Startups For the Rest of Us

Rob Walling: Welcome back to Startups for the Rest of Us. I’m your host, Rob Walling. This week we have a show format that I’ve adapted and renamed. Instead of the News Roundup, this is Hot Take Tuesday. Where Einar Vollset comes on the show, and he and I analyze and discuss the Figma exit. We talk about side project distractions, talk about no code and bootstrapping, and look at a tweet that calls them a bit dogmatic. Similar to our News Roundup episodes, normally it would be Tracy, Einar and myself, but Tracy is out of pocket this week. And of course I give people no notice on these things. It’s not like I book them two weeks out, so I literally, I think I Slacked them yesterday and said, “Can you do this at this time tomorrow?” So I really appreciate Einar taking the time out of his schedule to come on the show.
I hope you enjoy this format that we do every few months. But before we dive into the show, I want to let you know that Microconf Remote is next week and we are diving into early stage marketing. We’re going to be talking about marketing with Capterra through SEO, through conversions versus recessions and more. We have Amanda Natividad, who heads up marketing at SparkToro. We have the founder of Gymdesk who is just crushing it and doing really well with Capterra. We have Whitney Deterding from CoSchedule and Gia Laudi, one of the founders of Forget the Funnel. Dates are November 1st through the 3rd, so it’s next week. It’s 11.00 to 12.30 eastern time. So it’s three days, one and a half hours per day. If you buy a ticket, you get the videos, if you can’t make it. Tickets are at microconfremote.com, very inexpensive. This is the least expensive Microconf Remote we’ve ever done. So if you’re in doubt, check it out. I’ll be there live and I hope to see you there. And with that, let’s dive into the show.
Einar Vollset, welcome back to the show.

Einar Vollset:
Hello, thanks for having me.

Rob Walling:
Yeah, I’m excited to do a rebrand. So I used to call these The Bootstrapper News roundtable and then we started calling them News Roundups and you know what they are now?

Einar Vollset:
What?

Rob Walling:
It’s now called Hot Take Tuesday. You like that?

Einar Vollset:
Nice. Is that why Tracy’s not here? Because she’s like the considered opinion, that whole thing?

Rob Walling:
No, I want Tracy on. For the listeners, it’s normally Einar, Tracy and I that record these. Tracy happens to be at a place with bad wifi this week. And I basically gave y’all what, like 24 hours notice to record this. It’s not like I say, “Oh, in two weeks can you do these things?” I’m like panicked. Oh my gosh, I got to get an episode out. And so set you a time. So we’ll have Tracy back next time, but for now, Hot Take Tuesday.
And so today’s episode begins with you and I talking about Figma. Adobe acquired Figma for 20 billion dollars and I have a TechCrunch story that we’ll link to in the show notes. The TechCrunch headline says, “Taking out one of its biggest rivals in digital design.” So Einer Vollset, people, consumers, people who use Figma are shocked and surprised and angry and other befuddled emotions. This was, I would say potentially an expensive acquisition, question mark. I believe they were at just under 200 million ARR, 20 billion is about a hundred x multiple, so that’s high. So let’s hear it. You think it’s a good move for Figma? Good move for Adobe?

Einar Vollset:
Fantastic move for Adobe, I think. I mean, I’m not really in the Adobe space. My wife sort of uses those tools more than I do. But I think given Figma’s growth and the fact that being online first and collaboration first, I think that really they sort of had to do it. Basically, Adobe’s interesting in the sense that it’s not long ago that they used to be one time purchase and they made the move to more of a SaaS model with a recurring subscription model. But fundamentally, at least when they started, it was just like, “Oh yeah, now you can download the latest version but you got to pay us a subscription.” Which is very different to a product that’s like first design, online in a collaborative type environment. Yeah, I mean honestly I wouldn’t be very surprised if this doesn’t run up against some antitrust type issues, some competition issues.
I don’t think it’s a done deal by any stretch of the imagination, but I think for Adobe it was an expensive deal. Particularly when there’s like a hundred times ARR is one thing, which obviously it’s going to be crazy now you’d meet founders with a 500,000 ARR business thinking they can sell it for a hundred times. When you combine the fact that they, that’s the payment they did. But also on top of that, their stock price I think declined at about $20 billion as well on the announcement. So effectively it cost them double that. So yeah, I think expensive but potentially long-term value add for Adobe is sort of my view on it.

Rob Walling:
Yeah, the way I was looking at it was at this point with a company, an acquisition like this, multiples are, it’s after the fact, like that’s we’d back how, they didn’t go in and say, “We we want a hundred x for this company.” That’s not what happened. They basically said, “We don’t want to sell.” And Figma basically said, “There’s no one else to buy. We are the one.” So people know that I collect signatures and I collect comic books, right? Old silver age comic books and there will be a comic where there’s 50 graded at this level, but then at the highest level there’s only one. There’s like one in a 9.8. And you know what? That person can ask whatever they want for it, even if it’s a stupid price, if there’s demand for it. And that’s what it is. Figma’s one of a kind, there’s no competitor that’s close to them.

Einar Vollset:
We see that on the M&A side too. Basically if you’re not for sale, that’s the reason why you get super high valuations. People sometimes say, “Oh, we’ve gotten in the past, we’ve gotten offers that are sort of not a hundred x but in the 20 x ARR offers.” And sometimes I talk to founders who are like, “Yeah, we’d love to get that.” I’m like, “Yeah, but you’re not going to get that if you’re obviously for sale.” Get that if you’re not for sale and basically the buyer has to convince you that no, no, there will be a price. Everything has a price. And I think that’s pretty much what happened here.

Rob Walling:
And if there is a replacement, if there is a close second, if there is a slight commoditization, ‘Oh I can just buy this other company here and get 80% of the value.” You don’t get a hundred x. You have to have such a, and have a trajectory. I mean 200 million, I think they were going to double, almost double again next year in terms of revenue. They’re already on pace to do that.

Einar Vollset:
Yeah, one of the most interesting things about Figma actually is how slow they grew. Initially they were for years and years, they were doing the opposite of what you and me usually recommend people doing and start selling. They weren’t really charging anything. And then the first year, I don’t know if we have the growth chart up here in terms of how they grew, but it took them years to get anywhere near interesting. And then it just took off I guess. It just sort of compounded after the fact.

Rob Walling:
Yeah, they really did. They spent a couple years building and then they weren’t charging at all. I think they had a free plan. They had no paid plan for a while. And it’s interesting. Yeah, this is similar. WhatsApp sold for, wasn’t it WhatsApp that sold to Facebook for 20 billion?

Einar Vollset:
Was it that much?

Rob Walling:
Yeah, I think so. And then Instagram sold for a billion, which at the time they were like six employees, seven employees and then they had no revenue or barely any. These are shocking numbers until you realize, “No Instagram wasn’t going to eat Facebook.” It’s not like If Zuckerberg had not done that and they weren’t for sale and there was no repla…right. This is why you see this.

Einar Vollset:
Yeah, yeah.

Rob Walling:
The other thing is, the day it sold there was so many people upset on Twitter, is where I saw it like, “Oh no, Figma sold, Adobe’s going to ruin it.” And they may or may not. But what do you think? I tweeted they’ve raised two, three hundred million dollars from venture capitalists. What do you think is going to happen? You know what I mean? What is the outcome here?

Einar Vollset:
Yeah, no I think it’s an interesting take. It’s a little bit, the path for them was either to be acquired by someone like Adobe or go public and it’s, “Is the company fundamentally different in how it serves its customer because it’s public versus acquired by a larger competitor?” I don’t know. I don’t really think so.

Rob Walling:
Let’s jump to our second story. This is a tweet and obviously we’re going to link up everything we mention, all the tweets and everything will be in the show notes. You can go to startupsfortherestofus.com to check those out. Or if you want our show notes in your inbox every week, sign up for the email list. You get a couple free guides, you get the 5:00 PM framework that I introduced last week. Einar has been copiously taking notes on the 5:00 PM framework and using it to evaluate.

Einar Vollset:
You introduced the 5:00 PM what?

Rob Walling:
Exactly. So this next story. See people, do you see what I have to deal with? This guy he’s my co-founder, this is rough, wish me luck. All right, so Pierre de Wulf tweeted, Pierre de Wulf is the co-founder of ScrapingBee, a company that has been very public about their bootstrap growth. And last I heard they were talking about what 1.5 million ARR and continuing to grow. They are a TinySeed company so you and I know their revenue. But Pierre’s tweet says, “The energy and efforts to grow 5 products to $1k MRR are far greater than the ones needed to grow one product to $20-$30k MRR. Building new things is fun, but there’s a significant opportunity cost to that…”, and he puts it in bold, FUN, “…to that FUN. Just something to keep in mind.”
So Einar, indie hackers, I don’t just mean indie hackers on the website. I mean developers who go launch side projects, often they’ll do a side project a month and they’ll throw a lot of things at the wall to see what sticks. And there are even some models in this space, some folks you can follow that are balancing all these products and it sounds really exciting and interesting. But I personally I agree with Pierre, I’ve been in this situation and I can tell my story a little later. First I want to kick it to you. What are your thoughts on this? Do you think Pierre’s right and if you do think he’s right, why do people do it then if it’s not essentially the most efficient or smart way to do it?

Einar Vollset:
I think it’s right. I agree with Pierre. I definitely think there’s a cost there, but I think people do it because you get a bump kind of, when you launch a lot of the time to get something and it’s like, “Oh yeah, it’s, there’s a novelty factor.” Maybe you are excited about it as the founder, so you’re maybe pushing a little harder than you might do for something that’s been launched for a while. So you get a little bit of a bump and you get a little bit of that endorphin kick. And I think that’s what people chase a lot of the time. They come around, they’re like, “Yeah, it’s a great thing, now I’m making 500,000 bucks a month, 1500, something like that.” And the reality is post launch, they have to, usually they have to deal with the reality of figuring out whether they actually have product market fit and they’re staring down the barrel of, in some cases pretty significant churn because of your product market fit.
People might sign up for it because you have a big following on Twitter or whatever, try it out. But they’re not going to keep giving you money six months after you launched if they’re not using it, if that’s not something that you’d want. So I think a lot of the time with the launch you get kind of an artificial high when it comes from usage and income and I think people want to, they like that piece and they go after it. And really the hard part is sort of the trough of sorrow as it were where it’s like okay, “We have this product now and now you have this mountain of work to figure out in terms of what features to build, what marketing channels to experiment with, systems that you have to build.” You talk about the difference between building a product, building a business.
I feel like a lot of the people who are doing these multiple products, they just like building products and the newer the better and the shinier the better and they just churn them out. The second step becomes, “How do you build a repeatable sales channel? How do you build out a team? How do you do all that stuff?” And that’s not necessarily as sexy and certainly it’s not as easy to talk about and get kudos on Twitter about. I think that’s definitely true.
I do think there are players who do this well, but they tend to be bigger holding companies. So, our friends at Tiny Capital, they do this pretty well. But if you look at their approach, they very much, like they hire a CEO, incentivize them and let them run it completely. It’s not like Andrew Wilkinson is sitting around and making CEO level tactical decisions for every single business that Tiny holds, that doesn’t work. And I think that becomes the problem because you as an indie hacker or whatever, you don’t have the resources to hire someone for all your five or six or 10 or 12 products. You end up just scatterbraining across them.

Rob Walling:
That’s an interesting take and I like your insight. I hadn’t thought about the dopamine rush over the launch. It had occurred to me that building a product is different than building a business, is different than building a company. And the latter two for makers are a lot less fun, I would say. And so I think that as long as you know what you’re getting into, know the drawbacks to it. Don’t kid yourself that if you are launching a bunch of products and usually the justification I hear is, “Well it’s validated because I scratched my own itch,” or “I’m throwing a bunch of things at the wall and see what sticks.” It’s like nothing’s probably going to stick because you’re going to throw a bunch of things, unless you get really, really lucky. You need to put more into it than just building and launching on Product Hunt and Reddit and Hacker News.
But here’s the thing, it depends on what you’re optimizing for, right? Back in the day, let’s say 12, 13, 14 years ago, I was optimizing for lifestyle. I literally worked about a 10 to 12 hour work week. We had our youngest was little, newborn actually. I was not optimizing for growth, I was not optimizing for even money beyond what I, I was making 150K or something from products. And I lived in Fresno, California and it was totally doable and that was okay. And I actually owned several products. I didn’t build them all though, see I acquired a bunch of them for 12 to 18 months net profit, you know what I mean? I’d pay five grand for something and then invest SEO and I’d be doing three grand a month later. So I was doing a very mini, I was doing a tiny, tiny capital. A mini, tiny capital. But it was more about just optimizing for lifestyle.
And then what happened is I got really bored in all honesty I, working 12 hours a week just isn’t, it isn’t all it’s cracked up to be y’all? And that was when I was like, “I want to do something more ambitious.” I had already had SaaS experience but I wanted to double down on it. So I think the idea of working on a bunch of small things is fine, just know what that means. Know that you are very, very likely limiting your growth and if you are an ambitious bootstrapper and you do want to build that 20 to 30K thing a month or you want to build the hundred to 500K a month thing, you’re not going to do it by launching a bunch of small products.

Einar Vollset:
That’s true. If I’m play devil’s advocate a bit on the other side, it’s like there is value in knowing when to quit something that isn’t working. That is the other side of this. It’s like, “Yes, it’s important that you have some staying power I think, and that you can really give something a real go, but if something isn’t working, it isn’t working.” So that is the opposite side of it. It’s almost like you have two extremes. You have some people who are doggedly chasing this thing that just isn’t working for whatever reason. And then you have the people who are just like, “I’m just going to spin up a new thing once a month.” And I think both of those two are probably a mistake.

Rob Walling:
Right. I think that earlier stage entrepreneurs often miss the signals that they would need to pivot the opportunity. Oftentimes shutting it down completely is not the right call. I’ll bring up Drip is an example. We launched, I had a decent audience, I had people watching, signing up. I had 3,500 on an email launch list. I was marketing the hell out of it. And that thing straight plateaued, between about eight K, nine K, just plateaued. Churn was through the roof right. So it was a limited feature set, it was just email capture and email sequences that’s it. Didn’t send broadcast, was not an ASP and it didn’t have product market fit. So one could say, “Well we built something, it didn’t work, let’s shut it down.” And especially if you didn’t have my reach at the time, it would’ve plateaued at one or two K. The only reason it got to eight or 10 is, it was a bunch of people that were following me, that signed up for it and tried it out.
And so it was a challenging road and you can listen to it on startupstoriespodcast.com. It was grueling. That’s like a 90 minute audio documentary recorded over the course of nine months or a year or something. But it was a search for product market fit and it was like “Slight pivot, we’re going to add this, we’re going to figure out this, we’re going to try this.” And getting there was a hard road to your point earlier, it was not sexy, it was not fun. But then once we hit it, it was like, “Ah, that’s it. Right?” And then all the numbers go in the right direction.

Einar Vollset:
Just another point. I think that also applies more than people think. So I think of particularly bootstrappers, and think they have this view that like, “As long as once I get to that stage I’m golden. I figured out that thing. I’m out of that slump at 5, 2, 3, 4, 5,000. Now it’s just gravy train until IPO.” And we’re seeing that with TinySeed companies too. It’s like that’s just not the case. Very often you need to, not necessarily do a pivot, but you need to do something new or different in order to really take that next sort of step and really take the step up.
So because we often see not so much, it’s something in TinySeed but outside it too, is people get to 500,000 or a million or 2 million and then that’s sort of the limit of where they are with their current growth channels, their current product, their current pricing. It really needs to take that next step. And some founders just aren’t up to it. They’re just not able to, either they’re just so married to this thing that was working really super well and they’re sort of sticking their head in the sand about the fact that, okay now we need to do something else, we need to add another step up. Otherwise this is where we’re going to be stuck forever.

Rob Walling:
That’s right. I mean you hit that plateau, you either need another growth channel. If you need more top of funnel, you need another growth channel. If your churn is really high, you need to, well we don’t, part of going to fit with this segment so we need to add another element.

Einar Vollset:
Or maybe you’re serving SMBs and now you need to figure out, “How do we really sell this to enterprises at a much higher price point?” I think that’s part, ties back to the Figma story earlier. It took them a while to figure out, “How do we stop selling to individual creators and actually start selling to enterprises?” And they wouldn’t have gotten the 200 million ARR without doing that change. And I’m sure at the time that was tricky, but it wasn’t just more the same.

Rob Walling:
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Our next story is about Apple’s ad business and AdGuard.com posits that Apple’s ad business is set to boom on the back of its own anti tracking crackdown. So if you’ll recall, Apple basically has the do not track me between apps prompt now when you open apps, so when I opened a Facebook and it asked me I said, “No don’t track me.” I don’t want Facebook and Insta and all these places tracking me. And so it really limits the reach that the third parties like Facebook and Google and anybody else who makes a ton of money from their tracking pixel and their cookies. And now again AdGuard.com is positing that Apple is stepping in and they are essentially, that they are able to track you the whole time you’re on the phone because it’s their phone. And so I’m curious to you Einar, folks may not know, but you have a lot of background in the mobile and the iOS ecosystem going back more than a decade. And so what are your thoughts on this in terms of A, do you think this is true? Do you think this is fair? What’s happening here?

