into the growth of your business will liberate you from the month-to-month thinking you would have if you only offered monthly plans.
You should also discount your yearly subscriptions, for two reasons. First, a cheaper subscription will incentivize customers who like to save on purchases they would make anyway. Second, and that is a much more critical reason, a discounted plan can come with a (clearly visible and communicated) non-refundable clause. This allows you to use the full amount for investing in your business, alleviating the need to keep funds back for possible refunds, should the business run into trouble.
Seller Beware: Pricing Models That Can Break Your Business
Two pricing models can be hazardous if not implemented carefully: freemium and lifetime accounts.
A freemium pricing model can be great to get people to use your product, integrating it, and eventually start paying for it. It can be very dangerous to your business if it allows customers to use the product extensively without ever needing to pay for it. Setting clear limits that are easily reached when the product is used in a revenue-generating way is paramount here. Businesses like Baremetrics almost went out of business because freemium users caused infrastructure costs to skyrocket by using the product in unlimited and unmetered ways. If you try to attract customers using the freemium model, make it hard for them to earn money without paying you. Be advised that many third-party services charge by active users. Unless your paying users can offset that cost, using the freemium model can be very prohibitive to choosing the right integrations for your service due to the very high number of non-paying customers.
Lifetime accounts are quite similar, as the danger also lies in resource consumption that, after some time, exceeds the money they paid for the product. For a customer, “lifetime” means their own lives, while for most businesses, the “lifetime” in question is that of the current iteration of the product. This can be quite confusing, and it usually leads to bad blood once the perceived forever-account gets migrated into a monthly plan. These accounts are great to raise initial capital for a business, but they create a lot of pain and become liabilities in the later stages of a business. Particularly when you intend to sell the business at some point, stay away from lifetime accounts.
In the Survival Stage, everything is reasonably chaotic: the product as well as the business. Lots of changes are made; lots of experiments need to be run. There are a few things that can be attempted here to leverage the nascent network effects you might be experiencing in your customer base.
🔗 Make It Sell Itself: On Referral Systems
Referral systems are meant to support your marketing with an incentivized method of getting new users to try out your product. In a world of affiliate marketing, referral systems are sometimes perceived as a cheap marketing trick, so you will have to be careful to provide a clear value proposition to the referrer and the referred.
It helps if the audience you’re selling to understands referrals to be something positive. Some communities are more open to exchanging recommendations than others. Referral systems are best leveraged in communities that trust the recommendations made by outstanding members of their communities. In a market where there is a lot of cutthroat competition, referrals are not quickly given, lessening the potential virality of a referral system. In communities of frequent and well-intentioned exchange, like among teachers, a referral system will be adopted quickly.
Referral systems are often introduced tactically, without making sure the product is inherently shareable. Ryan Kulp argues that the more empowering, network-dependent, and prestige-supportive a product is, the more it will be shareable, making it a good candidate for an effective referral system.
In the end, a referral system needs to create a win-win-win situation. It will need to be viral enough for your business to profit, beneficial enough for the existing customer to put their reputation on the line, and enjoyable enough for the new customers to engage.
Read the full article on Make It Sell Itself: On Referral Systems.
Marketing and Sales
Building a product is not enough. No matter how good your product is, if nobody knows where to find it, you don’t have a business. Spreading the word is an essential part of running a business, and so is convincing potential customers to try the product and eventually purchase it.
Spreading the Word: How to Do Marketing on a Shoestring Budget
One beautiful thing about a niche is that there is a certain similarity between the people in it. They are likely to frequent the same social media, read the same blogs, visit the same websites. They often are organized in communities where word of mouth spreads quickly.
You can leverage the density of these networks by becoming a part of them. Genuinely participate in niche communities. Don’t just use them as a marketing platform. Contribute before you advertise. Better, don’t advertise at all, create meaningful content around your product, and share that in a way that is helpful to people even without engaging with the product directly.
In a way, you want to become part of and eventually lead a tribe. Tribes are communities that long for connection and shared interests. Facilitate more connection or satisfy people’s interests, and you will be a voice in the community that your potential customers will listen to.
Find the watercooler. The locations where your customers congregate when they are not hard at work can provide insightful information, as people talk more freely there than in professional circles. Most of these watercoolers are found in social networks like Facebook or Twitter. Listen to what people ask and complain about and offer your product embedded in more general advice.
Word of mouth is the highest-converting way of spreading the word. Convince people to convince others and give them the tools to do so. Create easy-to-consume and easy-to-share content that existing customers can forward to new prospects. Allow them to mentor their peers into using your product by adding means to connect inside the product. This works particularly well with a referral system.
How to Sell as a Bootstrapper: Strategies That Work
Sales work differently for bootstrapped founders. While there are many useful resources out there like the SalesForFounders Course by Louis Nicholls, effective sales can be condensed into a few main points.
You don’t have time or the resources to sell them what they want. You will need to sell them what they will buy. Big companies with huge R&D budgets can afford to sell their prospective customers a vision and then turn that into reality. As a bootstrapper, you will need to sell what you already have. Don’t promise the world to customers just to get their money: with limited resources, you run the risk of overcommitting.
Many small businesses have been derailed by selling to just a few big customers, only to turn into their personal custom development shops. If you value your independence, go after a large number of smaller customers instead of just a few big ones.
Like all things in your bootstrapped business, you want your sales process to be as streamlined as possible. Learn from every sales call you conduct. Assess if your process is still optimal for your business whenever you get a yes or a no. It is the interaction with real people that will give you insight into what’s working or what isn’t.
Being Small Is a Benefit: How to Leverage Being a Bootstrapper
Many founders feel they need to act bigger than they are. They expect only to be taken seriously when they appear to be a mature company. It turns out that this is no longer the case in many industries.
Depending on the size of your customers, the fact that you are a small business with barely any employees, if any, can be incredibly useful. If you are selling to individual customers or are in a B2BC market where your customers are tiny companies or freelancers, the fact that you’re not just another faceless corporate entity will be a most welcome surprise. People treat you differently when you show that you’re in the market because you care.
At FeedbackPanda, we communicated clearly from the beginning that it was just Danielle and me running the company. Our customers even took up the work of correcting other people public when they assumed we were a larger business. That always kept the founders relatable. We were just like our customers, real people solving real problems. This kind of relationship allowed us to mess up from time to time, only to encounter a lot of goodwill and understanding.
If you’re selling to a niche that understands the bootstrapping life, such as the startup market, you will also encounter this behavior. In the end, it boils down to honesty. Can you reliably deliver the levels of service that your customers expect? If you explain from the beginning that you being a solopreneur might mean that the service can be shaky when you’re not there to fix it, you will allow your prospects to pre-sort themselves. You wouldn’t want to have a customer you can not yet serve anyway. Once the business enters the Stability Stage or any other, you can change your messaging to attract those customers.
🔗 Too Many Eyes: Why Bootstrapped Companies Stop Being Transparent (Eventually)
There is a lot of value of being transparent about your business in the public arena. It lends credibility to your claims if people can check your numbers from a verified source. It allows insight into how much you really mean to build a sustainable company. Being public with your revenue numbers will let people root for you, help you out, and suggest tactics and strategies that will impact those numbers. Particularly if you are a vocal member of the bootstrapper community, it can make a lot of sense to be transparent.
Essentially, being outspoken and transparent about your business is a form of marketing. You’re building a brand around your honesty, your ambition, and your commitment. Those things will put you on the radar of those who want to work with people who are not just in business for the money.
However, there comes the point when being too transparent can cause damage to your business. Publishing your MRR will likely not be too dangerous, but giving your competitors, and those who want to join the market, deep insight into your unit economics and pricing structure can be very detrimental to your success. For that reason, you will see a lot of Open Startups close off their transparency dashboards after reaching a certain maturity. It’s a one-sided information advantage for your competition — no need to keep that going for too long.
The Stability Stage
There will be a point when your business starts humming along. You have built a product that works well for your customers. You’ve found a pricing model that generates sufficient revenue to pay for the business. Maybe you’ve committed to the business full-time, and you can already pay yourself a salary.
