In Episode 570, Rob Walling answers listener questions about the ideal business for bootstrapping, how to create trust with potential customers, navigating depression as an entrepreneur as well as advice for introverted founders.
The topics we cover
[1:42] Problems that are more conducive to bootstrapping
[8:51] Creating trust with potential customers
[10:51] Battling depression or mental illness as an entrepreneur
[13:45] Advice for introverted founders
[18:95] Standard operating agreement for co-founders
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
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Rob: Welcome back to Startups for the Rest of Us. I’m Rob Walling. If you can believe it, this is Episode 570. I think we’re approaching 100-listener question episodes where me or myself and a guest answer questions from you, listeners. This is another one. We dig into some really interesting topics today.
If you want to get your question answered in a future episode of Startups for the Rest of Us, you have some options. You can go to startupsfortherestofus.com. There’s an Ask a Question link in the header. If you click on that, we use a VideoAsk and that allows you to click a button on your phone, click a button on your laptop, and send in either an audio or a video question, then you can obviously record an audio or video question on your laptop. Just email it to us, send it to Dropbox link or G Drive link.
Those questions go to the top of the stack. We always answer those first, you can just email questions at startupsfortherestofus.com, or submit it via our contact form. If you submit it in text, we will get to it at some point. I think we’ll have time today to dig into a few of those as well. Without further ado, let’s dive into our first question. This is a video question from Hide.
Hide: Hi, Rob. I’m Hide. I’m a software engineer and aspiring bootstrapper. I’m currently looking for problems for customers. I was wondering if some problems were more conducive to bootstrapping than they were to high-growth startups. My other question is, what are some of your ways to create and maintain trust with your potential customers? Thanks. A big fan of the podcast.
Rob: Thanks for those questions, Hide. I will tackle the first one first, which is, are there ideas that are more conducive to bootstrapping? I think the way I’d like to address it is to go through ideas that I would not bootstrap, that I think are too cash-intensive, or just are not conducive to bootstrapping. Pretty much, anything else that’s info-product, course-related, B2B, SaaS is a better option for bootstrapping.
The first one, and it’s one that I see all the time, is a two-sided marketplace. For some reason, a lot of folks—I think it’s because they use Uber, they watched The Social Network, and they use Facebook. They want to start a two-sided marketplace where they have to get consumers and some providers together. That is really complicated and really expensive. It’s very, very rare that you see a two-sided marketplace come out of a bootstrap software company.
There are a few and it’s usually when they have one side of that dialed in. If I already have a big audience of developers, I can start a job board and I can then go find people who want to hire developers because I already have that big audience, or if I already have a big audience of designers, it’s the same thing. But trying to build both sides of the marketplace at once, I just usually say don’t. Unless you’re going to raise buckets of money, don’t do it. It’s a rule of mine.
If you look at how they bootstrapped Uber, they didn’t. I think Travis Kalanick and his co-founder funded it up to a few cars, a few black cars in San Francisco, and then they just had to raise money and expand geographically because raising money, it’s too capital intensive. You have to hire people, you have to get on the ground, you have to then go find both sides of that marketplace in each locale—very, very intense. Same thing with Groupon. Trying to bootstrap Groupon, you and I could have had that idea 10 years ago, and not raising money for that would have been very, very challenging.
Another type of business that is, I say, virtually impossible to bootstrap. It’s possible if you do it on the side. It grows really slow for years and years and years and years is a purely ad-supported one. Obviously, you can build a podcast or something, build an audience, and get that ad support. But I’m talking about trying to build a website, a software product that is ad-supported.
If you recall the scenes in The Social Network, to refer to that movie again, there was Eduardo Saverin, I believe, was Zuckerberg’s co-founder. He wanted to have ads on the site really early on because he was saying, how are we going to pay for the servers? At least the way it’s portrayed in Aaron Sorkin’s rendition of The Social Network, Zuckerberg said, we’re not going to do that. We’re going to raise money to pay for it instead.