Einar Vollset:
Yes, I definitely think it’s true. I went through YC with an iPhone app basically, me and my co-founder did. So I have experience dealing with the Apple app store and their policies and how they think about things. There’s no doubt in my mind that Apple is working on some kind of ad play. They’ve been doing ads and I don’t know if you remember this and maybe if you weren’t an Apple developer at the time you were, they had I ad I think it was launched in 2000 early 2010, somewhere.

Rob Walling:
Old school, look at you with the deep cut.

Einar Vollset:
Yeah. And it was basically this, basically it was a program, it was like native ads before native ads were a thing. It was basically a programming element inside of native apps that you could build in and roll it out. I think they shut it down after four or five years because they couldn’t make it work. But it shows that they’ve been thinking about ads and how to differentiate and really they’ve been interested in that space for years and years. And I think it makes total sense. I mean knowing Apple, are they the kind of company that could totally decide to crap all over Facebook and Google’s ad revenues and then claim that, “Yeah this is for the good of the customer,” and then come up with some sort of their own version of this but somehow frame that as we’re doing it for the good of the consumer? We’d be basically creating a walled garden of ads that protects the customer, protects the consumer, but really does kind of the same thing inside their own walled garden. A hundred percent.
Definitely, that’s definitely what Apple could do for sure. If you just look at, I’m sure we’re going to link to the thing, you were saying about the sort of log on prompt, do not track you. I think it’s telling, actually looking at the differences between the two prompts. If you’re a third party app, you have to, otherwise your app won’t get approved. You have to pop up this prompt that says allow so and so app to track your activity across other companies, apps and websites. Your data will be used to deliver personalized ads to you, ask app not to track or allow versus their own prompt is personalized ads. Personalized ads in Apple apps such as the app store and Apple News, help you discover apps, products and services that are relevant to you. We protect your privacy by using device generated blah blah blah blah blah.
And they trump this, turn on personalized ads or turn off personalized ads. What would you like, sir, would you like us to turn on personalized ads for you? That just shows what they’re thinking, that and if you also look at it like, someone else said on Twitter, I think it was Zach Coelius. He was like, “I think Apple’s building basically A, a DSPs like a demand site platform, which is what they claim not to have done for years and years. And the biggest play too is going after TV ads.” And I think that’ll definitely happen. I use Apple TV along with Roku and all the other crap, but Apple TV to watch baseball basically most of the time. And the ads that I get for that are atrocious.
Compared to Google search ads, even just banners and stuff. The stuff that I’m getting obviously because it’s just blasted whatever, what audience watchers baseball. The ads I get are inevitably either political ads for local whatever things in San Francisco, even though I don’t get to vote in the city of San Francisco about the things that measures that they’re pushing for or it’s some sort of a horrible disease that I should call my doctor about, related to do you have heart disease and carpal tunnel? Then it’s this thing, call your doctor about provoke or invoke or something random.
So if you just think about how bad that experience is. Do I think Apple’s thinking about building something in that space inside their walled gardens? 110%, I’d be shocked, shocked if they don’t and they’re going to frame it as consumer protection. They’re going to for say, this is what they did. I mean this is what they do with the Apple store. How come there’s now multiple app stores? What an insane system to basically say, “Oh yeah, yeah Apple, you have to go through and we have to approve everything and you have to use our payment processor.” That tells you how Apple thinks about this stuff outside. A hundred percent they’re going to do, 110%. I guarantee it, guarantee it.

Rob Walling:
And I wonder if you think there’ll be antitrust suits that come out of it or, and not by the government per se, but by, I wonder if Facebook’s going to sue for anti competition at some point. Facebook and Google get together, right?

Einar Vollset:
Could be, if you think about it. When you and me were coming up, everybody was like, “Oh, Microsoft, they’re the big bad wolf,” and they got in all sorts of trouble about distributing Microsoft Excel with their operating system. But this is the same if nothing worse. So I’m expecting, depending on how the political winds are blowing, I think they’ll get some sort of a blowback on this at some point. But I still think they’ll do it because the money is too great.

Rob Walling:
Yeah. That’s the thing.

Einar Vollset:
Why not? Because if you think about it, I started using the iPhone just when it came out and it was like tiny, tiny market share. Apple, the iPhone’s Apple market share in the US is 50% now. Basically it’s not infeasible if Facebook keeps cratering and going after this VR dream, fever dream of Zuckerberg, that basically there are more people that are using Apple devices day to day than use Facebook. And so if that’s the case, then of course they’re going to try to capture the kind of income, the kind of revenue stream that Facebook are, have been monopolizing for so long. So yeah, I know I’m for a hundred percent sure. They’d be idiots not to, they’d do great.

Rob Walling:
It’s interesting to me because I’ve always thought of Facebook and Google as ad companies and therefore I share as little as I possibly can with them. And I’ve always thought of Apple as more of the, well we sell the devices, that’s how we make our money. You can be less concerned about it. It’s not like I’ve given them anything except for my credit card number and to buy things. But this will change my, once someone’s running ads, it changes my perception because I know.

Einar Vollset:
But they’re not ads, it’s just they’re personalized ads.

Rob Walling:
That’s the perfect way.

Einar Vollset:
We protect your privacy Rob.

Rob Walling:
To end this story.

Einar Vollset:
We will look after you. Don’t worry Rob.

Rob Walling:
Our next topic is a tweet from Hana Mohan. Hana spoke at MicroConf Europe a couple years ago, an accomplished entrepreneur who has both bootstrapped a company to exit and has now raised venture funding for her second company. This one’s about no code in bootstrapping. She says, “You don’t need to code in 2022, but you should at least try. The #nocode community has a problem with its rhetoric, like the bootstrapping community. I am not writing either of them off. I am grateful I bootstrapped early on. The ‘way of life’ dogma is a serious problem. Like bootstrapping, no-code is empowering. With it, a domain expert with a day job and no technical experience can build products, without having to hire a team of developers. For them, it’s the only game in town. For others, it’s better framed as a gateway drug. And then she goes on to say, “If you’re a young person in entrepreneurship, make your first dollar but then at least learn some coding.”
It’s a whole thread. People can go read it obviously we’ll link it up. I very much share this sentiment where I think no-code’s amazing and no-code is a tool. And much like a hammer and a screwdriver are tools, they are perfectly suitable for the thing that they get done, right. But I don’t reach for my hammer every time that I want to put a screw in or do something else. So before I weigh in Einar, bootstrapping no-code, are they a bit too religious? Oh that’s actually, there’s another tweet and it’s from Jovan. I can’t, I don’t know how to pronounce his last name. But his was interesting because it lines up with something that happened a couple months ago when Ruben founder of SignWell was on this podcast and we were talking about how no code is awesome and it’s really good for this, but there’s some brittleness issue, there’s some scaling issues and that you know, can’t build a full blown ESP with it, right. There limitations is what we were pointing out.
It was based on a listener question. And sure enough people jumped on it and on Twitter were just like, “No, that’s not true.” But then when I asked for examples of actual full blown SaaS apps like, “That’s not what it’s made for.” So Jovan’s tweet says, “No-code is a religion at this point. Look, I do software development for a living. I prefer to do things in the most convenient way possible, but not a single web app I built in the last two years could be built with no-code.” Why do people get angry when I tell them this? You know what I mean? It’s like, “Well yeah, you shouldn’t get mad.” It’s just.

Einar Vollset:
It’s religion? It just is religion. I’ve always felt that, and actually this funnily enough ties back to the whole Apple story because this is to me, feels like a rehash of some of the conversations we had early 2010s. But because people were going to do this similar thing, it wasn’t no-code, but it was cross platform. You don’t have to build any native apps. It was just put together using this framework and then it compiles down to iOS and Androids and Microsoft phone or whatever they call it. And it was going to be totally, it was going to be the nirvana. And inevitably ended up happening was that people would launch something, it be kind of like 70, 60, 70 percent of the way there and then they’d be like, Oh crap, yeah, we need to support this one native thing. And so they would add a little bit of native integration into this other cross platform thing and then they had to do keep two different code bases now because it’s now a cross platform but with compiled specific compiled things.
It quickly diverged into like, “Well, now you have two code bases again, it’s just that you feel good about the fact that it’s, 50% of it is written in HTML instead of Objective C or Java, whatever.” So I’m very much in the same way. The fact of the matter is for me is like no-code is just code. It’s just a paradigm to build apps. And are there environments, coding environments that are more or less visual? Yes. No-code is, to me is basically a visual programming tool mostly. But I feel like the religion that some people feel around this is completely misplaced, right? I’m like, “These are fine for prototyping tools, they’re fine for what they are.” But this notion that this is a revolution in programming, this doesn’t make any sense to me whatsoever.

Rob Walling:
And you know I’m a fan of bootstrapping. Anyone listening to this knows that. I bootstrapped all my software companies and I’m a fan of no-code within MicroConf and TinySeed, we have at least three and there might be four, full blown line of business apps built on Airtable. And I think we have one on Bubble now maybe. I’m all in on no-code. If we can write less code and it works, let’s do that. If I can have a producer, Ron, who is not a developer, go build an entire system to manage the production of our audio and video in three weeks, two weeks, three weeks and it works. And nobody has to write code and I don’t have to hire a developer and I don’t have to spin up a server. Oh my gosh. So I’m a fan of these things, but the dogma of them, it gets a little old.
I’m saying code or no-code, I am bootstrapping. I think I kind of want to wrap up my thoughts with this tweet that I sent out a couple days ago. It says, “Never raise funding is like saying never use a hammer. Funding is a tool, sometimes it’s the right tool and other times it’s not.” And that’s how I feel about no-code and about bootstrapping and about a lot, frankly about a lot of things in the tech world that folks, I think crypto and Web3 and blockchain are really interesting technologies, but they’re not everything. We’re not going to reinvent everything on them, but they are tools and they can be used for certain things that I think are useful.
Our last topic of the day also comes from Twitter. This is where Hot Take Tuesday’s kind of fun because it, what you notice is when we’re doing quote unquote news roundtables, one of the stories, two of the stories is news because so little news is fully relevant to this podcast audience in a way. I don’t want to cover Facebook’s antitrust, blah blah, blah. Who cares in terms of bootstrapping, in terms of mostly bootstrapping, growing SaaS versus is it feels like things that are on Twitter are so much more relevant.
Much like this last story, which I’ll admit is just a bit of a fun one. But basically Ruben Gamez, I mentioned him earlier, he was considering watching 2001 A Space Odyssey. I said I wouldn’t do it, watch a YouTube summary of it instead, it’s very slow. And then he said, “As slow as the new Blade Runner.” And I said, “I like the new Blade Runner.” But I’ll admit we watched it at 1.5 x speed and the torrent of comments lol. Ruben says, “Lol, wtf, are you doing watching movies at 1.5 x?” You chimed in with, “What?” People, there was a gif that Christoph Engelhardt put. [inaudible 00:32:10] It was just this boom. I took a lot of heat for that, a lot. So I want you to tell me what’s wrong?

Einar Vollset:
I think you’re a psychopath that’s what’s wrong.

Rob Walling:
With watching something slow?

Einar Vollset:
What the hell? It’s like a psychopath test.

Rob Walling:
The movie’s too slow. It’s a good movie but it’s too slow. So you speed it up and make it a good movie.

Einar Vollset:
I’m like one and a half through the conversation too to [inaudible 00:32:34] this other thing.

Rob Walling:
But that’s how I listen to all podcasts.

Einar Vollset:
Oh no Romeo, my Romeo, no. Doesn’t it sound really funny? One and a half X or are you so used to with podcasts listening to one and a half X, you think people don’t have this normal life.

Rob Walling:
Yeah. Haven’t you, have you never listened to an audiobook or a podcast at 1.5 x?

Einar Vollset:
No, never at 1.5 x. 1.2 yes. That’s a tall order.

Rob Walling:
1.2 holy.

Einar Vollset:
1.2

Rob Walling:
Sir, come on.

Einar Vollset:
1.5? It sounds like a cartoon when you get past one and a half. [inaudible 00:33:07]

Rob Walling:
Every audio book. The audio books I listen to, since they record them really slow, I listen between two and 2.5 x and podcasts because it’s natural speaking speed, usually 1.5. And so yeah, 1.5 sounds perfect to me. Sounds natural.

Einar Vollset:
No, sounds insane. You’re insane. Your brain is like.

Rob Walling:
Superior. I am homo superius?

Einar Vollset:
It would be great if you go through, in a conference setting and just speed people up.

Rob Walling:
That’d be so nice. I could talk to more people. That’d be amazing. Here’s the problem with my argument. I’m going to just fully mea culpa. Podcasts and audiobooks, they’re mostly informational, right. Versus a film that is art. Someone commented, “I can’t wait to meet Christopher Nolan and tell him I watched all, your movies are great. I watched them all at two x.” I was like, “Yeah, it’s like bringing A.1. to a really expensive steakhouse. Bringing your soy sauce to the $400 a plate Japanese sushi place.” I’m still going to do it.

Einar Vollset:
Oh my God. Yeah, no, honestly I was, it’s rare that a tweet genuinely shocks me.

Rob Walling:
Especially coming from me, huh?

Einar Vollset:
Yeah. I was like, “What?” Normally your tweets, my tweets as you know, is usually completely all over the place. That’s a disaster. But you always consider a tweet. I was like out of left field, he’s like, “Yeah, Blade Runner one and a half x.”

Rob Walling:
It was only 2049. Well here, and here’s the thing too, I’ll say because we’ll wrap this up soon, but I do not watch every movie or TV show at that. But there are some that are just filmed like I’m watching House of Dragon. It’s a Game of Thrones prequel. It’s a really good show. It is very slow, it’s very considered. There’s these long pauses and honestly.

Einar Vollset:
You should just do what everyone else does man. Don’t watch it at one and a half x. Just sit on your phone and scroll through Twitter while the video’s all in the back.

Rob Walling:
See I have stuff to do. I got things to go, people to see. Anyways, I’ll leave you all with that amazing drop of knowledge. Video speed controller in your Chrome browser if you want to do that. I went so far as to, my boys both want to, they wanted to watch Breaking Bad and I’m like, “I’m not sitting through five seasons of this show.” It’s a good show, but it’s a slow burn and I’ve already seen it and I don’t want to sit. So I said I’ll make you a deal.
The old one, older one is like me and loves watching things 1.5 to two x. Every YouTube video’s at two x, the younger one didn’t want to. And so we tried it at one and a half X and I have to literally, you can’t just, what do you call it, Aircast or air whatever, AirPlay. Because chrome blocks like Netflix and something blocks Netflix and all the services. So I literally have to get an HDMI cable, plug my laptop manually into the side of the computer. It just mirrors it and plug it into the TV. It’s a lot of work to be really weird.

Einar Vollset:
Poor children. That’s what they’re going to be talking to their their therapist about years from now. They’ll be like, “My dad. He [inaudible 00:35:59] all the time. This is why I talk so fast.”

Rob Walling:
My dad was terrible, so traumatizing. On that note, we’re going to wrap up this episode of Hot Take Tuesday. Would love to hear your feedback and input on it. If you are listening, you can tweet me @robwalling where I will be reading your tweets at 1.5 x speed and you can tweet @einarvollset and he will argue back about how the San Francisco giants are really good, even though they’re not doing so well, are they?

Einar Vollset:
Indeed. And thank you so much for having me on.

Rob Walling:
It’s great to have you, man. See you next time.

Einar Vollset:
Ciao.

Rob Walling:
Thanks again to Einar for joining me this week. Hope you enjoyed that show. Thanks for coming back week after week. This podcast audience is growing and it appears to be growing faster than it ever has been in the past, and I really appreciate your support. I see quite a few Reddit threads, Hacker News threads, online discussions where people are giving a shout out to this podcast and to the MicroConf YouTube channel and I really appreciate that because that is the best and easiest way for us to grow. I also appreciate anyone who has left us that five star rating or review. We crossed 1000 reviews. I’m not going to keep pound on this because we hit the goal and it’s just really amazing to have that support from you. So thank you for coming back and listening every week. This is Rob Walling signing off from episode 632.