The important part is that you’ve built a business that has survived long enough to establish repeatable processes around your product and your business. Now is the time to double down on those and optimize them for scaling. You will need to develop methods and approaches that can deal with much larger numbers of interactions and transactions at this stage.
In this stage, the you will work on automating the internal processes of the business and on streamlining these operations into resilient and transferable processes. You’ll focus on having a well-positioned company that looks good to potential partners and has opportunities for sustainable growth. You will be building long-term relationships with customers and turning the business into a brand with a tribe.
Building Relationships: How to Work With Customers
In the beginning, you had a few customers, your early adopters. Throughout the survival stage, you will have added many more to your customer base. You will need to implement systems that will allow you to stay in touch with your customers in a meaningful way without distracting you from growing your business.
Helping Those Who Help Themselves: Customer Service at Scale
With an increasing number of people paying for your product, your way of interacting with them will also change: you can’t reach out to every single customer individually anymore. Where you were able to chat at length with your earliest customers, you will now be brief. It’s great to have a conversation with someone if you are trying to find out how your first version of the product is perceived. You don’t need to talk about this at length if you already have 500 customers paying for that product.
Every customer will still expect to be taken as seriously as your earliest adopters, some even more. If you run a business that has a lot of incoming help requests, your best bet is to look extensively at self-help-based support systems. A knowledge-base is an incredibly helpful tool at any scale, but it is required once you reach a certain size. Being able to explain a problem once and making the solution available to all who ask the same question in the future is very valuable. If you do this for every question that is often asked, it will significantly reduce the time spent on responding to those requests.
It is also essential to hire a Customer Service representative soon. Find the time of day that statistically has the most incoming tickets, find a person where that time falls into the working hours of their home time zone. If you can find your customer support rep from within your existing customer base, you can be sure they both understand the product and the customer perspective. If not, allow your newly hired customer service rep to spend some time with your customers.
You and your employees must understand the subtleties of your customer niche’s psychology. Accountants approach solving problems differently than artists. Having the customer service voice be aligned with customer psychology will prevent a lot of misunderstandings and allow you to continue building your brand even when customers are frustrated and helpless.
Customer Exploration: Seeing Through Your Customer’s Eyes
At this stage of your business, you have a mostly mature product that is used by many customers. You can expect that for most of their use cases, it is good enough. But instead of guessing, I recommend setting aside some time every few months to do some customer exploration. This is best done by incentivizing customers to jump on a screen-share-based video call that you can record. An Amazon gift card can work wonders here.
Find the customers that had the most trouble with your product and watch them use it for a while. Do the same with volunteer customers who have not reached out about problems. You will find a lot of known issues, but there will also be surprising ones: often, the customers who don’t complain may still be struggling and using the product in strange, unexpected ways. You will never find those behavior patterns unless you catch your customers exhibiting them.
This method often surfaces disconnects in feature presence and feature usage. It will allow you to improve the affordance that your features show, and it will lead to a better user interface. Be sure to include the customers who exposed the problem in the deliberation about potential solutions. That level of involvement will often turn them into brand ambassadors, providing a powerful brand reinforcement effect in your niche community.
Customer Retention: How to Keep Them Around
When it comes to customer relationships, momentum is on your side: it is much easier to retain a customer than it is to find a new one. Once the initial inertia is surpassed, the effort that needs to be put into keeping a customer is significantly lower than acquiring and onboarding another customer. And a churned customer is a double loss: not only do you have to find a new customer to replace them. To grow, you will need to find two new customers. That’s why customer retention is of utmost importance to reliably grow a business.
Value nurturing strategies increase the customer’s perceived value of your product, making the cancellation feel like a more significant loss. Showing your customers how much they benefit from your product will make them stick around longer.
Managing expectations is a big factor too. Being able to occasionally over-deliver will delight your customers as it is an unexpected bonus. I’m not saying you should consistently undersell your product. Customers will tell a few people about a positive experience, but they will tell a few dozen about a negative one. Keeping customers above the baseline will reduce the chance of them ranting to their peers, who may often be potential customers.
Staying in touch with your customers will keep them engaged. Offer a weekly newsletter to expose them to things that happened in their industry will do two things: first, it will associate your business with a trusted source of information, and it will also show that you know what you’re talking about. Building trust and reputation goes a long way toward retaining a customer.
Building a Mature Business
At this stage, your business will have become quite a complex piece of machinery. A lot of different parts are working in an interdependent way. It’s time to build up processes to reign in those parts and build a system that you can reliably control.
Also, you need to pay attention to the trajectory of your business. Is it still going in the right direction? Are there things that need to change? What are the opportunities that you’re not yet aware of? With a little bit of stability, you will find some time to reflect on those things every now and then.
🔗 Continuous Validation: Staying in Touch with Your Market
It’s easy to lose sight of the grand vision when you’re mired in day-to-day operations. That’s why you should take some time every few months to reflect on your business. Are you still solving the problem you initially set out to solve? Is that problem still the critical problem your customers are having? Are you still excited about running this business? Are there new developments that might warrant a course correction?
No market is forever. Industries change and improve all the time. Governments impose new regulations on previously unregulated fields. Customer behavior changes and makes certain things more or less attractive than before. Most of all, your customers will change their own workflow and processes. You want to make sure you’re still as important as you were a few months ago. Talk to your customers, explore how their world is changing, and react accordingly.
Roadmaps and You: Building a Future Together
It’s great to know where you are going. It’s even better to know that your customers approve of that. Future revenue is much more likely when those who pay are happy to continue to do so. If you involve the people who use your product in its development, you will be able to get immediate feedback about the desirability of your planned features. The best way to do this is to have a public feature roadmap (like the one offered by Canny).
A benefit of a public product roadmap is that it might incentivize customers to commit to yearly plans both as a sign of confidence and to lock in your commitment. While it’s great to have those funds available, be aware that this also sets expectations. If you don’t deliver on your promise, there will be some damage to the trustworthiness of your brand.
In addition to the roadmap, allowing your customers to suggest features and vote on them is also an excellent idea to measure what people are looking for (and which of those problems are commonly felt). It doesn’t absolve you of doing your own research though. The suggestions generated through these tools should start your research process, not conclude it.
Build to Sell: Why You Should Make Yourself Replaceable
In his book Built to Sell, John Warrillow talks about how to set up a company so it’s easy to sell. The great thing about structuring your business like that is that even if you never sell it, you will be able to benefit from it. The reason for this is that the Built-to-Sell method focusses on removing the need for the founders to work in the company.
The idea is that once you make yourself completely replaceable, you can either hire someone to do your work, or you can hand over the business for a hefty pile of money. Either way, you will be able to benefit from the company without needing to work. This is best done by automating as much of the work as possible and delegating the rest.
Standard Operating Procedures: Recipes for Your Future Self
Delegation is most effective if there is an Operations Manual for the company. Michael E. Gerber calls this the “Turnkey Revolution” in his book The E-Myth Revisited: the idea of documenting your business like a franchise. Describe every activity that needs to be done in great detail so that you can hire someone to do it. Repeat this for all positions in your company, and you will end up with a long list of SOP’s (Standard Operating Procedures) that you can hand to any new hire and expect them to be able to produce results quickly.
Operating procedures de-risk the business as they take actions that have proven results and describe how to do them correctly. Potential harmful side-effects or mistakes are mentioned in SOP’s, as to raise awareness of why things are done the way they are done.
A set of good SOP’s is great to hand over to new hires. But it will also help you speed up the tasks that you repeatedly have to do yourself. By following a prepared checklist that is the same every time you work on a task, you accelerate the non-automatable functions, giving you more time to work on the creative parts of your business.
Specific SOP’s will also be appealing starting points for automation. If you do a task a few times a week and it takes you an hour each, spending a few days on building automation for it is worth it if you know you’ll have to do it for another year. Searching your SOP’s for automation opportunities regularly is a great way of making the company leaner and less dependent on reminders and tedious labor.
