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The Ideal Bootstrapped Business

hopsoft profile image Hopsoft ・3 min read

I recently watched Jason Cohen's excellent presentation from MicroConf in 2013. Jason is a successful entrepreneur and has founded several companies including WP Engine and Smart Bear. His presentation was chock full of great information.

https://vimeo.com/74338272

Here are my notes. Hopefully you'll find them useful.


Most companies don't work. They either fail to build a product that people want, or they build something that doesn't embrace the constraints of a small company.

The Self-Funded Startup

A self-funded startup is a cash machine with predictable acquisition of recurring revenue that offers annual prepay in a good market.

Revenue Models

  • 🚫 One Offs - Every month starts at zero and requires new sales efforts... the opposite of a cash machine.
  • 🚫 Picking Up Pennies - Skimming a percentage from other financial activity i.e. donations, transactions, etc... an inefficient cash machine.
  • Recurring Revenue - The only way to build a cash machine.

Getting 1,000 customers at any price point is really hard. 150 customers is more realistic to start.

150 Customers

  • 50 from scratching and clawing
  • 25 from social media marketing
  • 75 from standard marketing

Average Revenue per User (ARPU) is the most important metric that you can track while you're small. Set a goal to hit $10,000 in monthly recurring revenue with 150 customers. That means your pricing should average $66/mo per customer.

Founders are hesitant to charge enough because they know their product is shitty in the beginning. Find ways to justify a higher price. Also, embrace the fact that you're running a boutique business. People are willing to pay more to help small companies they believe in.

Pricing Tactics

  • Tiers - monthly/quarterly/yearly
  • Specials - higher monthly price with various coupons and discounts
  • Annual Prepay - will solve cash flow problems

    If just 25% of your customers elect annual prepay, it will yield over 3x the cash flow that monthly plans provide. Here are some tactics to convince more customers to opt for annual prepay.

    • Annual Only Coupons - 3 months off
    • High Monthly + 1/2 off Annual - raise monthly prices & offer steep annual discounts
    • Business Tier - name the most expensive plan "Business"... some will opt for this simply because they want to spend the most

Revenue Tactics

  • Money Back Guarantee - will produce more revenue than free trials.
  • Premium Support - paid offer to move a customer's support tickets to a priority position in the queue. Doesn't require additional labor but is very much a value add for the customer.

Market Models

  • 🚫 Consumer (B2C) - Extremely low price and very high maintenance.
  • 🚫 Point-in-Time - Pain points are temporary and not recurring or sustainable. Weddings, events, etc...
  • 🚫 Viral - Very low probability of actual virality or revenue.
  • 🚫 Marketplace - Difficult to build. Requires creating two different businesses and balancing their growth.
  • Naturally Recurring - Anything tied to regular cycles or underlying volatility. Hosting costs, marketing tools, invoicing, reporting, SEO, HR/compliance, etc...
  • Naturally Latent Anything without real-time requirements. Decision support (analytics & reports), content, project management, etc...
  • Completable - Smaller product scope mitigates feature creep and allow you to focus on customers without racing to add every competitor's features.
  • After Market - Add ons to an existing product or service.

Choose a big market. Product validation already exists and customers are easier to find. There's plenty of money and room for competition. Servicing a niche in a big market provides the flexibility to pivot or expand as needed.

Acquisition Models

  • 🚫 Social Media - Very expensive (time and money) and doesn't produce predictable recurring revenue.
  • Paid Advertising - Very predictable and repeatable.

Rules of thumb for acquisition costs.

  • Low bar is a $300 spend for $50/mo in revenue.
  • Basic CPC (Cost per Click) Formula: CPC = Monthly ARPU / 25

Your formulas will become more sophisticated as you experiment and gather data.

End Game

Successful companies continue to grow. They don't stop. You need a plan.

  • Sell and take your exit
  • Deliberately limit growth (raise prices, waiting list, etc... will change your clientele)
  • Raise money to fuel accelerated growth

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