Rob Walling:
So what I did is I emailed Einar Vollset, who, as many of you have heard on the show, has a lot of experience with in particular SaaS M&A, and his response to that question was, and I quote, “Ha ha ha ha ha ha ha ha ha. This is the dumbest (beep) thing I’ve ever heard in my entire (beep) life. Ha ha ha ha ha ha ha.”
Welcome back to Startups For the Rest of Us, I’m Rob Walling, and this week I was going to walk through some Rob solo adventure topics, but I realized that we have such a backlog of questions, and actually several of the questions are kind of Rob solo adventure type topics, asking questions about broader strategic things rather than just detailed tactics, so I am excited to answer several of those. There are many video questions and audio questions, and if you don’t catch the video snippet that we throw up on Twitter each week, you should follow @startupspod on Twitter, because oftentimes you can see the question asker and then see a bit of my response.
Before we dive in to listener questions, I really wanted to thank everyone who has posted a rating into iTunes, a five star rating or review. We passed 1000 ratings, and I’m stoked. 1024 as of a couple hours ago, and reviews ranging from, “Great content every week. Thanks, Rob, for putting out a great show.” To Toms Carb who used the phrase, “Startups For the Rest of Us is truly an MBA on my iPhone. Tuesday mornings are incomplete if I don’t listen to the latest episode.” And lastly, this one from Mark 79 I really like, he said, “Pretty much all the episodes are timeless, so even though a show might be a few years old, the information is still relevant.”
Thanks so much for helping me on this drive to get north of 1000 ratings. We have now joined a select few podcasts that have that many ratings and reviews in the iTunes Apple Podcast store. I know they keep changing the name. And for the record, we have 1024 worldwide ratings and 498 worldwide reviews. So I’m guessing within the next few weeks here we will also cross the 500 mark there. So thanks again for that.
As this episode airs, I am in Atlanta talking to Ben Chestnut at our MicroConf Local. We are going to be in Austin next month. If you’re interested in checking it out, head to microconf.com/locals. And with that, let’s dive into our listener questions.
This first question is anonymous and you’re going to have to forgive me as I think I will probably have uncontrollable laughter at a certain point during this one, and there are some swear words as well, and those will be bleeped per usual. But I received an anonymous question from a longtime listener with the subject line, “Rewriting Our Code Base for Possible Future Sale.” And the question reads, “We have a small dev team at the startup I work for. We have several million in funding and we are growing relatively quickly. Our web app and our tech get rave reviews from our demos and our users. We know it’s scalable and it’s built on one of the standard stacks.” He tells me which stack it is, but I will tell you it’s either Django with Python, Ruby on Rails, PHP Laravel, it’s one of the standard startup stacks that you would expect.
He continues, “Our new CEO is worried that being built on our current stack instead of something that’s more corporate, that our multiplier might be lower for a future exit.” And when he says something more corporate think .NET or Java, something that’s not as common in the startup space.
He continues, “He’s considering building version three of the software from scratch in a more corporate stack instead of continuing, developing, and adding features to our current product. We’ve talked to him about all the startups, deca billion dollar startups, that are literally built on our exact stack and how popular it is, how common it is, and how easy it is to find developers for the stack. Is there any validity that changing our stack in part or full will get us to a higher multiple at a future exit?”
When I received this question, my first response was, “I’ve never heard of that. That sounds very odd.” And I was almost upset by it, because it sounds like someone who maybe doesn’t know what they’re talking about or has a really unique frame of mind. Maybe they have not been in the startup space and they’ve only been in the Fortune 500 space, where perhaps tech would be weighted differently or something. But I was like, “Yeah, this seems like not a good idea.”
So what I did is I emailed Einar Vollset, who, as many of you have heard on the show, has a lot of experience with in particular SaaS M&A, and his response to that question was, and I quote, “Ha ha ha ha ha ha ha ha ha. This is the dumbest (beep) thing I’ve ever heard in my entire (beep) life. Ha ha ha ha ha ha ha.”
And then I was sitting there like, “Okay, so he has confirmed my thoughts on this and that’s good. It’s good to get a second opinion.” Four minutes later I receive another email from Einar that says, “Man, I’m still laughing.” And so then we went back and forth a bit about it. But the last thing, and the one caveat to it, is Einar said, “The only smidge of truth in this is if a particular acquirer already had a team that is qualified in a particular tech stack and your product is built in that tech stack. But really it doesn’t matter for the size deal this would probably be, and how the heck would you know what a specific acquirer is into years from now? Cargo Cult Management. I’d be worried about the CEO cratering the company to be honest.”
So obviously Einar has really strong opinions about it. I also had that inclination. I think he actually put it more eloquently than I did. But I wanted to bring this up because there’s two points to this. Number one, I think we should all be reminded that our frame of reference in the startup space, if we were to move into the Fortune 500 space can often be off for a bit. And this is actually why it’s hard to transition someone, let’s say a project manager or a marketing manager or even a developer at a huge company, 1000, 10,000, 50,000 person company, and pull them into a startup. Because it takes three months, six months, of just undoing what I’ll say are perhaps adaptive habits for being at a large company and really bad habits for being at a startup. Taking way too long to ship things, thinking about things too much, waiting for everybody’s permission, politicizing things. There’s all these things that happen at these big companies almost inevitably.
Vice versa, if you work at a startup and you get a job for a Fortune 500, Fortune 1000 company, it can be really challenging for you to try to fit in because the culture is so dramatically different and the pace and there’s a lot of differences there. So I think this is a good reminder of just how different companies function and how drastic the differences can be in the thinking between someone who maybe had run a half a billion dollar, billion dollar company, and who’s coming to run a handful of million dollar company.
But then the other point I want you to take away, of course, is, unless you’re written in a really odd stack that no one can find developers for, no one’s heard of, usually an exit is not going to depend on your tech stack. Again, if you’re using one of the standard tech stacks, it’s not going to be a big deal.
Now, I will say that when I acquired HitTail back in 2011, it was written in classic ASP, which essentially was a deprecated language and it was very hard to find developers for, and I did rewrite that in Ruby on Rails. And I think I would’ve had a very hard time selling that because it was such an old stack. It was old, it was crufty, it had a lot of issues, so rewriting it in Rails was a decision. Now, I didn’t rewrite it in Rails to fix technical glitches or the code is crufty or anything like that. If it had been Rails, I would’ve left it in Ruby. But the fact that ASP classic, which had, what, come out in ’99 or ’98 or something, and really had been superseded by .NET in 2001/2, I mean at that point it was a decade deprecated language and it would’ve been even worse when I went to later sell it in 2015. So those are some thoughts on rewriting your code base for a potential future sale.
The second topic is one that I saw some folks chattering about on Twitter, and it’s around founder salaries. And there was a comparison between companies that had raised a lot of funding and bootstrap companies. And there were companies that had raised, let’s say, 10 million, 30 million, 40 million, and the founder/CEO was making several hundred thousand, two, three, $400,000, and then someone had bootstrapped a company to a million or two million and they said that they were taking home more money than that founder. Which is probably true. I mean, this is no secret. We know that if you solo bootstrap or do a highly efficient SaaS company and you get it to a million, million and a half, in annual recurring revenue, there’s a ton of profit to be pulled off that and that’s an amazing business.
But the thing that it got me thinking about as folks were discussing it is this balance between near term and future earnings. And Derrick Reimer and I talked about this a few episodes ago where I asked him, “How do you think about this? Because you could take a pretty substantial salary out of your company.” In fact, he’s a TinySeed back company. He could take a quarter million dollars a year without paying TinySeed to anything, because that’s our salary cap. Anything above that, then he would pay us our prorata share of dividends. But I said, “You could take a quarter million out a year. I know that you are not. Why not? Why not just take that out?” In fact, he could take out more than the CEO who raised $50 million and then be happy that he had done that this year and next year. And his response was, “But I can use that money to grow my company and I’d rather grow it faster.”
And it comes back to that multiple of, if I add 1K MRR, that is 12K ARR. And if you think about an exit multiple, if you ever sell, and I’ll just say again, everyone sells, then take an exit multiple of say five times ARR and you’re looking at $60,000 for every 1K of MRR that you add, and usually more money if you’re smart and you’re executing well and you’re a knowledgeable founder and you have that hard work, luck, and skill, usually more money in your bank account means you can grow faster, or you can at least attempt to grow faster. And so the less money you take out, the faster that growth, and so you are actually thinking ahead.
I think of it like Warren Buffett used to say, and I’m paraphrasing, “I’m not cheap, but when I look at a dollar today, I know that I can turn that into 50 or 100 dollars a decade or two from now.” Because I know compound interest and I know compound returns specifically of investing in the stocks in the companies he buys.
And I’ll admit, I think about SaaS the same way. I think about startups the same way. That taking a dollar out of your company today is potentially reducing the growth, and it’s potentially taking an extra five, 10, $15,000 out of your company today, let’s say you could turn that into 1K, MRR. And I know there could be a whole conversation around, well, can you? And is it repeatable? Blah blah, blah. Let’s just say some dollar amount, 20, 30, $40,000, it’s another hire. Do we think they can add 1K of monthly recurring revenue if you hire a marketing person or a sales person or another developer or whatever it is, and instead of taking that out, you invest into that. Well that 1K, again, is 60K to your net worth, but it takes a few years to get there and it takes an exit and it takes other things to happen.
Now, there’s a balance here, because you can also be too far on the side of I’m basically going to live in poverty. I’m going to make 30K a year trying to live in San Francisco because I want to reinvest everything. That’s not healthy either. And so I think paying yourself a salary where you are totally comfortable and where you can pay those bills and you feel fine about it. But having that balance of, again, I’ve had lifestyle businesses where I just maximized the cash I pulled out of them. I would pull out 80% of the revenue as net profit. And it was amazing. These businesses were great and they were great cashflow businesses. But I didn’t mistake them for the longterm play that was eventually going to have my goal, which was to have enough money in the bank that I could work on anything I wanted to anytime and beholden to no one, including Google rankings and all the things that even when you have a profitable startup can get in your way of maintaining its profitability.

Bhavesh:
Hey Rob, quick question regarding stair step approach. If part of the marketing strategy that I’ve got includes writing blogs, I’ve figured out that I could potentially use these content to create a course to my target audience. Would that be a stair step approach or product that I could start using while doing the marketing? Or would that be something well off tangent that I shouldn’t be looking at? Really appreciate it if you could answer this question. Thank you.

Rob Walling:
Thanks for the question, Bhavesh. This is a really good one. The answer is, absolutely. And in fact, in the original version of the stair step that I presented at the Dynamite Circle’s BKK event in Bangkok back in 2014, it was a live presentation, step one, it included eBooks, courses, it included software, like downloadable software and AppSource software and simple things that you could use to get a foothold and learn how to make money on the side and then stack that up for step two.
And then step three was recurring revenue. This was not SaaS focused because, see, the Dynamite Circle is a mix of folks doing eCommerce, there’s Amazon FBA, there’s content sites, there’s productized services, there’s consulting freelancing, and there’s software and SaaS as well. And so when I presented it, I generalized it to that audience and info courses, as you’re saying, were on step one.
And then if you go to look at kind of what’s the seminal blog post for this now, when I actually wrote it up, it does focus on software and then stepping up to SaaS, because that’s really how I think about the world. That’s my more specific view of it. But I have been noodling for a while on taking the stair step method of bootstrapping and basically translating it to the stair step method of entrepreneurship. And it’s a little different, entrepreneurship’s higher level, and that would include this type of thing. And I also think that would include freelancing, maybe productized services, kind of stepping up there. So it’s a great question and the answer in my experience is unequivocally yes. I’ve done this myself, where I had my first book, Start Small, Stay Small, I had a couple online courses, I had a membership website, that was all happening as I had these other step one software products. And then I used those to lever up into SaaS, and from there the rest is history, so to speak.
And I’ve seen other folks doing this, so I think it’s a good skillset, and I think it builds exactly what the stair step is intended to do, which it brings you some revenue, brings you some experience, it brings you some skills, it brings you some confidence, it brings you maybe a bit of an audience and a bit of a network. And all of these things make it so much easier to then launch that subsequent product. So thanks for the question, Bhavesh. I hope that was helpful.
Our next question is also from Bhavesh sent just a couple weeks later.

Bhavesh:
Hey, Rob. I’ve just got a question regarding your stair step approach. Looking at the current situation, do you think from your experience that I can sell a Zapier type connection between several products to produce my value proposition to my market? Because at the moment, the potential users, or future users, are connecting several products together manually using Excel, or without anything, or using Zapier, because that’s what we are currently doing in our business. And my MVP is going to be just an API integration between several applications such as Zero.

Rob Walling:
The recording had a bit of an issue towards the end of his voicemail, so we did have to chop it off, unfortunately, almost mid sentence. But I think we got the gist of the question.
This is a good question. And the idea is creating a Zapier type connection, which is really just integration. It’s integration points between several different tools. And his question really is, can he sell a Zapier type connection between multiple apps? And this is just selling an integration, and the answer is absolutely. How many apps in maybe the Shopify app store, the Zero app store, the Salesforce app store, the insert name of platform here app store are really just piping data from the app itself into other platforms? And maybe it’s only into one, or maybe it’s into multiple, they’re just connectors, and those things sell for either a monthly subscription, sometimes a one time fee.
I think this is an interesting idea if you’re building it specifically for a specific niche, perhaps one that you’re familiar with, or maybe you’re working in that space yourself and you’ve seen this need, because if I go to the same app store, I’m not going to see the need if I don’t have the day to day operational need for this type of thing. And so Bhavesh mentioned a couple tools that he’s trying to tie together, and it was… What was it? Like Zero, which is accounting software and then time tracking and something else I actually forgot already. But you can get the idea that maybe Zapier integrations don’t exist between those three. Or maybe Zapier integrations can be a little finicky and a little brittle, and having basically a first class integration that hits the APIs and is just a single click to enable in my Zero or my project management app, and would I pay $15, $50 a month for something like this if it was a desperate need and I needed it to be super reliable? I would.
And as a result, this becomes a pretty interesting step one business, that if you recall the stair step, the step one businesses are usually smaller. Usually you don’t need to do a ton of marketing, because they already have the traffic and the lead flow coming in from the app store rankings. And these are apps that have platform risk and they are pretty much impossible, virtually impossible, to scale into the millions in revenue. But that’s not what a step one business is for. A step one business is for you to learn that experience and get the skills and all that that I mentioned earlier.
So yeah, I think this is super interesting. And I think the neat part about something like this is you could feasibly try to wire it up in Zapier initially, and the MVP could almost be a no code MVP. But if you are a developer, tying a few APIs together isn’t that hard. It’s not having to build the UX and build all that in. Basically just being able to roll some code around and deploy it and test it out yourself and then start charging people is pretty intriguing. So, thanks again for the question. Bhavesh. I hope that was helpful.
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Justin:
Hey, Rob, this is Justin from Fort Worth, Texas. Longtime listener. I had a quick question regarding the tension that can sometimes arise between your founder mindset and your engineer mindset. As a technical founder, we’re both responsible for the business side and the product, but also for building the technical infrastructure that’s going to support that product and the future growth of that product.
I initially built my SaaS app in Python and Django and specifically did that for the productivity gains that I get out of a language like Python. But as we are moving from proof of concept and beta into the actual product release and we’re getting paying customers on board, my initial thoughts start turning from product to scalability. How do I make it faster? How do I make it more scalable? And I’m constantly having to weigh these thoughts on prioritizing product important features and things that are going to move the product forward versus tech debt that’s on the backend that needs to be fixed. I’ve even thought about rewriting the app in something more performant.
I tend to push those aside, but I’m curious if you ever dealt with that as you were building out your products and how you fought against that to make sure that you’re making the right decisions at the right time. Tech debt’s always going to stack up, we’re always going to deal with it, but oftentimes there’s product things that might be more important. So I’m curious if you ever had to deal with that and what the process was to work through what are the right decisions to make at the right time. Awesome. Well, I appreciate your time and hope you have a great week. See you.