Building a Mature Product
With a business that is getting more and more organized, your product will also need to be improved in the Stability Stage. You have proven that you can build a solution to deal with a critical problem. Now is the time to allow more and more people to work with this product. As you scale your customer base, you might want to look into providing new and interoperable ways of interacting with your product.
Integrations and APIs: Pitfalls and Benefits
It won’t take long before customers start asking for one particular kind of feature: integrating into other tools that they use all the time. They have adopted your product into their routine and their workflow, only to notice that something is missing. Some steps need to be taken to get your product to seamlessly join into the range of other tools your customers use to solve their problems.
You are looking for product-workflow-fit. While it’s great to be able to use your product as a standalone solution to their problem, your customers will value it much higher if it comes with two kinds of integrations: input integration and output integration. To provide a basic level of both, build your product to accept and return data in commonly used data formats (such as the eternally requested CSV format). If the workflow requires interactions with cloud services, you will find that most of them provide easily-used and well-documented APIS.
For deeper integrations, you can build extensions that integrate other SaaS products (usually using OAuth or API-key-based credentials), supply browser extensions, and dedicated desktop or mobile applications. To make your product easier to integrate with, provide a machine-accessible interface such as a REST API, using a commonly used and trusted authentication method.
There is a risk of relying too much on these kinds of integrations, which is platform dependence. If integrating with another tool is the only way your product is usable, then any change to that product will be something you have to deal with immediately. If they adjust their product, you will need to make sure your product still integrates. If their business fails, all the customers you gained through that integration might not need your product anymore. Whenever possible, aim to integrate with multiple competing solutions. Integrate with MailChimp? Offer integrations into EmailOctopus, GetResponse, and ConvertKit as well. Should one of these providers go away, you can even help your users migrate to another one that you support.
The Power of Omission: Removing Features
If you add features to your product indiscriminately, you will end up with a gigantic bloated mess of software. One way to deal with this is to be very careful when deciding if new features should be added. Another rarely used approach is to remove unused and outdated features. Removing the cruft from your SaaS product is akin to pruning a hedge: you will end up with a more recognizable shape and a clearer vision of what your product is all about.
Here’s the thing with change: there will always be people who hate it, with or without reason. While notorious complainers can be safely ignored, as your target customers should be the ones that you delight with your product, pay close attention to people who react negatively to product removal. You never know how people use your product in weird ways until you break a workflow that you never expected to be possible. You want to remove a file upload button because everyone drags their files into the browser? There will be that one user who uses their keyboard only. Removing the feature makes the whole product unusable to them all of a sudden.
Make sure never to remove accessibility features because you don’t see the need for them yourself. Impaired users rely on these things to be able to use your product, to begin with. If possible, build as much accessibility as possible into the product from the beginning.
If you want to remove a feature, sunset it. Make a public announcement about the removal close to where people who use the feature would read it. Then, turn it into an optional feature, using a configuration toggle. Change that toggle to default to a falsy state, and measure how many people react to it. Inform them how to re-enable it and how to work with your product without that feature. If you feel confident that removing the feature won’t impact a significant amount of your target customers, remove it.
Sometimes, you will learn that some features are part of very hard-to-change workflows for some of your users. Removing the feature will cause you to lose the customer in these cases. Sometimes, that is okay if the removal reduces complexity for everyone else. It’s a balancing act. Be clear in your messaging, and insist on making the product a distinctive, slim, focused version of itself instead of succumbing to featuritis.
Made to Stick: Building an Extensible Product
There are a few ways to make a product that sticks around. You can make it an integral part of a vital workflow, or you can make it so compelling that people will change their workflows to fit the product. A way to do both of them at the same time is to create an extensible product.
There are two main ways of extending your product: extending the interface or extending the service itself.
Interface extensions will allow your users to create, use, and manage widgets that integrate into your service and will enable them to do specific, non-generalizable tasks directly in your product. An example of this would be a widget that displays industry-specific time-series graphs drawn from your data.
Service extensions will allow your users to integrate plugins that enable them to use specific, non-generalizable functionality to manipulate the data that your product uses. An example of this would be a plugin that would pull in weather data from a public API into your supply chain management service.
If you understand your product to be a source and a target for integrations from the start, opportunities for extensibility will appear all over the place. Take the ones with the highest impact on most users and implement them first. In some cases, you can enter partnerships with the companies that sell the service you integrate with. This allows for cross-marketing and mutual value add.
Building a Team
As the business grows, so will your responsibilities. More and more customers will reach out with questions, more and more bugs need to be squashed and features designed. What once filled an hour or two can quickly turn into your whole day. If you want to stay sane and still have anything resembling a healthy life, you will need help. While some outliers can run their million-dollar businesses alone, you will likely need a few people to take care of some things for you eventually.
When You Reach Your Limits: How to Grow a Company Beyond the Founder(s)
If you’re coming from a professional background in salaried positions, the chances are that you’ve never hired anyone before. And even if you have, hiring someone for your own business will be a daunting task.
It certainly was for me. I thought that I could manage all that work by myself just fine, so why bother hiring. But I limited myself by doing things that kept me from doing more meaningful work. Sure, it’s great to help out customers all day through live chat. But should I not have spent the time fixing the very issues they complained about? Could someone else not have a friendly conversation and show them a link to the article in the knowledge base where all the steps were laid out? Did it really need to be me?
My mistake was to think that onboarding a new hire would be too much work. It turned out that waiting to onboard a new hire is even more work, as it just adds all the tasks you don’t get to delegate on top of the onboarding efforts. If you’re using SOP’s in your business, the effort of onboarding will be rather low anyway, as you can just give the new employee access to the relevant processes and documentation.
You always hear that you should hire slowly. That’s true; you don’t want to waste resources when you could do it yourself of built automation to take care of it. But once you see that you’re stuck doing work you don’t enjoy that others could do for you, hire quickly.
In most SaaS businesses, customer service positions will be the first ones that you might want to hire for. While software can scale indefinitely, you can’t. Once your customer base grows, you can automate as much as possible, but there will still be unforeseen problems at random points of time. Finding someone to triage these issues and sending only the most important ones through to you will free up significant space on your calendar and in your mind.
Marketing and Sales positions can also be hired for quite early. For all three roles, you, as a founder, must instill the voice and tone of the messaging into your early employees. Until now, you have always been yourself, speaking to the customers the way you speak. It’s essential to keep this style consistent.
Hire someone for the work that annoys you most. Repeat until you enjoy all the work you do.
Building a Brand
With a growing business comes growing awareness. The more people know about your product, the more they will talk to their peers, increasing your reach, and recruiting new customers. To benefit from that, you will need to create a brand around your product and business: you need to have a compelling story, ready to be shared by an engaged and passionate audience.
You will need to start selling more than just a service at this point. Once you start partnerships with other businesses and reach out into a less eager segment of your market (than the early adopters you were talking to before), your messaging moves from providing problem-solving functionality towards creating superior value and helping customers reach their goals.
But what do you say, and how do you spread the word? A brand takes care of the what, and a tribe will take care of the how.
You Want a Tribe
According to Seth Godin, a tribe is a group of people that are connected to each other, an idea, and a leader. To build a tribe around your business, you will need to step up as a leader, enabling your customers and those who could become customers to connect with each other, while centering it around your product. To flourish, a tribe really only needs the means to communicate and a shared interest. Leverage social media and networks to find the platform and provide insightful thought leadership around their shared interests.
The network effects in tribal communities are powerful, as people share a large number of commonalities. When you reach out with a question, you can be sure that you will receive an avalanche of responses. They might be very different, as a tribe is not homogenous. But they will all be aimed at accomplishing a shared desire, a common goal. Setting that goal is the job of a leader. Transforming the shared interests of your tribe’s members into a common goal that your product can help accomplish is why marketing works so well in tribes.
It takes time to build a tribe. People don’t trust easily, and they will be skeptical of business leaders engaging them in their communities. That’s why it’s crucial to be a genuine contributor first. Don’t rush in, expecting that people will crown you as their leader within days. It often takes a long time to establish a reputation of a trusted and valued member of a tribe. Play the long game here. Even if your business should fail, you will still be in an excellent spot to try something else as a leader of a tribe of passionate people centered around an idea.