I think to grow as quickly as Facebook wanted to and to build a social network that had no ads for a very long time and had no revenue model—the same thing with Twitter, same thing with a lot of these socials like YouTube—they just weren’t monetized for so long. So you have to have some type of money coming in in order to fund that. But in those, it’s often a winner takes all or at least a land grab. Land grab businesses, you shouldn’t bootstrap because you have to move really fast, and so you want to raise huge amounts of money, get there first, and get the mindshare.
When that network effect kicks in, eBay, Facebook, Uber, and Lyft, these network effects are what allows them to now have a really big moat against competitors. But again, these days, I wouldn’t bootstrap that. Hardware is another one. Probably I don’t need to address that here because we don’t really talk much about hardware on Startups for the Rest of Us.
There’s an interesting one that I used to think was not great for bootstrapping, and it was sales-heavy apps. Let’s stick to SaaS for now because that’s normally what we talk about in Startups for the Rest of Us. I used to think that it was low touch, low price point. This is 10, 12 years ago that those were the ones designed for bootstrappers. What I’ll say is, if you’re doing it part-time, and you’re doing it nights and weekends while you’re doing a day job, I do think that’s relatively accurate because doing sales to a Fortune 5000 company is very, very hard if you do have that day job. You want to have credibility, you’re not full time on it.
This is why I talk about stair-stepping. Go build your Shopify add-on, your Heroku add-on, your WordPress plugin, your info-product, your course, and get enough money that you gain the experience, the confidence, and eventually combine at your own time. Then you’re full time, then you can do what you want to do. You could do a sales-heavy, more sales-led organization as the kids are saying these days.
All that to say, I used to think that sales heavy was not a great fit for bootstrapping. But what I think has come down to is it’s not a great fit for part-time. If you can go full time on it, I’ve actually seen the majority of the SaaS companies that I see succeeding. I don’t mean 95%, but I’d say 60%, 70% do have a heavier sales component because they can have a higher purchase price and higher annual contract value, and that leads usually to faster growth for a company.
The last thing I’ll say on this point is if you want to build a software product, you want to build a SaaS company, it is very hard to bootstrap it if one of the founders is not a developer. Because if you have to hire developers, you need money. I view bootstrapping as truly not self-funding. Self-funding is hey, I have $100,000 in the bank. I’m not going to go raise funding. That’s not really strictly bootstrapping, either.
Self-funding is possible or raising funding if you need to go hire someone to build your app. I don’t want to give the impression that without a developer, co-founder, you can’t build […] SaaS product. It just makes it hard. You’re doing it on hard mode.
There are examples, many examples of it actually. I don’t remember what the numbers are, but I think it’s maybe 10% or 15% of companies that make it into TinySeed don’t have a developer co-founder. It’s a super minority—10% to 20%, somewhere in that range. But there are examples like Craig Hewitt from Castos. How did Craig get Castos built?
He started a productized service doing podcast editing. He built that to tens of thousands a month in revenue and then he used that to hire a developer to build a product. When Drip first started, I was a solo founder. Derrick came on as a founder later. He was originally a contractor then he was W-2. Then I got to the point where it just made sense to have him come in and have equity. But in those early days, I wasn’t writing any code on it. How was I able to pay Derrick to write the code for Drip?
I had a prior SaaS app called HitTail and that was throwing off $20,000-$30,000 a month net profit. It was an amazing step two business. I guess now, technically, it’s a step three business. Anyways, it’s on the stair step three, I believe. I self-funded Drip, in essence, until we got to the point where we were at breakeven.
That’s just another thing I’ll throw out is that without a developer, you do have to either raise money early or usually have to figure out a way to have money to pay a developer. I hope that was helpful for you, Hide.
The other question he had was about creating and maintaining trust with potential customers. There are a few ways to do this. It’s commonly done with content. You present yourself. Hopefully, you are an expert in your field, and that you are either blogging about it. You can have a podcast about it, you can create some type of content, you could write a book. I know that Jason Cohen, when he was starting a SmartBear, he wrote a book on the same topic that SmartBear was focused on which was like code. I don’t remember what it was.