Rob Walling:
All right, Justin, thanks for that. This is absolutely a question every SaaS founder, every software founder, has to answer, and it’s one that I dealt with many times over the years. And pretty much almost without exception, every SaaS founder I talk to, whether I’m investing, advising, or just giving one off advice to, one of the biggest pain points of their job as founder is not enough time. “I can’t do everything. How do I know what to spend time working on? Should I market, should I sell, should I develop?” And I do have this framework around leaning into uncertainty that is like, “What should I be working on in general across the business?” And it’s that you should work on the uncertain things as the founder until you figure them out, and then you should hire folks to do the things that are more certain.
I’ve talked about that on the podcast in the past, I actually wrote a section of my book that is actually getting, I don’t want to say close to being done, because let’s be honest, you finish a book and then like five months later you have all the stuff to actually print the book. You got to get layout and designs and all this other stuff.
But all that said, that’s not really the question that you’re asking. You’re not asking me, “Which parts of the business should I work on,” you’re just asking about playing engineering versus everything else, I think. There’s engineering, which is fixing technical debt, improving performance scalability, then there’s engineering that is building new features, and then there’s everything else. There’s doing sales and marketing and support and all that.
Usually support and customer success tend to be easier because you get a support email, you respond to it. And if you have someone to onboard, you do it. The harder ones are like, “Should I switch over to marketing today or should I work on the product or should I fix tech debt?” And it’s always a tough balance and that’s why being especially a solo founder is pretty tough. And that’s why especially being a solo founder without funding to hire your co-founder, in essence, or to hire someone who can do this other stuff, is even harder. And again, this is why the stair step is such a popular framework, because if you do that, you eliminate a huge piece of your decision making, because at that point you’re either building or supporting.
I mean, that’s kind of it. You build a Shopify plugin, you’re not out marketing that thing, not unless you want it to get past a certain point, but usually it’s in the app store and you’re just getting that traffic coming in. Same with wordpress.org, it’s much less of a going concern than once you have a full blown SaaS app. So a single founder, bootstrapped, first time SaaS founder, is really hard. Nights and weekends especially add to that really, really, really hard.
And this is why I would advise, again, Justin, I know you’re already working on something, so keep doing that, you’re in the middle of a product, but the idea of the stair step and of the step one and step two is to eliminate part of this really difficult time. And that’s also the idea behind raising some funding. And you know that I have not been anti-funding and I’ve not been pro-funding, I just view funding… It’s like saying, “Rob, are you anti-hammers?” And it’s like, “Well, no. When I need a hammer to do a job, I go grab my hammer and I pound in the nail. But I also don’t use it to screw in a screw, because it’s not made for that.”
Funding is a tool, that’s it, so why would I be anti or pro? Know what you’re getting into, use the right tool for the right job, know the trade offs that you have to make with it. But that is why indie funding, TinySeed type funding sources, have become so much more popular for bootstrappers, because you are at a point where it’s really hard and there’s just no two ways about that. And in that situation, it’s a lot of hard decisions with incomplete information, as I like to say.
But to answer your question more specifically, what I’ve seen as folks start to scale and they’re trying to balance, let’s just say, technical debt versus feature building, I will often see either if they’re using sprint models, then one out of every four, one out of every eight sprints is dedicated purely to technical debt and cleanup, or it’s 20%, or some number that you feel comfortable with, of the time is spent cleaning up technical debt as you go forward. So if you’re not doing sprints, it’s one day a week or if you have four developers, five developers, one of them rotates around and just does all technical debt stuff.
80/20 is a reasonable thing to think about. Some teams want to get rid of more technical debt and some don’t care as much about it. So that’s more on the engineering side. If, as a single founder, I was weighing engineering versus marketing, I mean, I think as engineers we want to lean into the stuff we’re comfortable with and we love doing, and of course that’s building product. That’s why we start startups is to build product, and so I think you need to really resist that urge. I think you need to be very mindful that marketing and sales are going to be something that your psyche naturally pulls you away from. Your lizard brain is going to constantly say more code, more code, more code, code works, code makes the business successful. And that’s not necessarily true. It can be, but for the most part, driving more leads, optimizing those funnels, talking to people, making sales and onboarding are what’s going to actually grow the business, and the code is the product that allows the business to exist.
Don’t get me wrong, it provides tons of value to your customer. Obviously, as a product person myself, I don’t minimize the value of the product itself or of the code, but it is just the common trope, and I see it over and over with folks who are just overbuilding and spending way too much perfecting, and they redesigned their homepage and they rewrite their copy and then they have another redesign, and then they redesign in the app because they didn’t like it. And you know what, I’m just going to scrap this in rewrite the whole code base, and then I’m a year and a half later it’s like, why haven’t you just sold? Why haven’t you just sold? Just marketed? Get more people into the app and start growing your MRR. I appreciate the question Justin, it’s a fun one to think through and I hope that was helpful.
So that’s it for today. I hope you enjoyed as I ran through these listener questions. We have a pretty decent backlog, although several of these, since they were video or audio, jumped straight to the top of the stack. It looks like there’s about a dozen text questions and about two or three video questions right now. If you want to ask a question, go to startupsfortherestofus.com and click the link at the top of the page that says ask a question and you could submit one in any format there. Or you can email straight to questions@startupsfortherestofus.com.
This is Rob Walling signing off from episode 631. Thanks so much for joining me this week.