Positioning Is Where It’s At
You can position your product in different ways in many different markets. You may have started describing your product in a certain way, only to find that your customers understand it very differently. April Dunford has an exceptional approach that will help you align how you position your product with what your customers can understand. Find the competitive alternatives first, then highlight unique features you have that they don’t. Show how those features produce value for the customer in fields that they care about, then contextualize it within the market segment. You will end up with a comprehensive narrative that ties together what makes you unique with the language your customers speak.
The term “competitive alternatives” is intriguing. Competitors are not just competing businesses doing more or less the same things you do. Excel, Word, and plain old Post-Its can be the current way of how a problem is solved. Making sure you know what is “comparable” to your product will be necessary for highlighting the differentiators of your product.
Know who your product is for and speak their language, understand their problems. Having domain expertise is very helpful here, and you should validate your messaging before you apply it at scale. It’s another rendition of “talk to your customers.” You’ll be surprised by how something that’s perfectly clear to you can be confusing to someone in the industry you serve if you don’t know the intricacies of the domain-specific language.
When you want to convince a customer to buy a product, you usually show them your value propositions. Value propositions can be leading or lagging. That means some features have an immediate impact when being used, and others will only show themselves in the long tail of using a service. There are retention value propositions that you only use in Customer Service situations (think of a conversation that contains the phrase “See how easy this was? Next time you’ll use this, it won’t take more than a minute”) that are not going to sell the product to some who is just browsing. Make sure to use leading value propositions early and lagging ones later in the customer journey.
I recommend listening to Andy Raskin talking about storytelling. He recommends laying out the stakes: make your customers wonder why they are on the road to ruin if they continue to do what they’re doing. Show them what the losers are moving away from, so they can understand that the winners are using towards your product. What does it take to win? What do winners move toward? Answer those questions with your service, and you’ll have a strongly positioned product.
Talk about the problems you solve as obstacles to the goals of your customers, not just disembodied issues. Give evidence that your solution fosters belonging to the group of winners and believers. This results in great opportunities for conversational marketing. An authentic message gets spread for free.
A Unified Voice: How to Stay Consistent When You Grow
At a certain point, it won’t be just you talking to your customers anymore. You’ll have employees be the first touch-points for customer interactions, co-founders and directors work with partners and other businesses. What once was a unified voice — your voice — is now a chorus. And if you want to have a company that is consistent and aligned, you’ll need to be the conductor of that chorus.
The reason that a chorus of a hundred singers can create incredibly elegant harmonies is that they have a central source of truth: a partiture, some sheet music, and a conductor to help them keep in sync. You will need to be all of that for your employees and co-founders.
Create a vision and mission document. Set the tone by explaining the “Why” and the “How” in your own authentic voice. Write it down in extensive prose, or create a video in which you explain your motivation and your aspirations. Share this with everyone who joins the company, make it clear to them that this is the source of truth whenever someone wonders how they should communicate the means and goals of the business.
In FeedbackPanda, I stated in that document something along the lines of “At FeedbackPanda, we want to help and enable our teachers who are likely to come from fragile financial backgrounds. When they are in trouble, we help them teach more by using our product until they can catch up.” If you are a customer service representative tasked with deciding if a customer should get a few weeks’ extension because their credit card is overdrawn, you don’t have to think twice after reading this paragraph. This is how you set the tone.
Echo the voice of your customers. Talk about them as they would talk among themselves. Foster an understanding of the language used in the industry you serve. Your customer service people should be able to understand clearly what your customers are trying to do and be just as easily understood.
So what happens when you move upmarket and the language of the industry changes? You will need to adapt. Change into a new consistency by revisiting the vision/mission documents, educate your employees about the differences they’re likely to encounter. Never lose track of where you were coming from, but focus on where you are at this very moment.
The Growth Stage
Once you can comfortably run your business without needing to pivot, hire employees, and expand into new segments of the market, you have arrived at the Growth Stage. For many founders, this turns out to be quite a dull phase of the business, as things tend to slow down. Processes are introduced, dependencies are harder to avoid, communication complexity makes decisions harder and takes more time.
So where can you go from here? As a bootstrapper, you have two main options: keep growing the business or sell it to someone who will. Whatever choice you make, you can set the foundations to make the most of it, both financially and professionally.
In this stage, you will continue with the Stability-stage actions while facilitating either an acquisition or a long-term growth trajectory.
So You Have Built a Lifestyle Business. What Now?
If you’ve been working hard at automating and delegating, you will have ended up with a business that runs like a well-oiled machine. You barely have to spend any time on the operations, and you’re left with making the company grow even more. You may be exploring new markets, new products, or partnerships. At some point, you’ll find that things have slowed down significantly. The days of frantically pushing out new releases are over. Your MRR is likely in the high five figures, and you can afford to pay your employees a solid salary. What now?
Unless you want to inject your bootstrapped business with millions of Venture Capital suddenly, you have two options: stay in the company and make it even bigger or leave the company and sell it to someone interested in growing the company themselves.
If you choose the “growth” option, you’ll spend the next couple years focussing on growing the team, building out a legacy, and eventually replacing yourself with someone to do the work for you. You’ll receive dividends over time, and you’ll retain ownership of the business.
If you choose the “exit” option, you’ll spend your time making yourself replaceable as fast as you can, growing your wealth in a singular event, the fabled exit, and then doing something else after a while.
Both options will lead to a life of wealth and doing what you want, just at slightly different timelines. It boils down to your interest in being the leader of a company that will soon not be recognizable as a startup anymore: processes and hierarchies will need to be put in place. Capable people who can operate at scale will need to fill positions that were previously held by quick learners that thrive on solving small-scale problems. Things will change, and your choice is between being there to supervise the change or putting the work and the risks of it in someone else’s hands entirely.
Selling Your Company
There are three main reasons for wanting to sell a company: you’ve hit a skill ceiling, you want to de-risk yourself, or you want to move on to another project. Each of these reasons is in itself fueled by the unique goals and aspirations of every founder, and they may appear at the same time.
Selling a company is a great way to capture the value you have built in your company within a very short time. You will likely make a lot of money in that sale, and it can change your life significantly.
The obvious drawback is that once you sell the company, any future profits will go to the new owner of the business. If you keep running the company, you will at least retain ownership, even if you replace yourself as the operator of the business. It will take much longer to generate and extract the same amount of money that you could receive in a sale.
Every deal is different. There are many reasons why someone wants to buy and how much they are willing to pay for it. However, there are many things you can do to maximize the value of the business and make the selling process enjoyable and profitable.
At a Crossroads: The Different Kinds of Exits
Companies get acquired for a few reasons: they’re interesting economically, they’re interesting strategically, their employees are attractive, or they are a thorn in the eye of the acquirer, a foe to be vanquished. Depending on why someone wants to buy your company, the deal and the whole process of selling the company might be radically different.
If someone wants to buy your company because your financial outlook is impressive, your growth rates are off the chart, and the future looks bright, they will want to buy as soon as possible and keep the business running as-is as much as they can. Your company will be a diversified income source, and the acquiring company will likely need to find someone to fill your position as the owner and operator of your business. The value of your company will be determined purely by the numbers: how much can your acquirer expect to make by running the company for a few years? How easy will it be to continue to grow the business without the founder?
Some companies acquire strategically. Your business might have an excellent customer base for a segment they might want to expand into, or you have some sort of technology that they would rather buy than build themselves. As the founder, you will need to stick around for a bit, making sure that the strategic benefit of the acquisition is realized for the company that bought your business. The amount of money you can sell your company for is less easily calculated in this case, as this depends on the unique relationship between the two businesses and the context of the market this happens in.
In rarer cases, a company might want to buy your company to get access to your talent, usually called “acquihire.” This supposes a certain size of your business, but particularly with the skilled technical talent that surfaces through the bootstrapping scene, it may happen at any size.
Finally, a competitor might want to buy your company, take over your customers, and shut down your product, while binding you to a non-compete for a few years.
