When you are bootstrapping a startup, and you first start making money, it's straightforward advice to put “the money back into the startup.” It shows commitment to grow, they say.
I found it to be precisely the opposite. For me, I decided to take the first thousand dollars and paid myself.
The reason was this:
When I started, my big goal was to get to a modest couple of thousand dollars of recurring revenue per month. Probably enough to match my salary and quit my day job. That goal, amongst creating a great product that people used, charged me up, and kept me going. When I achieved it, there was a great sense of relief. And the monthly recurring revenue kept growing past my goal, and the spirit of assistance turned into confidence.
I didn’t like that.
I needed that goal back again. I need the feeling of the climb from zero to 2–3k back again.
So I made it that. I took the money away from the company and paid myself. So I better build the recurring revenue back up again.
I know this is pretty silly, even stupid but anything to keep the interest going in the beginning stages.
Startups fail not because of a lack of money, but because the founders quit. They lose interest, drive, challenge, and accept defeat. It has happened to me many times before. Not that I would have stopped this time around, but it’s fun to have a laser beam to chase.
Keeping the heart in the business is more important than saving money.
I am the founder of Proxies API and if I can do it, you can too
Top comments (1)
I think you have the right idea but the wrong implementation.
Most startups fail because of burnout, but that is because the owners work 80 hours a week but suffer from a lack of customers, to get customers you need a marketing budget, so you put the money back in.
However you have touched on one important point that should ring in your ears (until you have employees, in which case pay them first!)...pay yourself first!
So you make an agreement with yourself, “10% of revenue goes straight into my bank account no matter what”.
That way you are paying yourself before bills, marketing professionals, service providers etc. Psychologically it works because you place yourself as the most important person when you are doing 80 hour weeks and eating noodles for tea!
You may not make enough to sustain you initially but you can then set an easy goal “300,000 revenue per annum is enough to quit my job as 10% of that means I can draw 2,500 per month”.
But keep the rest to reinvest otherwise you will spend years “spinning your wheels” as you never market effectively.
Final tip before I get off my soap box! If this is a SAAS product the “big boys” tend to put 40% of their revenue into marketing...if you can’t make the numbers work for that then you either need to cut costs or increase prices.