Rob Walling:
Welcome back to another episode of Startups For the Rest of Us. I’m Rob Walling. This is the podcast for folks who want to build amazing startups, but they want to maintain their freedom, their purpose and their relationships as they do that.
You can describe these startups as bootstrapped or mostly bootstrapped or non-venture track or indie SaaS. It’s a bunch of different ways, but we know that the gestalt of the movement is that people want to be in control of their destiny and not beholden to anyone else.
I really appreciate if you’ve left a review or a rating in Apple Podcasts. I’m on my drive for 1,000 ratings and as of a couple days ago, 998. The most recent review was from Val Sopi. He said, “Startups For the Rest of Us is everything you need in a podcast show about bootstrapping a SaaS business. From pricing strategies to marketing, all the way to real stories from the trenches, it has it all.” Thanks for that, Val.
You don’t even have to write a review. If you click that five star button in Apple Podcasts, we’re going to hit 1,000 in no time.
I really do appreciate everyone’s support. It helps us grow the podcast, and it helps keep me motivated to keep shipping episodes.
Today I talk with Jonathan Weinberg. He’s a single founder of an app called Builder Prime, which is CRM software for home improvement contractors.
Jonathan is approaching a million ARR as a niche SaaS founder. He’s serving home improvement contractors. Obviously, there are only so many of those in the country and only so many of those who don’t want to use paper and pencil or don’t want to use Excel, and actually do want to purchase a SaaS app to handle a lot of their client communication.
We touch on how he came up with the idea, how he got early traction. We of course, have our recurring Startups For the Rest of Us segment, when did you know you had product market fit and others. I hope you enjoy this story. Let’s dive in. Jonathan, thanks for joining me on Startups for the Rest of Us.
Jonathan Weinberg:
Oh, thanks so much for having me, Rob, come to be here.
Rob Walling:
Yeah, it’s good to have you, man. You’re a listener of the show. Right?
Jonathan Weinberg:
I am. I was a late starter, to discover the podcast, but since I did discover it, that’s basically every single week.
Rob Walling:
Oh, awesome. That’s cool. So we’re here to talk about Builder Prime, sir. This is a pretty incredible SaaS company that you’ve built.
I think a lot of folks listening to this, would love to build a company that has been mostly bootstrapped to this point and have the success that you’ve had.
Your H1 is the only does-it-all-contractor, CRM software suite. Builder Prime has every tool you need to scale your home improvement business. That’s how I usually describe it when I mention it, here and there, ’cause it’s such a good example of a niche piece. I’m always like, it’s CRM software for home improvement contractors. Is that how you describe it too?
Jonathan Weinberg:
Yeah, that’s the brief version of how I would describe it. Yeah.
Rob Walling:
Talk about where you are, in terms of progress.
Jonathan Weinberg:
Absolutely. So we’re about to hit a pretty big milestone in the next month or two. We should be hitting a million in ARR. So, pretty excited about that.
We’ve got five people on the team, including myself, right now. Looking to grow that out a little bit further. Hopefully going to be hiring another couple of people here in the next few months, just going from there.
Rob Walling:
That’s cool, man. A million ARR with only five people, so you’re running it pretty profitably I’m guessing.
Jonathan Weinberg:
Yeah. I mean, I’m looking for places to spend money now, but yeah. The last two employees to the team was actually pretty recent, started just a couple of months ago.
So, we were three for a while. Now we’re five. Hopefully getting to seven in the next couple of months, but yeah.
Rob Walling:
Do you find it hard to decide on what the next role is to hire? Because this is something I hear from a lot of founders. It’s like the first hire, I can give a lot of guidance. It’s like, usually support’s pretty easy to outsource. Or you have to build features to keep up with the market, so you’re going to hire developer, or well, we need to do marketing set.
I would say the first one may be easier to figure out. But as you go, once you’re at five, it’s like, well, what is six? Aren’t there competing priorities for that? How do you think about that as a founder?
Jonathan Weinberg:
Yeah. I mean, it’s actually not that difficult. It’s one of two things. One is, well, what job do I want to fire myself from next? That certainly provides input into it.
The other thing that, for example, I find myself keep trying to get to, I keep trying and trying and trying to focus on marketing. I can never focus on marketing, so I need to hire somebody for that. So, it’s pretty straightforward.
I’ve gone back and forth, as to whether my next one should be that marketing person or another developer. But yeah, I’m going to do both of it at the same-ish time. So, it hasn’t been too difficult to figure out what’s next.
Rob Walling:
I want to take people back to the early days of Builder Prime, so they can hear how you came up with the idea, whether you validated it, whether you built it.
I’m chuckling because you are the reason that in the State of Independent SaaS survey, when we ask, how did you come up with your idea, and you are the reason that there is an option on there that says poor customer experience. Is that the origin of this?
Jonathan Weinberg:
It’s not, actually. No. It was actually a great customer experience, which is the odd thing. I had no experience in the home improvement, business prior to this.
We bought our first house in 2011. We went to get our bathroom remodeled. We went through the whole process of selecting a contractor and getting the job done. It was actually just an amazing experience.
Loved the transformation. Started thinking about, oh, this would be cool to have a business, my own home improvement business, where I can do work like this. But I was never really going to get away from the tech side of things.
So, the idea just started to sit in the back of my head as far as, well, if I were doing a business like this, what type of tech would I want? What type of systems would I want, to be able to manage this effectively?
There were inefficiencies, in terms of how our contractor operated. Yeah, if I were doing this, I would fix those things, for sure. I could do this much better, if I pictured myself in his shoes, with these types of tools. So, that’s really where it came from. But it was a great experience really, that drove it.
Yeah. I did not validate the idea. Not the most advisable thing, but it seems to have worked out. So, it really just from there, after I got the idea in my head, sat there for a while and finally started to tinker and all of that.
I called up a couple of contractors that I knew, including the one that did our bathroom and just asked, “Hey, is this something that you think is needed? Is this something you would use?”
Of course it was, “Oh yeah, that sounds really cool,” but nobody committed to anything. Nobody said, “Oh yeah, I want to pay you now and once it’s ready, let me know.” Nothing like that.
So, it was really just building stuff and building and building and building and hoping that it was going to work.
Rob Walling:
So playing with fire a little bit?
Jonathan Weinberg:
Yeah.
Rob Walling:
Which is dangerous. You could’ve built for a long time and not got traction. Yeah.
Jonathan Weinberg:
Yeah. I mean, I was getting a lot of early feedback. As I was building, there were a few different people in the industry that I was getting feedback from. So, it wasn’t like I was completely building in a vacuum. So there was a lot of that.
But yeah, it was 2016 that I quit my job. It was really not until mid-2017, that I got my first paid customer.
So, I was just building the whole time. I wasn’t even sure if it was ready yet. I was getting feedback the whole way, as I was developing. But my first paid customer is not the one who was providing that feedback, actually.
Rob Walling:
Couple things that are interesting. One, for some reason I had it encoded in my mind, that you had a home improvement contractor who did work and you thought the work was good, but you didn’t like the experience. Therefore, you set out to build it.
It sounds like that’s a half truth. It’s human memory. You told me this story once, three years ago, probably, on TinySeed interview or at a 2- minute thing, where I’m doing six calls back to back. I think I encoded that in my head.
Jonathan Weinberg:
Part of the sales experience was not the greatest. For example, the part of getting the contract, it was a Word Doc. I had to print it out, sign it, scan it, send it back.
So, there were parts of the sales process and parts of the communication that were not the greatest. That’s where I set out to try and solve some of those issues. So, that could be where some of that’s coming from.
Rob Walling:
Right. So you didn’t do much validation. You had a few phone conversations. You quit your job without a product. So, did you have money in the bank? You have a trust fund?
Jonathan Weinberg:
I did pretty well in my career. For the first 12 years I was in corporate America, worked my way up the ladder into middle management. Middle management was not for me.
For me, I either got to be all the way at the top or all the way at the bottom. I think I can be happy in either of those spots, but I don’t like being in the middle. But yeah, that just wasn’t the right thing.
I saved up money. I’m a conservative spender, so I saved up a good bit of money. I knew I wanted to do this. I was saving up for that purpose. I wanted to have some runway to be able to basically not make any money for a little while.
Rob Walling:
Were you married at the time?
Jonathan Weinberg:
I was married. No, I had both of my kids, so they were five and two.
Rob Walling:
How did you get your wife on board with that decision to quit the day job with no income?
Jonathan Weinberg:
Yeah. She was always very supportive. Part of it, we were living in Pittsburgh, Pennsylvania at the time. She wanted to move back to New York City, where we had lived prior.
I’m originally from New York. I really liked living in Pittsburgh. So part of her idea was, hey, let’s move back to New York. We’ll be closer to your parents. We’ll get more help with the kids. You can quit your job and do what you want to do. So, that was part of it.
So we moved back and to a much more expensive place to live. I still quit my job.
Rob Walling:
Was that scary for you? Because that would feel very stressful to me, to quit the job. Or did you just say, worst case, I go back and get a job?
Jonathan Weinberg:
Yeah. Oh, man. The first six months, I would say, at least of making no money, was a shocker for me. It was so stressful. I’ve never been in that position before. That part, it was an adjustment. It was definitely an adjustment and a roller coaster.
Rob Walling:
I can imagine. So you quit the job. You have two young kids. You’re building a startup, which I’ve been in pretty much the identical situation. Not where I quit the job though. I had other income coming in from products.
So you built for a year before you got your first customer, it sounds like, 12 to 18 months.
Jonathan Weinberg:
Yeah, about six months. Yeah.
Rob Walling:
Oh, only six months? Okay.
Jonathan Weinberg:
Yeah. I mean, there were nights and weekends before [inaudible 00:10:51] all that, but yeah.
Rob Walling:
Sure. Sure. In process, yeah. How did you get your early traction? How did you get your first whatever, five or 10, 15 customers?
Jonathan Weinberg:
It was just iterating, listening to feedback. There was one really interesting and helpful thing that happened. I believe he was my third customer. I met him at a local home improvement contractor association meeting here, that I joined up.
He became my third customer, was really into it, lots of great feedback. He was helping me to understand some of the things from the industry and what kinds of things were important. A lot of it was really great.
I tried to use my filter as far as, okay, yeah, that makes sense. This, I’m not so sure this fits with the vision. But he was giving me a lot of really good feedback.
At the end of 2018, start of 2019, he was already a customer for a while, but he called me up. He’s like, “I had to fire my office manager.” He’s a window and door company.
He’s like, “I had to fire my office manager and I really need some help. I need somebody in the office. Why don’t you come and work for me? I’ll pay you to be my office manager.”
Nah, I can’t do that. I’m working on the business. I got to keep growing this thing. I got to keep working on it. I got to focus on it.
He kept coming back, “Why don’t you come? Why don’t you come work for me? Why don’t you come work for me?”
I thought about it a little bit more. Honestly, my runway was running out. At that point, I don’t think I had started paying myself yet. So, it was like two years in and I still hadn’t paid myself. The runway was starting to get less than I was comfortable with.
You know what? He said I can do demos. I can work on it half the time. I just got to be in the office, do about half… basically work four hours, half the time each day.
It’s like, all right, you know what, let’s try it. Turns out it was one of the greatest things that could’ve happened.
I got to use my own product as a user, every day. I got real time, amazing feedback, as far as what’s needed and what this industry really needs. That was the time that I did a bit of a pivot.
Prior to that, to be honest with you, I didn’t know I was building a CRM. If you would’ve told me when I was first starting it that, hey, you’re going to pivot this into a CRM, I was like, I’m not going to build a tool for sales. I’m not the sales guy.
But based on where the need was and the feedback from him and from other customers, it’s just kind of where things naturally went. That’s where the gap was. That’s where the need was. That’s where we started getting a lot of really good feedback about those types of things that we were building.
So, it was during that time of being a user of my own product and working directly in the industry at the same time and learning a lot more about the industry, that I didn’t know, that actually helped to shape what it is now.
Rob Walling:
What was it before?
Jonathan Weinberg:
It was more of a project management tool.
Rob Walling:
For during the project?
Jonathan Weinberg:
Yeah. I mean, it did the contract process, like I was saying earlier, about how the process around signing the contract wasn’t great. So, we built the e-signatures and all of that type of… and the ability to create the estimate, get it signed and do all of that early on.
And then it was about scheduling the job and scheduling your employees and your subcontractors and having a Gantt chart, with dependencies between this task and that task.
All of that stuff is actually still there. It’s still in the product. That’s one of the things that that’s made us a little bit unique compared to our competitors, is because other CRMs in this space, there are other CRMs for home improvement companies and they don’t have either that production project management at all or some of them don’t even have the estimating. The ones that do, it’s much lighter.
So, like you were reading the H-1 earlier, the does-it-all CRM software suite, it does more than the CRM because that’s kind of how we started. We started with the estimate and the production management side, and then the CRM pivot came later. But that’s really been the focus of the product development for the last three years.
Rob Walling:
In terms of finding early customers, a lot of folks find that’s very difficult because it’s the cold start problem, where you basically have no brand name. No one knows who you are. No one knows how to find you, no one knows that they should be looking for you.
So was it cold outreach in the early days? Did you make it to the top of Hacker News and the r/construction subreddit?
Jonathan Weinberg:
One of the things, so with that pivot and repositioning as a CRM, that’s what people search for. That’s why we always say, hey, what do you do? Oh, we’re a CRM for home improvement companies, because people are searching. The people know the term CRM. They know they’re supposed to have one. They know it’s a big part of what their businesses are, especially the ones that are growing and scaling and have a significant volume of leads that they need to track and manage. So, people searched for that.
We built out a couple of… I’ll say maybe five or so different copies of the landing page, with different H-1s on it. It was best CRM for painting contractors. It was a different header image. It was best CRM for window and door companies, with a different header image.
It was basically just a copy of the landing page, but it seems to have worked reasonably well for people that were looking for us in those real specific niches.
Rob Walling:
Right. So it was an SEO play then?
Jonathan Weinberg:
Yeah. Yeah. Yeah. Pretty much. And then there’s some word of mouth as well.
Rob Walling:
Yeah, I would imagine that. Construction is a small industry. My brother runs an electrical contractor. There are not a kajillion of these contractors.
Even if you talk in California alone or in the country, they talk a lot. The owners talk to each other. So, I can imagine if you get a reputation that that brand… Once you get past the cold start and you are now known as a solid product, I would imagine people would be passing that around.
All right, Jonathan. We’re going to do the Startups For the Rest of Us segment, when did you know had product market fit?
Jonathan Weinberg:
Like most people will say, it’s a sliding scale of product market fit. I think in the early days or the earlier days, I’ll say, started to realize that we’re getting there, based on just customer feedback.
Even though we didn’t have a lot of customers just yet, the ones that we did have, we’re talking to them all the time. It’s very hard for us to get any kind of customer without talking to them, at least for one or two meetings, if not a good bit more. So, we get a lot of feedback.
We would have people come and say, “I’ve been searching for something like this for so long, I can’t believe I finally found it.” They would say different things where it’s like, they were fans. They were actual fans. It’s not often that somebody says, I love my CRM, but we were getting people saying, “I love this CRM.”
It was like, all right, we’re on the right direction. We’re finding a need. There’s a need here. We’re filling it, at least for some of them. We got to do it for more, but at least for some of them, we’re filling it. So, that was the first part of it.
A little bit later on, this is a little over a year ago, we had a really bad outage. I did a database upgrade over the weekend. Monday morning came.
During the week is when we have much higher traffic than on the weekend. Monday morning came. About 10:00 AM, everything started to crap out.
There was just, people couldn’t use it. The database was just obviously not able to keep up with the load. We just upgraded the database. Why is it now having all of these problems? We’re out for probably at least a good four hours. This is the stuff that nightmares are made of.
But the thing is, we’re getting calls from customers saying, “What’s going on? I can’t access it. Keep us posted.” They’re saying, “I don’t know what to do without the system. I don’t know what’s going on. I don’t know how to do anything.”
So, it was clear that, people are using this software. It’s helping them. With it not being there, it’s a big problem. So, that was another little clue I guess, as to, yeah, it sounds like we’ve got some product market fit.
People are really using it. They’re getting a lot of value out of it. Being down for any period of time is a big problem. So, that was another part of it.
Then as we continued on from there, net negative churn. So that’s a pretty good indicator that people are not churning out. That’s another really good indicator.
Even just yesterday, we got a phone call from a manufacturer for concrete coatings. We have a lot of customers that are dealers for this particular product. They do concrete coating jobs. We happen to work really, really well with them.
They called us yesterday and they said, “We’re having a national dealer meeting in December. We are going to kick out your competitor that’s been sponsoring for the last however many years. We’d really like you to be there, because we keep getting such great feedback from all of our dealers, about the product.”
That’s just the next level. It’s like, all right. I mean, they’re not just telling us they like the product. They’re telling everybody they like the product. Obviously, the revenue and the metrics tend to speak for themselves as well.
So yeah, it’s been a sliding scale. I think it’s something that you’re always trying to get better, in terms of the product market fit.
We’re continuing to do that. There’s still a lot of things that we’re continuing to do, to evolve the product and keep up with a changing market.
I mean, markets aren’t static. Markets change. So, you also have to keep the product up with a changing market. It’s never ending, trying to keep up with it.
Rob Walling:
I’m glad you called that out because I always say on this show, product market fit is a continuum. It’s not a one or a zero. It’s more like a one to a hundred.
At different times, with different audiences, you have more or less product market fit, stronger and weaker, as we like to say.
In addition, you just said markets are not static and they change. I have absolutely seen products get pretty strong product market fit, and then the needs of the market change.
An open source tool comes out, for example, that suddenly a lot of people start using and is almost the equivalent of what you’ve built. And suddenly it’s like, now I have strong product market fit again, not have people canceling, have people really, really want what I’ve built. I have to pivot. I have to add more features. I have to give more value. There’s something there.
So there aren’t that many software companies that last 10, 20 years. There are some. We can call them out. But even those that last, they don’t do it with one product. Microsoft, Oracle, Intuit, whoever we could throw out who’s been…
Even, I guess MailChimp’s one. But man, there’s some exceptions around there. Their product is now several products, just under one subscription. It’s not just email marketing anymore. It’s landing pages. It’s Facebook ads, I think you can build directly, MailChimp. So, they’ve added a bunch of stuff.
These are good problems to have because you don’t run into these until you have the kind of traction that you do, until you start getting bigger and you do have product market fit. Then you get the competitors coming in.
The other thing I want to call out is this idea that folks are such advocates for you. They’re such fans of your product that they’re telling everyone they know, it sounds like.
That is what Jason Lemkin calls a mini-brand. He says, when you hit about… once you get north of one million ARR….
I distinctly remember this happening with Drip. It was a little before that because of the circles we ran in, where everybody talks online. So, it was somewhere between half a million and 750, if I recall.
But you’re seeing that now, where you’re not Pepsi, you’re not Disney, you’re not Marvel. But a mini-brand is that, you have a brand within your circle, that a lot of people have heard about you.
In fact these days, I bet if a group of contractors are sitting around the campfire, I bet they’ll be surprised if a person there hasn’t at least heard of Builder Prime.
Jonathan Weinberg:
Yeah. I think that the market is also a lot bigger than people might expect. We’re still such a small player in this space. There’s so many people that are using other CRMs and estimating tools and all that kind of stuff. There’s so many people that are not using anything or don’t even know that this is something that they need, or maybe it’s something they don’t need yet.
So, I think there’s still a lot more opportunity to break in, in terms of name recognition. People really, even if they’re not customers, at least hearing of us, a lot more have these days.
It’s funny. There was a story… this was about a year ago or so, where one of our vendors got an Uber. Somehow, they got to talking about what they do. The vendor that got the Uber, the person driving actually also worked at a home improvement company that was a customer of ours.
They got to say, “Oh yeah, I use Builder Prime every day.” The vendor’s like, “Oh yeah, we work closely with them,” which was kind of crazy to hear.
There’s still so much room to grow, in terms of this industry and then that name recognition, but we’re definitely starting to make a dent.
Rob Walling:
I’m looking at your MRR graph. There was a point, it was maybe late last year, early this year, where you hit what I call the bootstrapper hockey stick. Because venture says the hockey stick, and you see Facebook and Google. That’s just next level stuff. But for bootstrappers, your growth really started accelerating at a certain point.
You and I had had a conversation last year, where you said, “Right now I’m growing at,” whatever you were growing at. You’re like, “I want to double or triple that by the end of the year. How do I do it?”
Came up with a bunch of strategies. You obviously executed pretty well. So my question on this is, how did that happen?
Every bootstrapper wants to achieve the bootstrapper hockey stick. What do you think you did that worked?
Jonathan Weinberg:
The flat part of that hockey stick is actually where we screwed up. We made two big changes at the same time, right around Memorial Day last year.
We changed our pricing, which essentially resulted in an increase in price. We also started moving away from emphasizing, book a call with us. Book a call with us. Let us help you. Let us help you.
So, we tried to push people more to self-service. They weren’t looking for self-service. They wanted that hand holding, those calls, those Zoom sessions. So, we did both of those things at the same time.
We weren’t quite sure what the problem was, but basically, we flattened out for a few months. And then it’s like, well, people aren’t complaining about the price. That doesn’t seem to be where we’re having the resistance.
Let’s reverse course. Let’s go completely the opposite on the phone calls and the onboardings and all those Zoom meetings. Let’s get meetings on the calendar. That’s our new focus. Let’s get meetings on the calendar.
So, we did that and things turned around. Not only that, they turned around with higher pricing. So, we had that little blip, but the higher pricing definitely was a driver.
Besides that, it was also just continuing to iterate, add some key features. For example, we added automated text messaging and SMS-based marketing and all of that kind of stuff.
That was actually a big driver for people to upgrade their subscriptions. It a completely different revenue stream, because we charged separately for text messaging, in addition to being on a higher tier subscription.
So, some different things like that. But definitely the price increase, continued seeking of that product market fit and some key new features and revenue streams, I think altogether, is what really helped to accelerate that growth from that point.
Rob Walling:
Yeah. Often, when we see an acceleration in growth, pricing has something to do with it, pricing and/or the sales model. It’s both things you were trying to change.
Obviously, your recommendation at this point would be, don’t change both of them at once. That would be mine as well. Right?
Jonathan Weinberg:
Yeah. Yeah.
Rob Walling:
You do one. You let it settle because you know all your metrics, you know your numbers. When you change two things, you’re like, uh-oh, I don’t really know. I don’t know which of these impacted it.
But what’s funny is, you quickly reversed course. You were A, willing to make pretty drastic changes, like raising prices and changing your sales model, which is scary and risky, but you were willing to take that risk and maybe make a mistake.
B, you did them relatively quickly and you undid the mistake relatively quickly and you pushed forward.
That’s what I see great founders doing is that, A, willingness to make mistake, B, the willingness to do things quickly and C, the willingness to make potentially scary, strategic high-level changes because those are often the ones that move the needle a lot.
You can make a bunch of little tactical things like, well, let’s do a little more SEO, or let’s do a little more cold outbound. Or you can say, well, let’s double our pricing. Let’s go demo only or no demos anymore. These are drastic changes, and they can be scary.
Jonathan Weinberg:
Yeah. Definitely don’t do both at the same time. One big thing at a time. But yeah, at least we figured out what the… We let it go for a couple of months. It was the summer. Everyone was saying, oh, the summer is slow.
So, it was like, oh, it was probably just slow summer. We just happened to make these changes right before that kicked in.
But that wasn’t the case. It wasn’t because of the slow summer. We screwed that up, and we didn’t know which one it was. But we took an educated guess, reversed as quickly as possible, and everything started coming back stronger than before.
Rob Walling:
Before we wrap up, I want to ask you maybe one or two more questions. With permission I want to talk about this topic that you raised to, I think it was Anar and I, via email a few weeks back.
You were saying, “I’m working a lot and there’s a chance I might want to… What’s next? Should I sell the business? Should I think about selling the business?”
You had a big decision. Where are you today? Where did you wind up? What was that decision process like for you? Because I know that there are a lot of folks who build a great business and who get to this point, whether it’s half a million, two million, five million ARR, where you have a lot of options on the table, to get liquidity. You also have, not enough diversification is what it mines to. ‘Cause you have literally millions of dollars in net worth, tied up in a software company. So, talk us through what you were thinking and where you wound up today.
Jonathan Weinberg:
Yeah. Yeah, for sure. So we’re reaching that stage where there are more options on the table. I work a lot. I work too much. I am seeking more balance.
I think the idea of selling is a bit of an overreaction to that. I would go from working too hard to not working at all.
I love doing this. I love what I do. I’ve been doing it for six years now, and I’m not tired of it.
I don’t want to work quite as much as I’m working now. I’d like to get that down to normal levels, be more present for other areas of my life and my family and everything like that, but I don’t want to go to not… I don’t know what I would do next. I like doing this.
So I started thinking more about, well, maybe take some chips off the table and see if I get some investment, take on additional equity partners or something like that.
Honestly, I could do that, but it’s going to take time and effort away from what I want to do. That’s continue to build and continue to just…
I can hire more people. I can grow the team, I can do all that stuff. I don’t need the money for that. It would just be really for me, personally.
You had mentioned something on the podcast just recently, about how every additional, let’s say thousand dollars in MRR that you add, well, that’s times 12 for ARR and times whatever multiple you want to go with. Let’s say a 5X multiple. Every month, you’re adding 60,000… for every thousand dollars of MMR, that’s $60,000 in equity that you’re adding to the value of the company.
You start thinking about that even in higher amounts that you’re adding each month. And it’s like, wow, that’s pretty powerful.
So I’m going to keep trying to fire myself from as many things as I can and grow the team and just work towards working less, but there’s no need to do anything different.
I love what I do, and I really want to keep building this. See how big we can make it. Keep helping more people. Keep getting more of those fans. That’s really what I’ve always sought out to do, is to build something that people use on a large scale and get a lot of value out of.
So, if I can continue doing that and just not stressing myself out quite as much as I am now, that’s really where I want to be at.
Rob Walling:
Yeah. Given all that, for you, where you’re at, selling would be a permanent solution to a temporary problem, because you’re going to be able to figure out how to get around the overwork and the stress. I believe in you to do that.
I do think a lot of founders come to that point where they feel the stress and an exit just becomes… it’s one possible solution, but there are many others. It’s to be less stressed. It’s to figure out how to do that, whether through hiring, whether through… I mean, there’s tons of options.
I’ve done therapy. There’s a lot that you can do. You can take a sabbatical. I know a founder who took a sabbatical just a couple months ago. He’d been working on a company like 10 years now. He’s kind of burning out. He took three months off because they’re bigger. He could actually do that.
So, there’s a lot of ways to think about that. I think if you’re listening to this and you’re at a point where you’re thinking about selling, A, now’s not the best time to sell because the economy. But B, just make sure that there are permanent reasons why you want to sell. It’s not just temporary roadblock stuff.
Jonathan Weinberg:
Yeah, no, very well said.
Rob Walling:
Thank you so much for joining me, sir. If folks want to see what you’re up to, BuilderPrime.com. I appreciate it.
Jonathan Weinberg:
Yeah. Thanks so much for having me, Rob.
Rob Walling:
Thanks so much to Jonathan, for joining me on the show. It’s always great to have longtime listeners on the show. It’s great for a couple reasons, because they know the format of the show, they know how we tell stories here.
But also, it makes me feel incredible to have folks who may have not had a business at all and decided to start a side hustle, and then they go full time. And then, eventually they’re approaching a million ARR. They’ve built an amazing company, that has changed their life and provided them with the freedom and the purpose and allowed them to maintain incredible relationships, while they remain in control of their company and of their destiny.
Very meaningful to me, to have folks like Jonathan on the show, who have followed my journey, have followed this podcast, have followed MicroConf, TinySeed, whatever it is. That’s the mission of all of those things, to multiply the number of independent SaaS founders in the world. So, thanks for joining me again this week and every week. This is Rob Walling, signing off from episode 630.

Rob Walling:
This week I’d like to make the announcement of our early lineup for MicroConf US 2023. This is in Denver, Colorado next April. It will be co-hosted by Lianna Patch of Punchline Copy. We’ll have talks from Dev Basu, the CEO of Powered by Search, Patrick Campbell, founder of ProfitWell, currently the Chief Strategy Officer of Paddle.

And we will have our special guest, Syed Balkhi, the CEO of Awesome Motive, in addition to myself co-hosting with Lianna, and I’ll be doing a talk. If you want to hang out with a couple hundred non-venture track, indie SaaS founders in Denver, Colorado, next April, head to microconf.com/growth. It’s going to be an amazing time. I hope to see you there.

Welcome back to Startups For The Rest of Us. I’m your host, Rob Walling. This is the podcast for bootstrap and mostly bootstrapped SaaS companies that want to build incredible businesses without sacrificing their freedom, their purpose, or their relationships along the way.

I have, what I consider, an interesting episode today. I’m going to dive in to an idea validation framework I’m calling 5 P.M., because it is, after all, five o’clock somewhere. So this is not about happy hour, nor is it about drinking mezcal and bourbon. As much as I like to do those things, it’s a framework that looks at startup ideas and uses different criteria and different lenses through which to view them.

So, I’ll get in to what 5 P.M. stands for in just a minute. I did want to thank everyone who has left a rating in Apple Podcast. Since I started my drive to 1000 ratings, we have jumped a substantial number and I don’t remember the exact number, but I think we were in the mid eight hundreds approaching 900.

We’re now at 995 ratings, which is just incredible. We’re about to cross that four figure mark. Ratings are different than reviews. Ratings are when you log into Apple Podcast and you just click five stars. And if you could do that, that’d be amazing. But we also got a bunch of new reviews this week. Bjorn Brinjar from Iceland. I was just in Iceland a couple weeks ago, would’ve been cool to hang out. Bjorn says, “The best resource on launching a SaaS app. Discovered the show six years ago, went back and listened to all episodes and never missed a new release. Following Rob’s playbook, currently stair stepping a SaaS product towards 1000 MRR. Highly recommended.”

That’s awesome. Thanks, Bjorn. Steve at Devia Software says, “Not just for pure startups. In a world filled with fluff content, this podcast really delivers. I’ve been running a software company for over 15 years. It’s devia.com, and every episode sparks at least one talking point with our team.”
Solist from Denmark says, “Great inspiration for me as a bootstrap SaaS founders. And SkiBikeSkiClimb from the US says, “Rob W., The person behind your success.”