In any case, you will likely sell for quite some money. Usually, that money arrives in two parts: one directly when you hand over the company, and another when the transition is completed. The first part is usually a big lump sum, while the second part is a safety retainer, a means to keep the founder engaged and motivated. As you will need to transition the company over to the acquirer, there will be a period of time that you will need to train the team that takes over. In many cases, a so-called earn-out might be part of the exit, which means that your second part of the money is conditional to reaching several business goals for the acquirer.
Preparing for the Sale from Day One: How to get Automation and Documentation Right
Before any acquisition can happen, an extensive due diligence process will need to happen. You can prepare your company by following a few principles during the whole time of running your business.
Selling the company can require a lot of work if you’re unprepared. It can be surprisingly easy and painless if you structure your business and operations intending to hand it over one day easily.
It starts with having all your relevant documents and resources securely stored in a cloud-based data storage such as Dropbox or Google Drive. This allows you to access your own documents from anywhere, and it makes it easy just to hand over access to the storage service when you sell. Structure that storage in a way that makes it clear what each document is, what it’s for, and who might need to use it. Using extensive naming conventions is useful, as you want yourself and any future person to be able to find relevant documents quickly. Keep your essential assets, such as logos and social media templates, in that storage as well. Ideally, all your non-code assets are securely locked up in the same storage service.
Keep your business and your personal accounts separate. This starts with bank accounts. If you want to make sure you have a flawless separation between your private funds and the funds of your business, get a business bank account as soon as you can. While this will incur some fees in most cases, it is also good practice, and it will protect you from overdrafting your personal accounts in case of something going wrong with your business. Depending on what legal form your business takes, you will be required to have such a separation anyway.
It’s even more important to have your service accounts kept separate. Create a separate Google account for your business and use that to log into the services you use for your company via OAuth2 or using your business email and a strong password. Keep all of the login details in a separate 1Password vault, and keep only logins and secure notes related to your business in there. That way, when you hand over your business, all you need to do is to invite your acquirer into that vault, and all relevant credentials will be available to them immediately.
And finally, document everything. Document even how you’re documenting things. Write an extensive Operations Manual from day one. If you do something more than once in your business, write a Standard Operating Procedure for it. If you answer a question in your customer service tool, turn it into a knowledge base article and link to it in your Operations Manual. Handing over such a document will be almost like a franchise: the new owner will know exactly how to deal with all parts of the business.
Due Diligence Preparation
In preparation for a due diligence process, there are a few things you can routinely update and use. Most of these things have to do with financial and business metrics, while others are legal requirements.
One of the first things any interested party will expect you to provide is a Profit & Loss Sheet, often called the P&L. It is good business hygiene to have such a document from the beginning and to update it with the latest numbers once every month. This will allow you to have insight into the developments of your bottom line and give interested parties a quick and cursory glance into the health and attractiveness of your business.
For the internal metrics of your business, I recommend using tools like ProfitWell or Baremetrics. Those business analytics services hook into your payment processor and use your subscription data to extract trends, key numbers, and aggregate numbers. They all have slightly different ways of calculating values like your Monthly Recurring Revenue, and they might not be completely accurate. However, you get a lot of insight into customer segmentation, retention, churn, and other relevant SaaS metrics, for free or for a low price. These services offer read-only accounts with anonymized data that you can share with interested parties, so they have immediate insight into the metrics of your business without being able to see who your customers are.
Where analysis tools look into your past, forecasting tools look into your future. A tool like Summit will hook into your payment processor’s data as well, and then give you projections and forecasts into the future of your business. You will be able to set goals and simulate how your growth would be affected if specific goals were reached or missed. Being able to share this kind of projection will give your acquirer the confidence that you have thought about these things, and there is a statistically significant chance that the goals might be reached in reality.
When it comes to legal tripwires, make sure you have your software licenses under control. Use tools that extract all the licenses used in your codebase, and turn this into a living document. When you use software that has no license attached, you might need to replace or modify it to comply with legal requirements. The same care should be spent with intellectual property rights and any trademarks you may own. In general, everything that touched a lawyer’s hands at some point should be part of your digital documentation.
Finally, there are things that only you know: trade secrets, unfair advantages, insight into the industry that no-one else has. How can you transfer that knowledge? You will need to find a way to put your insight into writing or another permanent and shareable form. I recorded an 11-hour video walkthrough through the FeedbackPanda codebase before we sold the business so that my replacement would understand why the code was structured the way it was. That kind of information will differ for you, I am sure, but it needs to be ready to be transferred eventually. So get started early.
🔗 So you Got an Offer: How to do Due Diligence on your Potential Acquirer
When founders talk about due diligence, they usually mean the one that is done on their business by the acquirer. However, I believe that founders should do their own due diligence on the buyer. You should only ever sell your business to someone who you trust and think will be doing your business a favor.
First off, do research. Research the person who reached out, the company they work for, and the CEO of that business. Find out how they have conducted acquisitions in the past, and see if there were any problems. If there are blatant red flags or no information at all, be very careful.
Second, make a list. Find all the founders of businesses that were sold to your potential acquirer in the past. Write down their names and companies. Then reach out to your acquirer and ask them for a list of references you can talk to. Then, check your own list for names that do not appear on the list the acquirer provides. Talk to them first, as they will likely be the founders that ran into trouble. After that, talk to the other founders on your lists.
When you reach out to references, ask them for misalignments: were there miscommunications or unrealistic expectations? Did things work out you expected them to work? Did they show signs of competence? Did they take good care of the business and the team? Try and find if the founders had trouble in their transition, and if there was a culture fit.
Once you’re confident in your buyer, do one final background check on the source of their funding. If you’re happy with where the money comes from, you’ve done your due diligence on your potential acquirer.
Earnouts: The Risks of Sticking Around After You Sell
In some cases, you might be able to sell your company with a transition period where you are expected to be reachable and support your team and the people who replace you when they need help. This might last anywhere from three months to a year or more, but in general, it doesn’t involve you working full-time for your acquirer.
In other cases, you will be expected to keep running the business like before, with the only difference being that you’re not an owner anymore: you are now an employee, for a certain amount of time, with large parts of your compensation depending on reaching a certain number of business goals. That kind of arrangement is called an earnout.
This is usually considered when the seller is required to keep the business running due to their direct involvement. It’s needed for companies that don’t yet have a team in place to take over all the visible and hidden tasks of said business. It is a risk-minimization strategy for the buyer.
But it can be a risky move for the seller. Particularly if you’re committing to a year-long relationship as an employee, you are now under completely different limitations than before. Your actions will need to be signed off, or at least discussed with the owners. The goals you signed up for might become unattainable when funding for the project dries up, or strategic changes are implemented. The company that acquires you may get acquired, risking that your agreement may not be honored anymore.
You can protect yourself from these risks by asking for the most substantial part of your money upfront. Also, getting an M&A-lawyer with experience in earnouts to look over your purchase documents will allow you to remove dangerous clauses. The best way to not get these kinds of earnout-based offers in the first place is by building a great business that gets so many competing acquisition offers that you can choose the ones that will allow you to walk away with as much cash and as few commitments as possible.
What’s Next? The Surprising Consequences of Having Sold a Business
It is a strange thing. You start a business from nothing, grow it to a fantastic size, and then you sell it. Fanfares! Victory! Life-changing amounts of money.
And then, out of nowhere, despair.
We always talk about the valley of death that threatens SaaS businesses. We don’t talk about the valley of despair that you are likely to fall into the moment you hand over the keys to your business.
The better you built your company, the harder it will be on you. Here is what I experienced. All of a sudden, I was wandering around without anything to do. Where before, I would get up every single day, ready to throw myself into work that was now done by other people. They might ask my help from time to time, sure, but the responsibility for the work was ultimately on them. I was just a source of support in their transition of the business to the acquirer.
I had no roles anymore. I couldn’t “just do things” any longer. Another developer was in charge of the code. Another customer service agent was in charge of helping the customers. Another product manager took over the product and started making decisions. I was an ex-founder.