What is a SmartBear? Is it code collaboration, code security, or something like that? He wrote a book. And then he would sell it or even give it away to folks, and it would be up on the shelf. Then when he’d go on sales calls, they would pull it down and point at his name and say, you wrote the book on this. How hard is it to make a sale?
I’m not saying you need to write a book, but I will tell you it certainly helped me as well. I’ve written three books now. One of them was co-written with my wife. It definitely lends credibility to us when we’re talking to investors or people who are outside the space. We say, look, I run this podcast that has 570 episodes now and you can go listen in here if I know what I’m talking about, in essence.
Anyway, content is a great way to do that. Also, if you get folks to opt-in to your mailing list or you have a way to contact them, similarly through content, you can send them an email Drip sequence or otherwise engage with them. It’s allowing folks to see who you are as the CEO and founder—the professional side of you—and to acknowledge your expertise and to be able to experience that. I think it’s harder to do if you do it just as the company because people don’t want to follow companies, they want to follow people.
That’s always the challenge. How much of yourself do you want branded on the company versus the company itself? That’s probably a conversation for another day. Thank you for that question. I hope it was helpful.
Zac: Hey, Rob. My name is Zac. I’m wondering what suggestions you have for founders out there who are battling depression and other mental illnesses.
Rob: This is a tough one and it’s not one that I have a great answer other than to get help. It’s to go listen to this and founder podcasts. My wife is a clinical psychologist and has a Ph.D. in psychology. She consults and advises founders, CEOs, and high-functioning individuals. She has dealt with both founders who are just struggling because it’s hard and founders who have an actual diagnosable mental illness.
Usually, the moment you have a diagnosable mental illness, you need a licensed therapist, psychologist, psychiatrist. Whatever it is you’re going to seek, you need someone licensed in your state. That’s usually the difference, but she talks a lot about this and how to deal with it. If you read The Entrepreneurs’ Guide to Keeping Your Sh*t Together, which is the book that Sherry and I collaborated on, we dig into some of these topics.
There are no easy answers other than don’t deal with it without getting help because there is help out there. Whether help means you get on some medication that helps with it, whether you go to therapy, whether you try alternative therapies that you feel like are going to be appropriate for you, whether you figure out you start messing with your sleep. By messing with, I mean trying to improve the quality of that, whether you start an exercise regimen. These are the fundamentals.
If Sherry were on here, she would say, look at your sleep, look at your exercise, less time in front of screens, more time building relationships, and get help—talk to a professional, someone who knows what they’re doing. That is my advice. It’s always the, how do I lose weight? It’s like, exercise a lot and don’t eat […]. Nobody wants to hear that, right? They want to be able to do whatever.
What they mean is, how can I not change anything and get better? Zac, I’m not saying that’s the question you’re asking, but I’m just comparing. The answers are usually stuff that we know, but it’s hard to make that change.
I’ve gone through some tough times as an entrepreneur and I was always resistant to going out and getting help because for me it was like, well, I don’t have time for that. I’m too busy for that. In fact, I went through months and months of feeling like crap because I just wasn’t willing to go make that change. Anyways, I hope that helps. It’s a really good question and one that I’m happy folks are talking about these days.
I think, honestly, Sherry was the one who pioneered that in our space, in the bootstrapping space. There really weren’t many people talking about it in venture funding. I know that given the toll that it takes, there’s been a number of suicides in the venture-funded founder community. I do think that this is becoming a more common topic and one that I think should be addressed, so it’s not so taboo. Thanks for that question, Zac. I hope it was helpful. Our next question is also from Zac.
Zac: Hey, Rob. This is Zac. I’m wondering what advice you have for founders out there who are more introverted and have difficulties going out, getting in front of people, rubbing elbows, and making sales.
Rob: I like this question because I’m introverted. Some people are shocked when I say that. But you’ll notice that if I’m in a room with a lot of people, I tend to talk for a few minutes and then I go sit down somewhere because I need a break. What I did was I built a lot of businesses that didn’t need me to be super outgoing.
