Don't bootstrap yourself to death(saastr.wordpress.com)
saastr.wordpress.com
Don't bootstrap yourself to death
http://saastr.wordpress.com/2012/12/10/dont-accidentally-bootstrap-yourself-to-death/
8 comments
Keep in mind Jason is very much talking about a VC-funded SaaS company rather than a bootstrapped SaaS company. A boostrapped company may take quite a lot longer than 24 months to hit $1M and no harm no foul. Many of the famous bootstraps took 24 mos to be big enough for 3 founders to quit their day jobs.
The difference is the $1M VC funded SaaS company will have been wildly unprofitable while the bootstrap will have been profitable every step. The VC world rightly regards SaaS as a landgrab and some of Jason's other posts approach it that way. Hence the companies are run unprofitably so they can be grown faster.
My impression from his posts is he doesn't have a lot of experience with the bootstrap world or doesn't think much of it. I frequently write counterpoints to his posts on my Smoothspan blog.
The difference is the $1M VC funded SaaS company will have been wildly unprofitable while the bootstrap will have been profitable every step. The VC world rightly regards SaaS as a landgrab and some of Jason's other posts approach it that way. Hence the companies are run unprofitably so they can be grown faster.
My impression from his posts is he doesn't have a lot of experience with the bootstrap world or doesn't think much of it. I frequently write counterpoints to his posts on my Smoothspan blog.
If you have a high margin, recurring revenue SaaS business doing $1-2MM and are looking for growth capital, you do not need to dilute your equity with VCs expecting an exit on their terms (not always yours)- you need bank debt. One of the perks of bootstrapping is once you get to profitability and have a business built on good fundamentals (versus vanity metrics/eyeballs/"scale") you can walk into a bank and obtain lines of credit or debt finance to help you add those customer service folks or incremental sales help in other territories or whatever overhead you need to take on for the next stage of growth. The reason for all the VC hoopla in the first place is the overwhelming risk associated with your pre-revenue, pre-profitability business- traditional commercial bank financing is vastly superior if you can get it on decent terms, which you should be able to if you've bootstrapped your way to $2MM
I can identify with this. Bootstrapped and profitable enough to hire other people to grow faster. But as I'm doing almost everything solo and the business needs to keep running on a day to day basis, the time to formalize processes, hire, on-board and/or train people, let alone look for funding, barely exists. My current idea is to gradually bring on freelancers so I don't overstretch my time or resources. Long term, I'd like to acquihire people already familiar with the business or have saved up enough profits that money can be more easily thrown at the problem.
I imagine this is one of the reasons folks like pg are keen on multiple founders since one founder could more easily be 'spared' to handle things like recruitment, process, and other things important to growth that are separate from sales or product development. I can do all the sales and production and do it well, but then that leaves little time for anything else.
I imagine this is one of the reasons folks like pg are keen on multiple founders since one founder could more easily be 'spared' to handle things like recruitment, process, and other things important to growth that are separate from sales or product development. I can do all the sales and production and do it well, but then that leaves little time for anything else.
At the same time, if this $1-2m/y company has the typical 80% profit margin, I think it makes a great basis for starting the next company. Just hire a couple of people to keep the lights on, and get working on the next idea, now safe in the knowledge that you have the cash to pay for most things you want already, and you're doing the new idea for the fun and extra profit of it, not to put bread in your mouth.
The problem with this is some companies want to remain small. They don't want to be the next instagram or pinterest. They are perfectly happy pulling in $1-2MM and supporting a healthy lifestyle for the few employees it employs.
I'm not necessarily saying I disagree with the premise of this article, but the owners need to make a choice about what kind of company they are running and take the necessary steps to achieve that.
I'm not necessarily saying I disagree with the premise of this article, but the owners need to make a choice about what kind of company they are running and take the necessary steps to achieve that.
But do bootstrap yourself to the death.
If you're bootstrapping, like we did, you absolutely have to take each step up as soon as you can, and push as hard as you can, as otherwise you'll find yourself in the time-trap described, where you bootstrap growth while neglecting organisational development.
We haven't cashed out for £800,000,000,000,000, but we've taken (small) investment after 6 years of growth and operation in order to open up opportunities (investor's customer base nom nom nom).
Ultimately, I think the main issue in startups is expectations. You probably won't make a billion dollars. You probably won't make a million. You probably won't even make $100k. But you might.
If you're bootstrapping, like we did, you absolutely have to take each step up as soon as you can, and push as hard as you can, as otherwise you'll find yourself in the time-trap described, where you bootstrap growth while neglecting organisational development.
We haven't cashed out for £800,000,000,000,000, but we've taken (small) investment after 6 years of growth and operation in order to open up opportunities (investor's customer base nom nom nom).
Ultimately, I think the main issue in startups is expectations. You probably won't make a billion dollars. You probably won't make a million. You probably won't even make $100k. But you might.
You know what you call semi-mythical things with existence proofs? Empirically observable facts. As contrary to, say, unnamed $1 MM run rate SaaS businesses killed by competition. I'm having great difficulty thinking of one. Granted, I don't know the histories of all the hundreds of companies that fit the terrible nightmare of selling millions of dollars of software at 90% gross margins, so it's possible you could come up with an anecdote or three...
Also, if you sell a million a year in software, and you need help, you buy help. People who are additive to revenue aren't cheap but they are, well, additive to revenue. Support folks? Very inexpensive - a plumbing firm with 30% gross margins at the same scale can trivially hire them.