That hit me hard. When you are used to working seven days a week, being an entrepreneur almost every waking hour, it will come as a shock that within a day, your whole life comes to a grinding halt. Routines you built for years are pointless. I felt disoriented and confused. If you’re not prepared for this change, it can hit you pretty hard.
Well, this is complaining at a very high level. You just sold your business, and you may have elevated yourself into a whole new state of being, into a post-economic state of mind. That is what life-changing amounts of money can do. To avoid the post-sale emptiness, I did a few things.
First off, we took a vacation. After years of only leaving the country on business-related trips, we finally forced us to disconnect. That worked really well, as a change of scenery opens up your mind, and seeing how everyone just goes through their own lives doing what they want to do will make you think about your own future. This kind of thinking allows you to reset your mind from the routines and preconceived notions that you may have built up over the years.
I then reflected on what had just happened. Over the last few years, we had built a thriving business that helped teachers be better at what they do, and we were rewarded handsomely. At that moment, I figured out that now, it was my time to teach. I started writing about my experiences, about the things we learned, and how we failed. That was my path forward.
Build a network before you quit. Keep in touch with your team, with the people you met along the journey. Many opportunities come from these kinds of connections. Don’t think you have to sever ties with anyone just because you sell the business. You’re still the person who made it possible, the founder who built something valuable from nothing. That makes you a very desirable contact and a peer to many successful founders.
If you must, look for a new project immediately. Some founders just have to work on something. They can’t take a break. That’s fine as long as you take care of your mental and physical health. A sale gives you the opportunity for a break. Once you had that, you can jump right back in. The great thing about having worked in a SaaS business for years is that you will have encountered dozens of little problems that needed to be solved inside your business. Any of those might be turned into another business. Reflect on where you built a dirty quick fix to get things done and see if that points at a critical problem for other founders as well.
But please, take a moment to reflect on how fortunate you are. The work has paid off; the thing you build mattered enough for others to take notice and make you an offer you couldn’t refuse. Take it in, and look at how you can do this again in the future.
Keeping Your Company
Let be quite clear here: I don’t have much experience with maintaining a company after it reaches a certain size. I’ve certainly worked for larger companies but never held more than a fraction of the shares, so my ownership perspective is limited. I will still give you my opinion on the topic.
I understand that you can retain ownership in a business and never sell it, generating constant income through salaries or dividends and bonuses. You won’t be able to have a big payday like you would have if you sold your business, but you will be able to grow both the value of your business and your personal wealth steadily, at the same time.
And more often than not, founders really like their work. They build a business because of a vision they have, and they want to continue making it a reality for as long as possible.
If you like your work, work. Continue with your business, grow it further, make it help more customers. Take it as far as it will go.
If you start disliking your work, delegate. Remove yourself from the operational parts of the business by hiring a director, as many late-stage founder-CEOs do. Hire someone good at leading a company and making sure it stays on track. Then, leave the main stage and just be an owner, a shareholder. Maintain the vision, make sure the company does what you think it should be doing, but do it through guidance instead of leadership.
It’s quite likely that you will see changes you never expected to see in your business. You have your own idea of how things should be done, and you have been successful in seeing it applied to your business. Overcoming this confirmation bias will be essential when you hand over the reins: other leaders will lead differently. Preparing for those changes will make the transition much more comfortable. The goal is to continue growing the company, not growing complacent.
If you follow the methodology in Michael E. Gerber’s book E-Myth Revisited, you will have created a fictional org chart before you started your business. Over time, you will have hired people into the positions on that chart, and your name will have moved more and more to the top. There will be the day where you strike your name from the operational part of that chart so that it only remains on top of the page where the owners are listed.
To step back from your CEO position with confidence, you will need to find someone to replace you. They will need to replace you as a leader, as a manager, and as the source of truth and vision. Start looking for that person early, and make sure they care about your business and your customers as much as you do. This person will have to maintain and expand a culture of collaboration and support. Technical skills can be acquired, but they will need to bring a longing for building tribes and communities from day one.
And you can still have your financial windfall: there is always the option of selling a minority stake in your business. The buyer of that stake would get all the benefits of owning parts of a sustainable and lucrative business without needing to put much effort into the operational or even strategic work. You, as the owner, still have full control over the company. So you are left with a substantial amount of cash from selling the minority stake, you will always be able to draw dividends from the business, and you have the freedom to continue to run the business as you please.
Bonus: The Many Roles of a Bootstrapped Founder
Let’s look at you, the founder.
Bootstrapped businesses tend to be single-person businesses or have a few co-founders, but for the longest time, you will not have a team. That means you will have to do everything yourself. You’ll design the product, talk to your customers, file your taxes, keep the servers running. Some of these activities will come naturally to you, and some will require you to learn things you’ve never expected to learn in your lifetime. But you will have to do them all.
The E-Myth by Michael E. Gerber has a chapter on how to become aware of all these jobs: imagine how your company looks five years from now and draw an imaginary org chart with all the positions that you will need to hire for. Then, put your name into each box. Now you know precisely what you will need to do throughout the lifetime of your business. We did this for FeedbackPanda, and we came up with 47 positions, from CEO to Blog Content Writer to Customer Service Engineer. Over time, you will be able to hire people for these roles, until, one day, you will only have “CEO” or “Owner” to your name. Or you can keep doing all those jobs. The idea behind this is to understand what jobs you will need to do, how much you enjoy doing them, and what you can do to find help with the ones you don’t like to do.
The Four Bootstrapper Quadrants
In this section, I will show you the four Bootstrapper Quadrants, which sorts all jobs-to-be-done in a bootstrapped company into one of four distinct categories. You will likely find that the jobs in one quadrant are your strong suit, while the positions in the other quadrants will require more focussed work. I will suggest strategies to compensate for the jobs that you might struggle with, and what you can expect to learn by tackling them yourself.
The Bootstrapper’s Quadrants are the four regions of a two-dimensional Cartesian plane, divided along two axes: the Responsiveness Scale (Structural ⟷ Operational) and the Ideation Scale (Technical ⟷ Creative). Each activity in a business can be located on a point in one of these four quadrants:
- Quadrant I, “The Builder,” contains jobs that focus on technical skill and operational work
- Quadrant II, “The Architect,” contains jobs that focus on technical expertise and structural thinking
- Quadrant III, “The Thinker,” contains jobs that focus on creative thinking and structural analysis
- Quadrant IV, “The Communicator,” contains jobs that focus on creative solutions and operational interactions
Of course, every job in a bootstrapped business is incredibly nuanced, and you can’t look at it in complete isolation. The Bootstrapper Quadrants are a tool meant to make it easier to locate your own strengths and weaknesses, so they can be used and overcome to result in the creation of a well-rounded, sustainable bootstrapped business.
The Responsiveness Scale
The horizontal axis of the Bootstrapper’s Quadrants is concerned with how much focus on direct human interaction a particular activity may have. It ranges from Structural to Operational, on a spectrum. The more emphasis on direct communication, the closer the job will be to the Operational side.
There are a few more useful conceptual pairs to represent “Structural” vs. “Operational.”
- Rigid vs. Flexible
- Action vs. Reaction
- Long-term vs. Short-term
- Past/Future vs. Present
- Solid vs. Liquid
- Fixed vs. Malleable
- Collective vs. Individual
- Anticipation vs. Adaptation
None of those are exclusive. The terms were chosen merely to establish a distribution of activities along a meaningful spectrum.
The Ideation Scale
The vertical axis of the Bootstrapper’s Quadrants is concerned with how much rigidity a specific activity may have. It ranges from Technical to Creative, on a spectrum. A good representation of this is how machine-like the thinking required to do a particular job is. The more machine-like the thought, the closer the job will be to the Technical side.
There are a few more useful conceptual pairs to represent “Technical” vs. “Creative”:
- Hard vs. Soft
- Infrastructure vs. Presentation
- Process vs. People
- Requirements vs. Ideas
- Stability vs. Risk-taking
- Substance vs. Appearance
- Functional vs. Original
- Solution vs. Discovery
- Order vs. Chaos
- Implementation vs. Innovation
- Constraints vs. Freedom
This does not mean that technical and creative work is exclusive. The polar terms were chosen to allow activities to fall on a continuous spectrum between them, always containing parts of both.