SkiBikeSki wrote me a letter in their review. “Hey Rob, recently sold most of my business with an option to sell the rest in all caps. I could not have done it without your guidance through your podcast. Worked on it about 20 hours a week since 2014. I live in Montana, close to a ski resort. Backcountry skiing, rock climbing, and mountain biking. And thanks to you one of those things got done five days a week for the past eight years. I’ve created a great lifestyle business for sure. I started the business in my fifties with no knowledge on how to run a SaaS biz and everything I thought at the start was wrong. 300 episodes later. Here I am.”

This is awesome. Thank you again, so much, if you’ve left a rating or a review. And since we’re five away from a thousand, it’d be great if you could log in and click that five star button. And with that, let’s dive in to my idea validation framework I’m calling the 5 P.M. Framework.

So, the reason I’m calling it that is there are five Ps and one M in the framework. Yes, it’s that clever. So in relative order of importance, the letters that make up the acronym are problem, purchaser, pricing model, market, that’s the M, product founder fit, and pain to validate. And below each of those, of course, there are sub bullets, right? So under problem, some things to think through and answer about the problem are, is this an important problem? And is this an urgent problem? Vitamin versus aspirin.

So if you’ve ever seen those matrices where it’s tasks that are on your plate and it’s how important and how urgent, and there’s four boxes. In essence, is this an urgent and an important problem? Is this a not urgent and an important problem? Not urgent, not important? It’s interesting to think about that, not as a two different binaries, but actually as a four-boxed matrix.

In addition, I have a note that I’ve started saying to founders when they want to tell me about their idea and I say, “Don’t tell me what your idea is, tell me what problem it solves.” Start with the problem, and then you can tell me what you want to build to solve it, because I actually care way more about the problem you’re solving, than your idea. Because your idea is one solution to that problem. Think about that. Think about when a customer emails you and says, “I would love to be able to send an email whenever I click something in your app, so can we add a ‘send email’ button to this particular space in your workflow?”

And you think to yourself, that would be a really weird place for that button and no one else will want to do that. But is there a way to generalize this? Is there a way to add an automation that happens every time someone does a certain thing and one of those automations is sending an email, but there are 10 other options. This is where a customer brings a solution to you that’s not a good one, but they do have a problem they need solved and you can figure out a bunch of different ways to solve that. That’s what I’m saying here. Don’t tell me your idea, tell me what problem it solves. And then from there we can think through, well is your idea the best way to solve that problem or are there other ways? Is software even the best way to do this? Or is a productized service or is consulting or is a two-sided marketplace? There are so many different ways that you can solve the same problem.

I’m going to run through the other letters and then I want to do at least one, maybe two examples depending on how much time we have, and run them through this 5 P.M. filter. This is very much a work in progress by the way. It’s something that has obviously taken shape over 10 plus years of thinking about it. And I had a bunch of notes, and at the encouragement of some folks on my team at MicroConf and Tiny Seed, I’ve been trying to codify and refine it and sharpen it a bit.

So, I want to go through the letters and then do at least one, two examples depending on how much time we have. The first one was problem. The second P is purchaser. And so this is obviously about your buyer, right? Does this buyer tend to adopt new technology? So we can compare medical devices, we can compare attorneys with developers and maybe web designers, right?

So, attorneys, a lot of them tend to be pretty tech resistant. Medical devices, of course there’s new tech coming out, but it’s a very hard sale to make, right? Versus web designers, web developers, they’ll try a lot of different things. People on product hunt are going to be more likely to adopt new technology.

Is the purchaser willing, and do they have the ability, to pay? And so, this really falls in line with price sensitivity, right? It’s an IT department at a Fortune 500 company, of course, has massive budget, versus a musician or a hobbyist. Someone wants to record a podcast about their Dungeons and Dragons game. The willingness and ability to pair much lower than a lot of other markets in with particular buyers.

And lastly, on purchaser, I have this phrase and I’m going to try to figure out a better word for it, but right now I have sophistication is what it is. And really it’s, are they a consumer? So it’s B2C sale. Are they aspirational or hobbyists? So it’s like B2A, B to Aspirational. I think of photographers. It’s kind of pro-sumer almost, B2P. One of these B2P, B2A, such as photographers or bloggers. I want to make money online folks who are more likely to try something and then churn out. Maybe one level above a consumer. It’s not like a Netflix subscription, but they are paying to try to make money.

Again, photographers. Maybe they do weddings here and there, but they are more likely to kind of churn out of their hobby or churn out of this kind of money making endeavor, because it is such a small business.

And then we have B2B, which obviously is a business, and B2E, which is enterprise. Going to take longer sales cycles, fewer deals, large deals. Now, is there a B2SMB and a B to larger B? Of course there is, but let’s, for now, I like these four categories. Consumer, aspirational, business, and enterprise.

So, that was the second P. The third one is pricing model. Can this work as a subscription? I do talk to some folks who bring an idea and I’m like, that’s kind of a one time use thing. I just don’t think a subscription makes sense here. So, that’s just a simple off-the-cuff check, that estimate of the average revenue per account. And this is one that really comes with experience, I think, in knowing different industries and their willingness to pay. And then is it going to be monthly fee, mostly annual? Is it a share of revenue? Dot, dot, dot.

There are a lot of different options. I think we have six different options, maybe seven that we ask about in the state of independent SaaS survey about different pricing models. So those are the first three Ps. And again, I’m kind of putting these in order of importance, in the way that I would evaluate these. And as we go lower, each of these is still important but less important than the one above it.

So, we had the three Ps. Now we have the M and this is the market. How big is the market? The total reachable market, not the total addressable market. Obviously, the difference is every veterinarian in the country versus every veterinarian that you can reasonably reach without spending a gajillion dollars. Size matters a lot to venture-backed companies, because they want to be billion or 10 billion companies.

It matters a heck of a lot less to our types of startups. If you want to get to a million ARR, five million of annual recurring revenue, the market does not have to be that large as long as people do have that willingness to pay, that we talked about in the purchaser P.
And this is actually a good time for me to interject and say I see this 5 P.M. Framework as evaluating business ideas that can at least get to seven figures of ARR. Maybe they can do eight and maybe they can do 50 million or a 100 million and get to nine figure. But this is not for a tiny little lifestyle business. Let’s say you want to do 10K, 20K, MRR. Those are amazing businesses, don’t get me wrong. I’ve had a few in my day and they were great. If you want to think about building a business like that, go read, Start Small, Stay Small. It’s $10 on Kindle.
And basically, I walk through how I was building businesses like that, that are truly these amazing lifestyle businesses that just throw off cash. The valuation criteria is much less relevant with the start small, stay small lifestyle SaaS. That’s more about finding a traffic source and getting in front of it, right? It’s finding existing demand, whether it’s organic search in one of the top 10, 20 search engines. It’s getting in an app store or an add-on store where there’s existing traffic and just channeling that and building this great little business.
But this is that next step. These are the kinds of companies that come to Microconf Growth. These are the kinds of companies we fund with Tiny Seed. These are the kinds of companies I’m writing my next book for. It’s that spiritual successor to Start Small, Stay Small where it’s like, well I want to build a five million ARR company. How should we think about that? And so, that’s where that total reachable market can be a lot smaller than you might think. So again, we are in market, which is the M in the 5 P.M. Framework and that was size.
The next is ease of reaching customers. Are they online? What marketing channels do I need to use? What are the cost of these going to be? What stage is the market in? Is it early? Is it mid? Is it mature? Is it growing or flat? Is it declining? These are all types of things to think about. When I think about Josh Pigford launching Baremetrics, 10 years ago-ish. Early market, because Stripe was still pretty new. It was early market, it was growing quickly, amazing time to get into it. When I think of 80 PNR, launching what became WooCommerce, although it was called WooThemes back in the day.
Was WordPress early? Was it growing fast? Yes and yes, so if you can get into a market like that, very hard to do and very hard to do multiple times especially. But if you can do that, that can give you some tailwinds. Not the CSS framework. Actual winds that are… And not even actual winds, just a hypothetical, metaphorical tailwinds that are blown. You get the picture. I think I’ve taken this one a little too far.
And lastly in the market is competition. How much competition is there? Are they big companies? Are they other startups? So, that’s 3P.M.. So if I only had these, this would be the 3P.M. Framework and unfortunately we wouldn’t be able to have an adult beverage. And I realize as I’m talking through these, there’s a lot here. And so what I’m going to do is I’m going to take this Google doc that is currently just a list of indented bullets. I’m going to send it to producer Ron. And we’re going to, in some form or fashion, make it accessible such that if you opt into the startupsfortherestofus.com email list. This will come to you in the first email.
And so, it may be something as simple as an undesigned pdf or if we can put Startups For the Rest of Us branding on it in time, we will do that. But either way, you will get the information I am talking through here. And, of course, we’ll have a high level summary of the top level 5 P.M. bullets in the show notes.
Our fourth P is product founder fit. So, the questions to think about here are what about your background and access to this market makes you think you should build this? If the product is highly technical, do you have the tech chops? If it’s a crowded space, do you have marketing chops? If you have an audience or a network in this space? These are unique advantages that you have. And do you like this problem or are you just doing it opportunistically? You don’t have to love it. That’s the thing. None of these things I’m bringing up are absolute deal breakers. Each one is just another data point to gather when evaluating the idea.
And the fifth P is the pain to validate it. And I’m still figuring out if this is pain to validate or pain to actually build it, but I think since it’s idea phase, I like the idea of things that are easier to build an MVP for, that are easier to validate. Should get some credit for that if you can have a few conversations and validate this versus having to spend months building software. I think that’s important. I don’t think this one is nearly as important as the other four Ps and the M, to be honest. And that is why it’s fifth, and I’ve considered making it the 4P.M. Framework, but I think this deserves some consideration.
I also like the idea that, of course, it’s five o’clock somewhere, as I’ve said. And so now, I’m going to walk through two ideas and run them quickly through this 5 P.M. filter and kind of talk through how I view them. And there’s no conclusion, there’s no score out of a hundred. Not yet anyways. But the idea is to see some of the pros and cons and think through whether an idea is better than another or whether we think an idea will fly. So, I’m going to talk through an idea that Jon Yongfook tweeted about on September 12th. We’ll include a link to the tweet in the show notes. And this business idea actually appears in my most recent YouTube video that I recorded. If you’re not subscribed to the Microconf YouTube channel and should check it out.
But we have a video called ‘Seven SaaS Ideas I’m surprised No One Has Built Yet.’ And that’s the working title, so might change by the time this episode goes live. And frankly, the YouTube video may go live just a few days after this episode, but if you go to microconf.com/youtube, you can subscribe to the channel and then you can get notifications when new videos go live. But our ‘SaaS Ideas No One Has Built Yet’ or ‘SaaS Ideas You Should Steal Now’ have been a really popular series.
And I’ve started crowdsourcing some ideas when people want to basically give them away or have I… Things they want to see in the world, they aren’t going to build themselves, in essence. And so, this one just happened to be in my Twitter feed because I follow Jon Yongfook, as should you. And he says, “Opportunity for an indie hacker.”
My sister works in recruitment and she says there is no decent NPS tool, that’s net promoter score, that integrates with their ATS, which is an applicant tracking system so HR folks use that to track incoming job applicants. So, no NPS tool that integrates with their ATS, which is JobAdder, which has an open API. She’s only found one tool so far and it’s $800 a month, a bit too steep for small recruitment firms. Interesting idea, so let’s walk it through the 5 P.M..
So, the problem. What’s the problem? The problem is we want to get NPS scores from people who apply to our job, who wind up in our ATS, to use the nerdy three-letter acronym. So we want to get NPS from them and there’s no easy or cheap way to do it. That’s the problem. Is it an important problem? I think so. I think HR departments and people ops folks are probably graded.
Assuming that that’s a KPI. Assuming that that is something that their managers look at, then it’s an important problem. But if you were to talk to 10 HR professionals and they’re like, “Yeah, we don’t care about NPS of our applicants,” then I don’t know. Then it’s not important. So, I would start with conversations. I probably know myself, five HR or people ops people. And so I would email each of them and I would say, Do you run NPS? How important is it? Do you look at it? And if there’s mixed results, you got to keep doing the research.
And then there’s an urgency, which is a vitamin versus aspirin. So in this case, if it is important, then it’s probably urgent, as well. If it’s important then they can’t wait a year to do it, because they need that KPI, right? So, in this case the importance maybe pushes some emergency.
So, so far, let’s assume that it is important and urgent. This is intriguing. I’m intrigued by this idea. So the purchaser, does this market adopt new technology? So HR professionals, people ops folks. Yeah, there’s a lot of really big people ops tech, HR tech, so I would give this a yes, as good as any. Maybe not as much as web developers and entrepreneurs and all of us who hang out on Product Hunt Hacker News.
But I think there’s a lot of value here. Willingness to pay? Price sensitivity? Nah, they have budgets. And sophistication. These are solidly in the B2B. There’s not aspirational people doing a hobby, right? HR is not a hobby, so B2B or B2E sales. The pricing model subscription, well sure, because they need to run NPS constantly. I think that’s great. The ARPA estimate, right here we have the only one is $800 a month, so let’s just say our average revenue per account is half that, 400 a month, 200 a month.
These are good numbers. You can build a decent business on this, as long as the sales cycles are not brutal. And then is it monthly, annual or other? In this case, I would guess you’d want to go annual, because I think the sales cycle is going to be a little involvement in doing it. It kind of depends on the specifics of, is it just an add-on in their little app store or are you doing a one, two, three call closes and we want to do annual?
So, those were the first three Ps, now we do the market. The size, total reachable market, is the HR space big? It’s huge, right? It’s massive. There’s a lot of buyers out there. Ease of reaching them? Are the online? Well, of course. They’re on LinkedIn. Pay per click ads are going to work. They’re probably in a bunch of Facebook groups and Slack groups. There are a lot of places that you can reach them online, so I would say in general, not terribly hard to reach.
Is the market early or mature? Growing flat or declining? I would say it’s growing and it’s definitely not early, because there is a lot of HR tech, people ops tech. But I would say I don’t know what’s in between early and mature. I’m wondering if there’s maybe an in between moniker I need for that. But personally, I think it’s at a pretty good spot to enter because there is an ecosystem, money’s being spent, and you’re basically just attaching to an existing system.
Product founder fit. Well, we’d need a theoretical founder in this case, so let’s say me. What about my background and access to this market makes you think you should build this? So for me, I actually don’t have much access and I don’t think I should build this because I don’t really have… I don’t know many HR people and I’m not an expert in it. And then there was… Do you have tech chops and marketing chops? Unique advantage audience network in the space? Do you love the problem? So, these would be questions you ask yourself for almost all those. For me, it’s mostly not. I do not have a unique advantage.
And then pain to validate. How much time to market build an MVP, is an interesting one. So I do think early validation, for me, the next steps would be to talk to as many HR professionals as I could. The nice part is I’d start with JobAdder per what Jon Yongfook said. And I would try to find as many JobAdder customers as I could and have conversations. I would be in the other JobAdder forums. Is there a JobAdder Slack group? Anyone using that?
Can I go to BuiltWith and Datanyze and figure out who’s using using JobAdder and reach out with, “I’m not selling anything. I don’t have anything to sell you. I’m a developer. I’m an entrepreneur. I’m thinking about building something. Do you have this need?” That’d be a pretty good way to start validating that. And if people are clamoring for it and you get that urgency and importance, then that’s where I start thinking about, what’s the minimum code that I can write to validate this?
And maybe it’s no code, maybe it’s low code. I don’t know what their API’s like or whatever. But I think building a super manual… Imagine it sends an email that’s hard coded into a JSON file or a text file that you have. And imagine that to make a change to it, even to the wording, you have to go commit a change to the trunk and deploy it. That’s fine. That’s an MVP. This is a definition and you can build that out and make it better over time.
And then there are some things I didn’t include here that I probably need to add the framework of platform risk. How much platform risk if you just build on JobAdder? There’s definitely some, but in this case, how many ATSs are there? There are a lot, and there’s some leading ones and you could start building NPS tools for them. Although they may exist, this requires more research on your part. So overall, I like this idea. Do I think it could be a seven figure idea just doing NPS for JobAdder? Absolutely not. The market’s just not big enough.
But do I think that this could be a really interesting foothold or a wedge into a market, because doing things in public creates opportunity, right? It’s those who are shipping things that suddenly realize, oh, what if I pivot this into that? Or what if I add this extra piece to it? And suddenly, you build and build and you can find yourself expanding and building a pretty incredible business, even starting with small aspirations.
And the other idea I’m going to run through quickly was actually suggested by a Microconf Connect member named Jeff Gates. Jeff is an involved member of that community. And Jeff, I appreciate the suggestion that you posted. The idea software for independently owned airport hotels to rent out extra parking spaces for air travelers. And again, this appears in the YouTube videos of ‘SaaS Ideas I’m Surprised No One Has Built Yet.’.
And so, let’s talk about this. Software for independently owned airport hotels to rent out extra parking spaces for air travelers. So, the problem is we’re assuming, and we haven’t validated this, that independently owned airport hotels have parking spaces that they want to monetize. That’s the problem you’re trying to solve. I don’t know if it’s a problem. We need to figure that out. This would be part of the validation step of starting to talk to them. I also wonder, do not independently owned airport hotels need to rent out parking spaces and do they have a system? Because I like making one sale to Marriott, even if it takes a long time, and getting a whole bunch of seats. A whole bunch of hotels that have to pay rather than doing the one offs. Now, the one-offs will be easier upfront, but the big money will be with the chains.
So our two questions, is it important? And is it urgent? Is it an important problem? I don’t know. This is a tough one and this is where I need to have conversations with them. It sounds great. You’re going to make them more money, but if they’re not aware of this problem and you’re going to have to tell them you can do this and you should think about this… Imagine going up to the front desk and talking to a middle manager checking people in. You have to convince them that it’s important enough that then they bring their boss or then they talk to the owner of the hotel.
So unless hotels are already thinking about this, I don’t know if it’s important. The other thing is urgency. Well, it’s always urgent to make more money, but is solving this particular problem urgent or is remodeling their rooms or hiring the next waiter in the restaurant, are those urgent? Those are very urgent problems, because the hotel can’t function without them.
This one feels perhaps less urgent than what it takes to continue running the hotel, but the draw of money can sometimes provide urgency. I don’t know. I’m going to give this one a mid-grade. It certainly is not high on the urgency scale, I think. In terms of the purchaser, do independent hotel owners adopt new tech? A bit. I don’t think they’re jumping on it. They’re certainly not like web developers, designers, and all that. The example I keep using. I think they probably adopt it. It’s going to really depend, right? It’s going to depend on the owner, which I think is more in the brick and mortar. If you’re a lawyer or you’re a realtor or you’re someone who owns a hotel, you don’t necessarily care about the tech, you care about the problem they solve. So, I would say this is lower on the adopting new technology scale.
Are they willing to pay? Do they have the ability to pay? I would say usually they probably aren’t willing to, they probably have the ability. But in this case, I think I would structure the pricing in a way where I made a certain amount per spot that was rented or something to make it a no brainer, at least to start with, such that this became less of a concern.
And lastly, sophistication. Are they a consumer? Are they aspirational? Business or enterprise? I would certainly say they’re a business. Now some of these, if they’re sole proprietors, they can think a little, it can be a little cheap. I don’t know how big these hotels are. Certainly at airport hotels, I’m thinking, they’re probably big enough that most are owned by some type of corporation rather than an individual. It’s not a B&B with six rooms in it, right? These are going to be businesses run more like businesses, so that’s the sophistication I would put them at.
Now the pricing model is the subscription. Well, of course, because they’re going to be doing this on an ongoing basis. And so, if you can charge a monthly fee, great. This one I do think, especially early on, I would probably make it that no brainer pricing of, as you rent spaces out, we take a cut or a dollar per space. Not a dollar, but a dollar amount per space. Average avenue per account estimate. I don’t know, but I do know that to make this sale worthwhile, you’re going to want, I would say, at least… I don’t know. Four or 500 a month per account. And maybe it’s a thousand. You’re not going to know how many calls to close until you get into it. So, this is not something you’re going to charge 50 bucks, a hundred bucks a month for. Yeah, it’s just not going to be worth the effort.
And then in terms of the market, the size, I don’t know how big this market is actually, if we just look at independently own airport hotels, because most of the airport hotels that I see are the big name brands. They’re the Marriotts, the Hyatts and everything, so I don’t know. And I do have a question about that in my head that I would want to do more research.
How easy are they to reach? I think this is a tough one. Certainly not as easy to reach as HR professionals that we just talked to, right? It’s like where do people who own these hotels hang out? And you only want airport hotels, too, so that actually makes it tougher. So, I can imagine in-person events, the trade events where all the hotel owners go and there’s probably a trade magazine and trade websites and maybe some trade groups. That’s great. But are there airport hotel trade groups? Because it makes it harder to justify the spend if you go to this big event, but only 10% of the customers are airport hotels. That does pose a challenge.
Bouncing to product founder fit. This again is, what about your background in marketing and tech chops? It’s going to come down to you as the founder. I can’t imagine most founders would have a unique advantage in this space. And do you love this problem? I don’t know. I don’t know how many founders are going to love this problem. You also have to figure that out for your own. And then pain to validate, This one’s interesting because I think a conversations would certainly be 10, 20, 30 conversations. I need to have a lot to understand more about this. And then the second thing I’d be thinking is how can I build this with a minimum amount of effort for a pilot with one or two of these hotels?
And realistically, I think there’s going to be a lot of effort on the hotels part to block off certain spots, put numbers, put signs, say no one park here unless you have booked it through the XYZ system, right? That’s probably going to be more effort than anything. I think that you can do a responsive web app or maybe a mobile app. I would try to do it with one of these no code builders. This seems really like a CRUD app. You do CRUD plus payment, right? Create, read, update, delete. And then add Stripe payments in.
And so, the minimum amount could be a responsive web app. A lot of people are going to want to do it on their phone, not to administer it, but the consumer side, right, of people actually booking it. So, responsive web app or a mobile app would be great. And then some type of web admin that basically…
But I’m talking MVP. Do you even need a web admin or, I don’t think you do, because really it’s a matter of the hotel providing you with a Google sheet or a spreadsheet of these are the numbers of the spots and these are the prices or whatever it is. And then this is where you just stuff it into your database using, using SQL and you just go from there. You don’t have an admin console. You do everything manually from the start. And so now that it’s in that database, then the customer facing mobile web app says this is available on this date for this price. And when they click to buy it now, there’s a Stripe payments link. I forget the technical term for it, but it’s a pretty easy checkout process.