An introvert can still be good at sales. I don’t think that you going to a conference and rubbing elbows is necessary in order to build a great business. There are plenty of businesses you can build by becoming a great developer and a great marketer. You don’t need to do a bunch of sales calls.
We can look at Derrick Reimer, founder of SavvyCal. We can look at it frankly when we started Drip. It wasn’t like I was going meeting in person with people. I was marketing the […] out of that app. I was warm emailing people in my network and saying hey, I built this thing. If you’re using Mailchimp, I think the difference is perhaps how it might be a better fit for you, or Infusionsoft or whatever the other competitors were.
I was not doing a big hard sell and I didn’t need to go build a bunch of networky fake relationships to do it. I just showed up, built a great product, and tried to present a better offer to people. We did a lot of inbound too. Inbound marketing, while the sales folks who are listening to this are I’m sure saying, oh, it’s a cop-out. Don’t go create content when in fact, you can do cold email or whatever, which is not untrue. But there are ways that you can be an introvert and still make sales.
That’s why a lot of developers and myself included, especially my earlier businesses, it was a lot of content that I would create presenting what I knew such that I wasn’t trying to prove stuff to anyone when I would meet them or when they would email me. They already knew me because they’ve listened to this podcast. They read my blog, they read my books and then come to a MicroConf. That allows me as an introvert to then be able to build relationships, to build a network.
There’s a lot of ways around it. I think if you’re just going to start like a step one small software product, you really don’t need to be hardcore about making sales. If you do want to build something that’s going to be 5 million, 10 million, 20 million in ARR, then you either have to decide, hey, I am going to do this. It’s self-improvement and I’m going to get better at this, which is totally possible.
I see some really great developers who are introverts learn sales because sales is not what we think it is. Sales, as Einar Vollset says all the time, you’re like a high-priced consultant trying to find the best answer, trying to find the best solution for the person on the other end of the line. You’re a high price, but you’re not getting paid. You’re just super knowledgeable of the space.
There were a number of sales calls. I just call them, these are demos, it’s a conversation where someone would tell me what they needed and I’d be like, you know what, I actually do think Mailchimp might be a better fit for you given that you’re not going to use any of our automation and it’s a little bit cheaper or whatever. That was it. I felt like me becoming a salesperson or needing to do sales was just being pretty honest about things. Knowing that we had a great product helped.
I wasn’t trying to trick anybody. I wasn’t trying to say anything that wasn’t true. When I said, I believe Drip is the best product on the market to do this, it was true. I wasn’t exaggerating. I think that helps to gain confidence and to realize that, look, it’s not black magic. It’s not some mystical art. It really is just having conversations and not selling from your heels, not being, gosh, I’m going to make everybody mad. You got to kind of go with it.
In conclusion, you can either build a business. I think, will you hurt your growth by building a business around solely your desire not to do sales or whatever? Yeah. It’s bootstrapping, it’s a lifestyle business, so you can do whatever you want. Or if you decide, hey, I want to grow really fast, get bigger, and get big quickly, then you either need to get over it and learn those skills.
You can follow folks like Steli Efti. You can look at what Damian Thompson is putting out. There are a lot of pretty good sales folks with some great books on the topic as well, or you can find a co-founder who maybe is better at that side of things. I’ll be honest, I had the idea for TinySeed back in probably 2011, 2012 where I said accelerator for bootstrappers, Y Combinator for bootstrappers. But I didn’t want to raise a fund.
I didn’t want to manage a fund. I didn’t want to deal with all of the headache that goes along with it. It wasn’t until after selling Drip, while I was looking at my next act, that Einer Vollset and I started talking. I knew that he was not only good at that stuff because I can figure it out. I’m enough of an operator. I could figure it all out, but I just wouldn’t enjoy it. So that’s his role in TinySeed.
This is often referred to as your zone of genius. It’s what you’re really, really good at (better than most) and you really, really enjoy, and you can be happy doing. I think it’s just all about knowing yourself. I think we learn so much more about ourselves as entrepreneurs. It’s a great question. Thank you, Zac.