The Builder wants to know “how” to solve a problem. As a builder, your main activity will be implementation. Jobs in this quadrant focus heavily on applying technical skills to create working solutions. The goal is to build things that work, often without knowing the exact steps to get there.
Jobs in this quadrant include software development positions like Frontend and Backend Engineering, operations positions like System Administrator, and product-related positions like Product Manager.
If you’re having trouble with the jobs in this quadrant, finding a technical co-founder or learning how to code would be a beneficial first step. If you’re lacking the technical skills and are not interested in coding, looking into NoCode solutions is advised. If you want to understand what’s going on in the tech space, it’s always a good idea to take a look into the tools of the trade and the jobs they’re supposed to do.
As the Builder, you’ll be working on making sure that things are useful and usable. It might feel like you’re a fire-fighter or a plumber at times. You will learn how to implement solutions under pressure and adjust your creations to the real-world needs of your partners and customers.
I loved doing this work at FeedbackPanda. As a developer, I felt right at home in this quadrant. I got to work on the product, making sure bugs were fixed, and the servers kept humming along. There were days when it was frustrating, but it never felt like I was out of my element. That was often the case with work from the other quadrants.
The Architect wants to know “what” needs to be done. As an architect, your main activity will be analysis. Work in this quadrant focuses heavily on technical reasoning, aimed at creating reliable infrastructure. You’ll want to construct resilient systems and processes to ensure that you can reliably supply the product to the consumers. These systems extend beyond software, billing and financials are also part of this quadrant
Jobs in this quadrant include software architecture positions like Information Architect and Software Architect, engineering positions like Database Engineer or Systems Reliability Engineer, and business infrastructure positions like bookkeeping.
If you’re having trouble with the jobs in this quadrant, finding technical help will be significant. Many decisions made by positions in this quadrant will have long-lasting effects on the business, as they are setting up the technical and formal infrastructure for your product and company. For things that you just have to get right to the letter (like taxes and financial reports), consider outsourcing the job to licensed professionals.
As the Architect, you’ll work on making things resilient and performant. It might feel like you’re both a janitor and an ivory-tower-academic at the same time. You will learn how to analyze data while creating actionable outcomes.
I found it hard to make reliable long-term decisions while handling the day-to-day operations of FeedbackPanda. Work in this quadrant is essential and establishes the foundation of a sustainable business. If you, like me, are easily distracted, try to consciously take a break to deeply think through what work needs to be done here, and how it aligns with your long-term goals.
The Communicator cares about “who”: who they are serving, helping, and talking to. As a communicator, your main actions will be communication and distribution. You are responsible for creating methods and channels to reach your customers and help them accomplish all of their goals at any point in their business relationship with your business. In this quadrant, work will be mostly situationally applied creativity, from turning a lead into a sale to talking to a confused customer with a hard-to-diagnose problem.
Jobs in this quadrant include customer service positions like Customer Service Agent and Customer Relations Manager, marketing positions like Social Media Content Writer, and sales positions like Salesperson and Director of Business Development.
If you’re having trouble with the jobs in this quadrant, consider hiring quickly. If talking to people is not for you, then find someone who loves to do that. It will severely reduce your anxiety if you have someone to help with these interactions. These hires will also provide a great perspective into your product, looking at it through your customer’s eyes.
As the Communicator, you’ll work on making sure that someone listens to those you work with and those you work for. At times, this might feel like you’re a baby-sitter or a first-grade teacher. You will grow your communication skills and learn how to navigate stressful conversations.
The Thinker cares about “why” things are the way they are and what can be done about it. As a thinker, your main activity will be planning and forecasting. You will be responsible for analyzing data and providing insight into the business as well as taking care that there are no roadblocks to delivering the best service possible. This is not abstract stuff: a lot of design work is part of this quadrant.
Jobs in this quadrant include design positions like UX Designer and Ad & Promotions Manager, strategic positions like Content Strategist and Project Manager, and analytical positions like Customer Intelligence Analyst.
If you’re having trouble with jobs in this quadrant, hire outside help, which will likely come in the form of consultants. Find people who have been there and done that. Hire them for specific projects that you don’t feel confident with (yet).
As the Thinker, you will work on extracting insights and learnings from past data, and then turning that into strategies and visions for the future of the business. At times, you might feel like a bureaucrat, clinging to processes and conventions. You will learn how to plan, how to react to changes in the landscape of the world of business.
What Is Bootstrapping? a Definition (And a Few Others)
Before we dive into the details of the work of a bootstrapped founder, we should take a look at the core topic of this entrepreneurial approach: bootstrapping. Let’s see what bootstrapping is and what it’s not.
The original meaning comes from the metaphor of pulling yourself up by your own bootstraps. That is a logical impossibility, of course. However, it is an excellent analogy to creating a business from nothing, without any outside funding or assistance. Bootstrapping is about accomplishing the unlikely using as few resources as possible.
Several names often get conflated with bootstrapping, mostly “self-funded,” “customer-funded,” and “indie-funded.” Then, there is also the term “semi-bootstrapped.”
Self-funded: A bootstrapped business starts with almost no money and slowly gathers steam. A self-funded business involves a significant investment of personal founder capital – and usually hits the ground running. Some founders use their savings, and some get loans or credit of sorts. A bootstrapped business is always self-funded, but not every self-funded business is bootstrapped.
Customer-funded: If you set up your business to be profitable from day one, and use the revenue you generate to pay for your services, you are customer-funded. This also extends to going into partnerships with customers to build specific features, where the customers take over the development cost, at least partially. A working bootstrapped business is eventually customer-funded, like any successful business, but not every customer-funded company is bootstrapped.
Indie-funded: If your business receives funding from independent, non-traditional sources like banks or Venture Capital funds, you can call it indie-funded. Crowd-investing and crowd-financing count towards this definition as well. The difference to traditional funding is the level of expectation regarding your growth and business goals. Indie funding sources understand that you might want to create a cash-flow-positive lifestyle business, and they are perfectly fine if you don’t exhibit hockey-stick growth.
Finally, a semi-bootstrapped business is a business that exhibits all the typical behaviors and properties of a bootstrapped company but uses outside funding of any kind to accelerate parts of the business without subjecting themselves to paradigm-shifting expectations of their growth trajectory. The business will still minimize their expenses, automate as much as possible, and build sustainable, long-term-focussed processes. They just use some money to fuel their marketing, development, or any other part of the business.
There is a debate if “bootstrapping” is the right word for what we do. Hiten Shah says it should be called “self-funded” from the start, and it feels like the whole debate could be solved with a Venn diagram. So here it is.
To me, bootstrapping is the act of creating a valuable, sustainable business with little to no funding. It’s a founder mindset, a focus on making fiscally responsible business decisions and looking for sustainable long-term growth, and meaningful relationships with every single customer.
Prioritizing Work and Responsibilities as a Bootstrapped Founder
Wearing many hats at the same time can be discouraging and stressful. If it feels like you are doing the work of a whole team, then you’re right. That will be the case for a long time, and you will move from one job to the other frequently.
But don’t worry, you won’t have to do it all from the start. You don’t need to work on Customer Intelligence when you don’t have any paying customers or file sales tax statements without any sales. Depending on what stage of your bootstrapped business you’re in, you will focus more on some jobs and less on others.
As a guideline, try to do work that will generate revenue or revenue opportunities. Those will move your business forward. Introduce new activities and responsibilities as they become necessary, not before.
I’m a big proponent of looking at things from multiple points of view. That includes the central assumption we have made throughout this whole time: that bootstrapping is the most desirable form of building a sustainable SaaS business.
I still believe that to be true. Bootstrapping is a great way to build and own a fantastic business. But it’s not the only option.
Sometimes, financing can make a difference. Funding is not the enemy of a bootstrapper. While we tend to avoid financing, there are opportunities for external money to do great good. It’s just a matter of carefully weighing the pros and cons. There is wisdom in knowing what’s possible, even when you don’t want to use it.