And that’s what I’d be thinking about in terms of this idea, is how can I validate it? So I’m less certain that there’s a desperate need for this one compared to the HR NPS idea. And so, how do we get around that? Well, we try to validate as much as possible and that’s through the conversations I said. And then that’s through not writing a bunch of code, but writing the minimum amount of code to get the hotel to try it out. You’re going to have to convince the hotel to, as I said, put up signage for parking spots, but also to promote it, right?

Because otherwise, I guess you’re going to be promoting. I haven’t thought through this part actually. Are you going to be promoting as the founder? I guess you’re going to want a two-sided marketplace, because you’re going to want interest coming to your site. Or is this something they’re promoting?

So that’s a whole… In the interest of time, I won’t go down that thread right now, in terms of how I think about it. But I hope that today’s episode, diving into the 5 P.M. Framework has been enlightening. I know that I got into some nitty gritty there and I appreciate you sticking with me. As I said, if you go to startupsfortherestofus.com and enter your email address, we will make sure that the full 5 P.M. Framework is sent to you via email.

And as always, I appreciate you showing up and listening as I nerd out on all things SaaS and startups. This is Rob Walling signing off from episode 628, and I’ll be back in your ears again next week.

Rob: Welcome back to Startups For the Rest of Us. I’m your host, Rob Walling. This week I sit down with Einar Vollset and Tracy Osborn to talk through some bootstrapper news stories. I’ve received feedback from several listeners that they really enjoy these episodes. Oftentimes, the things we bring up here, it’s the first time that they’ve heard about them. They weren’t paying attention to Twitter, Hacker News, or wherever we might have heard about these.

Hopefully, these are not only educational, but also entertain you and hopefully help drive your business forward. Today we talk about the part-time contractor versus hiring full-time debate. We talk about the acquisition of Sandhills Development, which is one of the largest independent WordPress product companies. We talk about the launch of TinySeed Europe, and we talk about a few other new stores. Hope you enjoy these.

If you recall, Einar Vollset, my co-founder and general partner at TinySeed. He’s been on the podcast many times. He knows enterprise sales, cold outbound outreach. He knows a ton about SaaS, M&A. Then Tracy Osborn is our program director at TinySeed, and she is a former startup founder who has written several books on design and development. Now she keeps the trains running on time internally with TinySeed. Hope you enjoy today’s conversation.

Tracy Osborn, welcome to Startups For the Rest of Us.

Tracy: Yeah, happy to be back.

Rob: Einar Vollset, you as well.

Einar: Thanks for having me.

Rob: All right. I’m excited to dip into some bootstrapper news, as we like to call it. First story is there has been discussion. I’ve seen most of it on Twitter, although we have one Hacker News link as well. It’s a tweet that links out to Hacker News. Yes, it’s all on Twitter.

A founder friend of mine, back in April of this year, had pointed me to a tweet by Josh Pigford that talked about him being curious with his new effort, maybe about hiring everyone as part time contractors, meaning no W-2 and no full-time. I believe Sahil from Gumroad has structured Gumroad maybe like this. Again, we’ll link these tweets up, but in essence, Josh said in his second tweet he was linking to Sahil’s blog post that says we have an anti-overtime rate that once you work past 20 hours a week as a contractor, people can continue to work, but it’s a reduced hourly rate. So it really does discourage full-time work.

The next one is Josh talking about how to give equity to part-time contractors based on how much they work and how much they get paid. These were all in April and July. I remember talking with my friend back in April of I didn’t think it was a good idea.

Just having managed teams of part-time contractors and then having managed teams of full-time folks, there’s a time and a place for both. I think we’ve actually discussed that specific thing on this podcast. But then fast forward to September, it was just less than a month ago, Josh published something saying we ended the experiment, we’re no longer pursuing building maybe around part-time fractional employees. Here’s the note I sent to the team last week. While I’m still bullish on the concept, I no longer believe it can work for new product software companies, at least it didn’t for us.

He wrote kind of a memo about it. What I appreciate about Josh is he experimented with a lot of different things, and some of them, when I see him, I think that’s not going to work and others I think, he has a shot at making it work. But he usually circles back and tells us if it works, and I think that’s helpful for the community. Tracy, what are your thoughts on this approach?

I realize I’ve given my opinion already, but I’m curious if either you think it’s a really good approach based on what we’re going to be funding our 59th company or something here in the next couple of weeks. You have a view into a lot of SaaS companies in TinySeed.

Tracy: Yeah, I looked at some of the threads that Josh did. He went into the reasons why it didn’t work. The thing that stood out to me is the thing I expected to see, which is a part-time contractor is really great for one defined task, designed set task that he’s hitting session after session. Once you finish that, you’re done with your job for the day.

He had planning or long-term thoughts. When you’re hiring someone for your company that needs to not only just hit the things you need to do that week, but you also need to start planning out, how are things going to evolve in the next couple of years? What does that look like? What is that future planning? That’s almost impossible to do, I think, on a part-time cadence because it’s just so set around tasks.

I think Josh also went into the fact that managing people who are part-time was hard to do because he had to really define. I forgot exactly how he phrased it, but he had to define it. That’s one of the tasks they had to do is think about that long-term. It was lots of micromanagement and it turned into a big effort on his end in order to do that. It’s the thing where it’s just like, it’s really good for defined tasks, but you can’t expect without a lot of hand-holding some of that long-term planning.

Rob: Yeah. I often talk about task-level thinkers, project-level thinkers, and owner-level thinkers. I think of contractors, usually, a lot of them are task-level folks. Then you can find a few who may be project level if you seek that and you pay for that, but I haven’t worked with contractors who are owner-level thinkers who, like you said, are doing the long-term vision. Einar, what are your thoughts?

Einar: Yeah, I agree with that. I was always similarly quite suspicious that it wouldn’t work. Because the main thing for me is that if everyone is just part-time and task level, then all the state has to be in Josh’s head by himself. It’s got to be a lot of work. The downside to having employees, there’s plenty. They have drama, family issues, and all that stuff. But the upside is, particularly if you’re full-time, they spend their time thinking about and keeping state in their heads when you don’t have to.

You can delegate in a way that you can’t do if they’re just working 15, 20 hours a week for you and it’s very, very part-time. It’s one of those things. I think Sahil instincts with Gumroad, maybe that’s more in a maintenance mode, in which case, it could work better. But I certainly think if you’re more Greenfield, then it’s going to be very hard.

Rob: Trying to push things forward. I think of the word ownership and I don’t mean equity. Like you’re saying, mental ownership of a task where you go home, you think about it at night, you think about it while you’re doing dishes of like, ah, I can make this better. Because I was a contractor. I was a software developer for eight years on and off.

As much as I cared about some of the jobs, it’s a little bit like being a mercenary. I don’t mean that in a bad way. You get paid to ship products and if I ship code, that is fine. But anything beyond that, there was a little motivation, I think, to leave it better than when I arrived.

I think of these black box tasks. I have videos that I need edited or I have maybe a particular integration that I need built. These are things that are pretty easy to spec out and define them very well. I think that’s where we use part-time contractors. It’s like, I know exactly what I need. But when we get into building new products, the creative thinking, and needing to—I think I can imagine trying to manage five full-time employees who are doing things versus, what do you need, 10, 15 contractors to do it? That just feels like a mess. Then you need middle managers by the time you’re a 15-person company in my head.

Einar: Yeah, and now they’re going to be part-time middle managers. That starts to become really complicated.

Rob: Yeah, exactly.

Tracy: I also wanted to say, I wish it would work out because it’s like the dream. Work for a company for four hours a day. Not necessarily work at another company, but maybe you can support yourself, and then you have the rest of your day to pursue your own personal projects or do other things. I don’t want to say, oh, you can only have employees who are only thinking 24 hours about your company because that’s not what you want. You want to have someone to be able to have that in space. But part-time makes it really hard to have, like you said, that creative thought process.

Einar: Also a question, how part-time do people really want to go? I think a lot of people would be like, yeah, I’d love to have a three-day weekend. But really, do people really just want a five-day weekend, or will they actually end up doing the people who want that are people who have their own project and are actually working much more than full time?

I can’t imagine not working five days a week. I would just be lost. I would just wander around. I would have to come up with a work-like project in order to keep my mind screwed on straight.

Rob: I would think that these folks would have other clients is the idea. It seems like we agree that we’re not generally bullish on this approach. There might be a time and a place for black box tasks and stuff like that, but what’s the positive spin on this? When will this work or what’s cool about this if it works?

I think one thing that came to mind is you, I think, could have interchangeability. I think one of the ideas here is not to have any linchpin person that if they leave, they leave everything on the table. But again, even as I think of these positives, I think, yeah, but then…

Einar: That’s a negative, though.

Rob: It really is.

Einar: In itself, it really is negative. If you’re like, yeah, this guy, whatever. Just put him in front of the computer screen and then he’ll type up more code. I’m like, meh.

Rob: Imagine that codebase—mess.

Einar: Yeah, the code base is going to be a mess and it’s like, then who’s thinking about the state at all? That doesn’t sound fun. No, that sounds terrible, actually.

Rob: Yeah. I have a tough time. If I was a 23-year-old software developer and just wanting to work on projects here and there, that could be great for me. Back when, this is more maybe 12 years ago where I did have just a team, I had 10 different contractors who all did the little things and were all super task-based. It was VAs, there was a designer, and there were a couple of developers.

It was fun. It was a total lifestyle business. That’s the place where I think this works. But I think the moment you become more ambitious and you’re like, I do want to build a bootstrap that’s a seven-, eight-figure business, I really don’t see this working from the start. I think if you make it work, you will be the exception rather than proving it out.

All right, story number two is that Awesome Motive has acquired Sandhills Development’s products and services. If you haven’t heard of these companies, you’ve probably heard of the WordPress plugins that they manage. Sandhills used to own and sold AffiliateWP, Easy Digital Downloads, Sugar Calendar, WP Simple Pay, and the Payouts Service. Awesome Motive was started by Syed Balkhi.

He started WP Beginner, which is a really popular WordPress learning site, then started OptinMonster back in probably 2013, I believe, WP Forms, MonsterInsights. He acquired several others and now he buys sometimes fractional ownership like he’ll buy a certain percentage of a company and sometimes he does entire acquisitions.

This is another (effectively) string of WordPress consolidation that is happening. There aren’t that many seven- and eight-figure WordPress product companies left that have not been gobbled up by WP Engine, Liquid Web, GoDaddy. Awesome Motive is doing a lot of consolidation. I’ll weigh in on my opinion of whether that’s good or bad. But I think to Einar first, what is your take on this? Do you feel like this is an inevitability given any space that operates for this long?

Einar: Yeah, I think it’s almost inevitable. I feel like WordPress, and it still does, had this hacker side project, build a little thing, make enough money to truly lifestyle business it. While at the same time, at least until recently, there wasn’t a lot of push from the financial roll-up people. They usually stayed away from WordPress for whatever reason. They might do roll-ups.

For a while, it seemed more common to do roll-ups in the Shopify space on that platform than going after WordPress, which doesn’t make a ton of sense to me just because WordPress is open source so you don’t have quite the same platform risk. But certainly, I see that on some of the M&A side that it’s still early days in the WordPress space. The price expectations of the buyers and the sellers are quite different from the more open or more generic SaaS, software as a service, software as buyout space.

I think it’s a natural conclusion of this. People are like, oh, […], this could work here too. No problem and prices are low, so why not? The roll-up play should work in WordPress as well, if not better than in Shopify. Because WordPress is 25%, 30% of all the websites. It’s a big market.