Our last question for the day is from Lou […]. He says, “Hey, Rob, great episodes as usual. I’m curious, why is there not a standard/boilerplate operating agreement for co-founders similar to docs like the SAFE from Y Combinator? Most operating agreements have the same components, ownership structure, capital contributions, budgeting management, and legal decision making, et cetera. The terms can be fill in the blank like X equity invested over Y time. Are there enough nuances to require a lawyer to draw up a new agreement for each startup? Thanks for all you do.”
It’s a good question. I don’t know why YC hasn’t put one out. I do know that effectively, Stripe has done this. That’s Stripe Atlas. I don’t know if they ask you how many founders. I’ve never done Stripe Atlas because once it came out, the next company we started was TinySeed and you can’t use Stripe Atlas for fund formation.
Stripe Atlas, I believe, has that. They do C-corps and LLCs in Delaware. I remember pulling a partnership agreement off a service like Rocket Lawyer or LexGo. They do it in Latin America. They’re a TinySeed company. These do exist. I think that they’re around, but the fact that Y Combinator or an equally large brand hasn’t put them out that maybe we don’t hear about them enough.
I think the SAFE is not popular because the SAFE exists. The SAFE is popular because YC put it out and their brand equity behind it made folks start to adopt it and say, okay, this is how we want to do things. To the question of, why is there not a standard/boilerplate operating agreement? You’d have to find someone where it’s worth doing. I wouldn’t be surprised if YC has their own internal one that they let folks use, and releasing that, how does that benefit?
You have to think of who’s going to put this out, do they want to assume. Is their liability towards publishing this online? What is the benefit? Do they get the brand equity like they got from the safe? To that question, I’m not sure, but I do think there are definitely some reasonable options out there.
If you go to a lawyer, it’s not like they drafted up from scratch. They have their own standard/boilerplate operating agreement that they are going to then ask you a few questions, you’re going to tell them, and then they’re going to go fill it out. That involves a lawyer and is a little more expensive. That is usually the way these things go. Thanks for the question, Lou. I hope that was helpful.
That’s all the questions we have time for today. When this episode comes out, I will actually be on stage at MicroConf Europe Growth in lovely Dubrovnik, Croatia. If you’re there, I hope to connect with you. If not, head to microconf.com and get on our mailing list to hear about upcoming events. We have a virtual event called MicroConf Remote that will be in, I can’t remember. Producer Xander is going to kill me if it’s in November or December.
Our MicroConf Remotes have had great responses because it’s not sitting staring at a Zoom room for five hours a day or whatever. We made the last one super unique. The last two have been really unique. One was filmed basically in a live studio. It was socially distanced but got a lot of great comments on that.
The next one we used gather.town, which is a platform where you can actually wander around and you have an element of the hallway track. You just run into attendees, it opens a little window, and you can chat with folks. There was a scavenger hunt in gather.town, which is like an 8-bit. It reminds me of Legend of Zelda or a game like that. It’s so much fun.
So if you haven’t been to MicroConf Remote, check them out. They’re entry-level. It’s inexpensive, you don’t have much to lose. We do focus more on the earlier stage folks. But then we are looking at MicroConf Growth in Minneapolis next April. It’ll be our in-person event. I’m pretty stoked that we’ve been able to pull off these four events that we have here in September and October—Portland, Austin, Boston, and now Croatia.
To me, just being able to get in the room safely using all the precautions, masked plus vaccine requirement, all these stuff to make sure folks are safe. To be able to do that with other entrepreneurs is such a need for myself. What I keep hearing from attendees is like this is a need that they’re having too. COVID has been rough on everybody and not being able to get together for almost two years is isolating both professionally and personally.
It’s great to see folks who are coming out to MicroConfs. As I said, head to microconf.com if you want to know about upcoming things that we’re working on. The State of Independent SaaS Report is another one. We are going to be doing that for the third year in a row. Gearing that up here pretty soon. Thanks so much again for joining me this week on Startups for the Rest of Us. I’ll be back in your earbuds again next Tuesday morning.