Financing for the Hesitant: Investment Options for Bootstrappers
As long as you’re conducting your business with a focus on sustainable growth, being smart and conservative in your use of available resources, and forging long-term relationships with your customers, you are running a bootstrapped business.
That doesn’t change if you get funding, which makes your business a semi-bootstrapped business, provided you retain control and ownership in the majority of the business, and your goals don’t change from slow, sustainable growth to hockey-stick hypergrowth.
Several players in the market have understood that bootstrappers both want funding and want to remain a sustainable small-scale business. Indie.vc wants to support founders on their way to profitability. TinySeed is an accelerator for early-stage SaaS founder, helping with a cash injection and mentorship while focussing on a bootstrapping approach at the same time.
Funds have been started that use Income Sharing Agreements instead of shares to create returns from investment. Earnest Capital does this, and its Shared Earnings Agreement is publicly available. Understanding that a long-term profit-sharing relationship is more compatible with the sustainable business processes of a bootstrapped business makes this kind of agreement very interesting for founders who want to keep control and benefit from external funds at the same time.
I recommend staying away from bank loans. Banks still live in the non-digital past. They don’t yet understand the world of SaaS businesses, as well as they know the numbers of farms or factories. They require a lot of collateral, have very rigid requirements like business plans and long-term commitments that don’t work in the fast-paced, pivot-focussed world of bootstrapping small SaaS companies. If you take a loan, you will likely be personally impacted if the business doesn’t work out, and that is both added stress for you and a liability for the business.
Into the Thunderdome: Taking Venture Capital as a Bootstrapper
Sometimes, companies that have been bootstrapped for years take a seemingly surprising detour: they accept a large amount of Venture Capital funding. Almost always, this is met with bewilderment and criticism, as it was in the case of 1Password.
The VC world has expectations and goals that are opposed to the idea of bootstrapping a sustainable business: if you make a lot of risky bets, you expect most of them to fail, and some of them to work out really well. So any business that is profitable but not explosively growing is not worth much to a VC who is looking for the next unicorn. That often means that with a VC investment, the expectations are “rocket ship or bust,” and people fear that the previously bootstrapped business won’t be able to make the changes needed to switch from slow, sustainable growth to hyper-growth.
But all of that is guesswork. Most VC deals are made with the unique properties of the bootstrapped businesses in mind, and no VC would invest their money into something they couldn’t envision having future success.
And in all honesty: if you own a business, you get to decide what to do with it. If you want to bootstrap forever, great. If you want to get indie funding, wonderful. If you want to take your business to another level and use VC funds for that, that’s good too. Many bootstrapped companies have gone the VC route, and they have been successful with it. There is no point in expecting businesses to stay the same over time. Every business needs to adjust to the reality of the market. Being a bootstrapper purist won’t make your business any better. If you’re contemplating taking VC money, just be aware of the potential risks that come with investor expectations.
Further Reading: Other Guides and Resources
Zero to Sold is my personal take on starting, running, and exiting a bootstrapped business. I learned a lot while running my own business, and so have many others. I’ll share all the resources that helped me along my own bootstrapped journey.
Special Interest Series on The Bootstrapped Founder
On the blog, there are a number of thematic series that deal with particular topics. These series are receiving updates on an irregular basis.
The Emotional Journey of a Bootstrapped Founder deals with challenges and issues that come up in the day-to-day operations of a bootstrapped business. For every emotional state I encountered, I wrote (or will write) an article.
The Tales of a Bootstrapper series shines a light on the real-life experiences of other founders and entrepreneurs. Every article is centered around a person or a business, what they did well, where they may have failed, and what can be learned from their experiences.
The Best Books for Budding Bootstrappers
There are thousands of books about starting and running a business, and I have tried to read as many of them as I could over the last decade. Some were extremely helpful, some were not. I’ve created a list of recommendations and reviews of the books that I found to be insightful, actionable, and helpful. That curated list is available at The Bootstrapper’s Bookshelf.
Another bookshelf that might interest you is curated by Patrick Collison.
Great Guides to Get Going
There is one guide that always stood out to me: Clifford Oravecs “The Epic Guide to Bootstrapping a SaaS Startup from Scratch.” It is a strongly worded, somewhat offensive, yet delightfully honest look at the life of a bootstrapped founder. It makes you take off your rose-colored glasses and focus on the hard-to-swallow truth of entrepreneurship: there will be struggle, there will be mistakes, and there will be hardship. If you can handle this guide, you can handle building a bootstrapped business.
Neil Patel has started a few companies in the past, and he has been both a bootstrapped and a VC-funded founder. His insight into bootstrapping is extremely valuable, as he points out the pitfalls and risk factors of funding a business yourself from scratch.
The team at Jotform has created a well-designed guide that talks about many core questions that come with a bootstrapped business, from co-founders to keeping your sanity. The guide asks the right questions and gives a few suggestions without being preachy and is full of links and examples.
Tyler Tringas, the founder spearheading Earnest Capital, wrote a fantastic guide called Building Micro-SaaS Businesses. His personal experience building small SaaS businesses is apparent in every paragraph, and it’s a dense source of insight and information.
Abdo Rianis Step By Step Guide To Startup Bootstrapping By Self-Funding And Pre-Selling includes a delightful breakdown of startup expenses and actionable tips on how to get through all the stages of bootstrapping a sustainable company.
A Handful of Helpful Handbooks
There are a handful of reasonable resources that describe the inner workings of successful businesses without being an obvious marketing play. Most of those take the form of employee handbooks and are usually very specific to the businesses that issue them.
The biggest and most renowned bootstrapped player in this field is Basecamp, with its open-source handbook. It offers an in-depth glimpse into the social fabric that makes Basecamp the well-oiled sustainable machine it is. From product explanations to who does what, the handbook shows a level of detail and operational awareness that is very admirable.
The Gitlab employee manual is just as detailed. It spells out every role, names the responsible people, and expands what they do, and why. It’s a living, breathing document that shows how a remote-first company spreads its culture and keeps knowledge and processes aligned. Every section clearly communicates how feedback is supposed to be presented, leading to a remarkable clarity of communication: a must-have in a remote company.
Netflix has an extensive Culture document (and a Reference Guide) that highlights how interactions between colleagues are expected to happen. Core concepts are explained in detail, while company goals and aspirations are made manifest through the behaviors that employees are expected to exhibit.
HubSpot’s Culture Code comes as a slide deck. It’s a fun, aspirational document that makes it clear from day one that HubSpot is passionate about their customer’s success. The empathetic self-awareness of this document shows clearly that they expect employees to have their heart in it.
Trello uses the ultimate dogfooding approach to their employee manual: they offer a template as a publicly available Trello board. While their internal version is private, the structure of the template alone is exciting and thought-provoking.
While much more corporate, the Atlassian Team Playbook contains a multitude of step-by-step plays ranging from conducting customer interviews to mind-mapping an idea. It is process-focussed and can be applied to any team. It seems to have grown from Atlassian’s internal practices. It’s an excellent resource for later-stage businesses, but even a newly created business might benefit from many plays there.
If you’re interested in looking into more of this kind of handbook, I recommend checking out Tettra’s Culture Codes section. And of course, an honorable mention goes to the handbook that came before all the others: the Valve employee handbook.
Relevant Resources for the Responsible Researcher
Y Combinator offers Startup School, a collection of videos and resources that aim at helping startups getting started. Assume that most of the advice will be aimed at creating a VC-compatible startup with all the growth and scaling expectations.
Thank you for reading Zero to Sold. If you found it helpful and instructive, please share it with other founders or those you think should consider founding a bootstrapped business.
If you are interested in having me take a look at your business or talk you through validating your idea, please book a one-on-one consultation with me. You can find my rates and more information on the Consulting page.
This is a living document. If you find errors, mistakes, or typos, please reach out to me. If you think I am entirely wrong with something, please reach out. If you feel there is a topic I am missing, please reach out. I’m grateful for any kind of comment that will make Zero to Sold better.