Rob: I was trying to think about whether I think this is good or bad for space because whether it’s inevitable or not is one question, but is this better? I think having more things, there’s the power of scale. Awesome Motive knows what they’re doing with WordPress. I think they don’t have a monopoly position on anything. I don’t think they own all the big plugins in any one space.

I could be wrong, but I think they still have competition from WooCommerces and from Delicious Brains. There are a few others that are doing it. Again, there are not that many, but it’s nice that I don’t think there’s been that kind of consolidation. So I don’t know. WordPress, they’re always so opinionated about this stuff. I’m sure there are some hefty opinions, but I don’t think it will negatively impact us as a user.

I still use WordPress with my robwalling.com site. I struggle to see how it would impact that. I guess the ecosystem of consultants and agencies may be impacted by this. But I feel like if Awesome Motive and whoever’s doing the consolidation, the WP Engines, the Liquid Web is back to them. If they’re doing a good job being stewards of these products and these plugins, then it’ll be good. If they’re doing a […] job and they’re rolling up just to roll up and increase valuations, then I think it will be bad. Maybe that’s my ultimate conclusion is it depends on how good of a steward they are of the products.

Einar: Yeah, I agree with that. I actually think WordPress in general is an odd space. I think it may be because of Automattic, it’s an unusual company in itself, like being an open-source company. It’s not like Shopify or any of these companies. So that might be just contributing to the nature of that whole space.

Rob: Tracy, do you have any closing thoughts before we move on to our next topic?

Tracy: Nope. I think Einar said it all.

Rob: Our next story, I bet you two had to do a lot of reading about this. I just sent you a lot of background so you understand it. TinySeed announced TinySeed Europe a week or two ago. We announced it at our European event. It was two weeks ago.

We are raising a fund in Europe to fund European startups to essentially extend, replicate what we’ve done here in the Americas with our Americas fund. Einar, what was the impetus for this? Why are we moving into Europe?

Einar: There are some good reasons and there are some bad reasons. I’ll start off with the good reasons. Good reasons are we have amazing deal flow there. We’re seeing this bootstrap, SaaS, independent SaaS community grow, not just in Europe, but partly in the Middle East and Africa too. We want to invest in more of those companies.

To be honest with you, the requirement to become a US entity became a burden for some of these early-stage firms. Being able to have a dedicated fund that can invest directly into these European opportunities certainly was interesting. Our investors too are like, there’s no real reason why a B2B, SaaS company, whether it’s based in France, South Africa, or New Mexico, what’s the difference? Most of them sell internationally. They have international customers and they operate in English. Really, it’s a global market for most of these things. Those are good reasons.

Originally, the plan was to raise our previous fund, to raise a large fund. This is where the bad reasons come in. It has to do with basically SEC regulations on how many investors we could take. It meant that we were forced to take higher and higher minimums. Splitting the funds up to have our US fund or our Americas fund be mostly US companies, and then this Europe fund is mostly European companies started to make sense. Also, just from the boring investor perspective, some people lived in Europe and wanted exposure only to US companies and vice versa. So it made a lot of sense.

I think there has been a lot of interest, certainly. The European startup environment, it’s interesting. It’s where the US was three or four years ago. There’s now a lot more of the more traditional venture startup stuff. But I think only now people are starting to think like, oh, you can get funding for these kinds of indie SaaS businesses that don’t necessarily aren’t trying to be on the unicorn route.

Rob: Yeah. Just to clarify, I should have said this earlier, but TinySeed Europe will invest in the European time zone. That goes down through Africa, the Middle East, and all that. Tracy, what are your thoughts on this having been on the inside, thoughts on hiring a replacement of sorts, or a replica of yourself? We’re hiring a program manager out in Europe.

Tracy: Einar went over some of the, like I said, administrative aspects of the program. One of the big program benefits to having a dedicated European batch is that we have funded folks who are located in the European time zones, that area through the Americas fund. But because as a team, we’re all US, North America-based. We moved their calls around to make it work for everybody. If anyone who is in Europe, the Middle East, or anything like that were attending calls that were super late at night.

They’ve all been very enthusiastic about it. We have something we set upfront, being like, hey, by the way, we’re happy to fund you, but because we have to schedule the calls for our own time zone, people opted into that. That means that for the European one, the European fund, the European accelerator, as you said with the time zone, the calls and everything will be scheduled in a more reasonable time zone for anyone who is in that accelerator program, which makes me very, very excited.

It also goes for our in-person events. We are just restarting now. We would have our in-person retreats generally in North America unless we attached it to MicroConf Europe. For the last one we did in Portland this past September, we didn’t get to have a lot of European founders come over because of the expense, time, and everything to fly all the way over to Portland. That also means that all of our in-person retreats will be in a more reasonable location for all these founders and make it easier for them to attend these events.

I’m very excited about that aspect of the program. I’m very excited that we can have a dedicated, everything set up. It’s European folks, European, UK, Middle East, make everything just a lot easier for them. I think it’s very exciting that we can do that, finally.

Rob: Yeah, I’m excited about it. Obviously, if you want to learn more, if you’re a bootstrap or mostly the bootstrap founder, tinyseed.com to get on that list because it’s not going to be very long before we’re going to open applications early next year.

Tracy: Yeah, it will probably be in January. I’m confident saying that.

Rob: All right, good. Program manager-wise, tinyseed.com/careers if you might want to come work with three of us.

Tracy: Yeah, I have to jump in here because I’m very excited about that position as well. I came into the program manager position for TinySeed as a former entrepreneur. I had just shut down my startup, WeddingLovely, which was quite sad. You can hear about it on this podcast. But I was at a place where I love the startup fields, looking for something that was still in the entrepreneurial area, but I wasn’t quite ready to start a new project.

TinySeed was a really great place for me to land. I was able to use everything I learned as a startup founder and use that to help out the founders that are in the program. This program manager position was not just for executive assistants or anything like that.

It’s really great for anyone who might be in a place in their life where they’ve done startups and they’re looking for something new, but maybe they don’t want to jump into doing a whole new thing on their own. They want to be part of a team. Just wanted to say that anyone who happens to be in that place, I think this would be a good fit.

Rob: And I would be remiss. As we move on to our next story, if I did not say, tinyseed.com/invest if you’re interested in investing in early-stage B2B SaaS companies located in European time zones.

Tracy: Einar was giving you eyes. Don’t forget.

Rob: Indeed. All right. Our next story is a tweet from DuckDuckGo from October 11. This was maybe two weeks ago. I’m going to read their tweets, so these are their words.

“Google complies with invasive “keyword warrants” that identify anyone who searched for a term. Twitter user @iblametom reports,” and then he links to a forbes.com article. “DuckDuckGo doesn’t have any search histories by design, and because of that, has had zero search warrants of any kind since our founding in 2008.” This tweet has almost 15,000 likes, 308, quote tweets, and 4800 retweets.

I think this fits into the privacy that has already become a thing and is becoming an even more important thing. It felt like it got kicked off with Snowden, the Snowden revelation, that we’re all being monitored in the US. Tracy, you have often on this podcast, especially in the bootstrapper news episodes, talked about the privacy elements of email inboxes, blocking, tracking pixels so they can’t see you opening them. I think you had said that you thought it was going to become a more prominent thing that tech would move in this direction. Talk to me about your thoughts on this whole idea.

Tracy: Yeah. I am only hesitating here because that’s normally my way forward, but then I was reading something about the Google search warrants. This is because it could be hearsay, but it’s something like search warrants or someone who is searching for a person’s name, person’s address, person’s phone number. All three of those things would come up with the fact that that person was doxxing, stalking, or something for that other person.

Basically, it’s hard because there were good reasons to have these privacy violations or this for-warrants that go out for some certain reasons where there is a bad actor who is doing something bad, and they search and we’re able to use that information to find and stop that person from potentially causing any sort of harm.

When I read those things, it’s just like, ugh, that’s such a good reason, but it’s always that slippery slope where it can be used for a lot of good reasons. But there’s a lot of bad reasons where warrants can go out for some dirty cop or whatever. Uses a warrant to go out and pull information on someone, looks at someone’s search history, those kinds of things.

I don’t have a good response to this other than this general. I wish that the world was a place where we could use this information for good. Why Snowden came out with all this stuff, oftentimes the information is used for bad. DuckDuckGo having those search warrants because they don’t track that history, there’s also good and bad there.

For the average person who doesn’t want to have any other random stuff being used for bad by bad actors, then DuckDuckGo is great, but there was response to this tweet which is like, hey, DuckDuckGo, aren’t you saying, hey, sexual predators use our program, use our browser for your thing. It’s going to be using you for a warrant.

Rob: It’s that interesting balance. It’s always that balance between national security, state security, or security of each of us, and privacy. Those two things tend to be in opposition. I will say Einar, before I roll over to you, DuckDuckGo has been giving a masterclass in how to use your 900-pound gorilla competitor. Use their number one thing against them.

In airports for MicroConf, I would see DuckDuckGo billboards that were basically saying, we don’t track you and Google does that kind of stuff. They’ve been stiff stuck to that positioning for 13 years. I think he said they launched in 2008, it’s 2021. That is unusual for a startup to come up with effectively positioning of like, hey, we’re going to be privacy-focused and that’s it. That’s their number one bell that they ring and they’re growing. They have more adoption every month that goes by.

Tracy: I use it, I should say, for all of my screaming into the void. It is my primary browser.

Rob: My question to you Einar is, it’s not only how far do we think this move towards privacy will continue, but will normal people ever care? Will my mom and dad ever care about that? The massive 80%, 90% of the world, will they care about this or do you think this is just going to be continued to be at the edges with those folks like developers and more tech-savvy people?

Einar: I think it’ll be at the edges. That’s what I think. In general, I feel less worried about Google warrants. I feel like if there’s an actual warrant and a process, then I have no faith in the justice system that it’s not going to get abused willy-nilly. My view is I’m going to use DuckDuckGo, but I would prefer the rest of you to use Google so that if there were any warrants that needed to be issued to you guys, then that would be fine.

That’s my view. I’m not quite so privacy-obsessed. The NSA doesn’t need to get warrants to figure out what they need to do, basically. That’s my view on it. But in general, yeah, I think it’s more edge cases, but it’s a big market. So okay, maybe 10% of people care, but that’s 10% of all the people in the world, which is a good chunk of change for DuckDuckGo, for sure.

Rob: That’s going to wrap us up today. Tracy Osborn, folks can find you at @tracymakes on Twitter. Thanks so much for joining me.

Tracy: I know that you almost said Tracy makes first.

Rob: I did,

Tracy: I heard it.

Rob: I often call you Tracy makes, it has your name. I struggle to call Patrick McKenzie Patrick McKenzie. I always say patio11, what’s up? That just becomes a name

Tracy: I’m tracyosborn.com, but it’s @tracymakes on Twitter because I could not get it on Twitter.

Rob: I remember this. Einar Vollset, you are at @einarvollset. People are just going to have to go to the show notes because I’m not going to spell that one, where you rant about the San Francisco Giants.

Einar: Yes, pretty much. They’re out now, so that’s okay. It’s fine, I’m over it.

Tracy: Has Twitter returned to some semblance of normalcy or is it still?

Einar: I’m over it.

Tracy: Okay.

Rob: All right. Thanks so much for joining me.

Einar: Thank you.

Rob: Thank you for joining me once again this week. Whether you’ve been listening for a month, a year, or a decade, it’s always great to have you on board. I’ll be back in your ears again next Tuesday morning.

Rob: Welcome back to Startups For The Rest of Us. I’m your host, Rob Walling, excited to be here this week. I’m back fresh from MicroConf Growth in Dubrovnik, Croatia.

We are moving things forward now, looking ahead to MicroConf Remote in a couple months, as well as the fact that we just crossed 10,000 YouTube subscribers after just about 18 months on our YouTube channel. That’s youtube.com/microconf if you haven’t checked it out.

We have a lot of folks watching videos both from live streams that we’re doing as well as the in-person MicroConfs over the past decade. We’ve now done 24 MicroConfs including the 4 that we ran last month.

In other news, we announced TinySeed Europe this week. This is a European timezone fund that is going to be investing in B2B SaaS companies across Europe as well as Africa, the Middle East, and anywhere in the European time zones in essence. We’ve been making great progress raising that fund. It’s actually been going faster than we expected.

Obviously, if you’re an accredited investor interested in diversifying into early-stage B2B SaaS companies, head to tinyseed.com/invest. If you think you might want to work with myself, Tracy, and Einar on the TinySeed team—you’ve heard both of them on this podcast—you should head to tinyseed.com/careers. We are hiring a European program manager, full-time hire, fully remote in the European time zones.

Today, we’re doing another Rob Solo Adventure. We’re going to cover a few topics that I’ve had the chance to think about over the past month or so as I’ve been traveling. I plan to cover three or maybe four topics today depending on time.

The first is something that I’ve not only been working on with my kids, but something that I’ve had to say to a couple founders over the past few months. Frankly, it probably needs to be said more often to folks who start their own company. The phrase is this: “It’s not your fault, but it’s your responsibility.”

Some examples of that are at our house, the dog knocked over a thing of glitter that someone had left out—one of my kids. I said, it’s not your fault that the dog knocked it over, but it is your responsibility to clean it up. That’s a simple everyday example.

The bigger one is when I hear founders complaining about things that are holding them back. They’re complaining not in a way of venting, moving on, tackling it, and taking action to fix it, but they’re complaining with the sense that they’re helpless. It’s a sense of helplessness, that someone else should come in, tell them what to do, or fix it for them.

We start companies because we don’t want a boss. We want freedom, purpose, and relationships, and to make money. There’s a bunch of reasons and motivations. Different founders do it, but one thing you have to realize if you’re going to go down this path is that you don’t have a manager anymore. You don’t have a boss to say you have to do this. You have to make some hard decisions about what to do next.

It can be easy to be trained by a system that always shows you the next step. You start in first grade and you know you’re probably going to second grade next, and then you go through eighth grade. Then in the US, you go through high school—ninth through twelfth—some people go to a trade school, some people get a job, and some folks go to college. Maybe you get post secondary education or maybe you go get a job.

I remember my first job. People told me what to do. I showed up for work and they said you do that task. I’ve talked about task-level, project-level, and owner-level thinkers. In the early days, I certainly was a task-level thinker. I think a lot of us are. But it’s easy to fall into a trap of saying, well, someone’s always going to tell me what to do next and to not take your own destiny in your own hands.

A lot of us then go to start a company or we start a side project, whether it’s to make a little bit of money on the side or whether it’s to gain, ultimately, that freedom, purpose, and relationship. The hard part is making the mental shift from someone’s always going to tell me what to do and someone else will take responsibility when things go wrong to the buck stopping with you because the moment you take that plunge, things happen that are not your fault.

Google comes in, sideswipes you, or knocks you out of existence by accident without even noticing. You build on a platform like Shopify or Heroku. They come knocking at your door and they say, we want to take X% of your revenue or we’re gonna put you out of business. We just shut off your API access. Or a competitor comes along who doesn’t even really know what they’re doing, but they’re good at raising money. They raised 10 million, $15 million. You’re basically a bootstrapped and mostly bootstrapped company.

None of these things are your fault, but it’s your responsibility as a founder or as someone who owns the company and is driving it forward to figure out how to make that work.

When things go wrong and bad things happen, you can absolutely be set back. You can absolutely feel that. I’m not saying be impervious, be a Superman or Superwoman, and never feel the pain, the anxiety, or the stress of it. But then take that step back and decompress.

Take a deep breath. That deep breath may need to last many days if this setback is large. Like when one of my apps’ HitTail was completely decimated 3 times in 24 months by Google purely on accident. Every time, it was devastating when it happened. It was an eye roll. It was like, why do I still own this business? I’m focused on Drip, and it’s growing so fast. I don’t have time to deal with this.

It wasn’t my fault, but it was my responsibility. Each time, I took a step back and I took a deep breath. Again, that deep breath sometimes lasted six hours as I was trying to not be so mad, not just throw in the towel, and just shut this whole thing down. Then, I say, all right, how do we fix it?

This is something I also think you should be thinking about instilling into people on your team because this is not something I remember being taught. It was a painful lesson that I learned over the course of growing these companies.

No one’s coming to save you. You’re the founder, and the buck stops with you. That’s something I think more of us can hear.

Like I said, whether it’s teaching your children, whether it’s communicating this to your team, some things will come along that may not be your fault in particular—support person, customer success person, or salesperson—but we have to take responsibility for things at this company.

Obviously, I’m not saying you shouldn’t get outside counsel or that you shouldn’t have advisors, mentors, or even a community like MicroConf Connect, The TinySeed Batches, or a mastermind group who is along with you on this journey, giving you input and insights, and serving as a sounding board and a sanity check for the ideas and thoughts that you have, but no one else will have the context of your business, your industry, and your space like you will.

Ultimately, these hard decisions do often come down to coming up with options and presenting them to your advisors, your mastermind group, and anyone else who you consider your outside counsel. But then it comes back to you as the founder. The buck does stop with you, and the decision ultimately rests on you or you and your co-founders as the case may be.

We have a new sponsor this week. If you’ve attended a MicroConf in the past or seen one of our YouTube videos, you’ve likely seen one of the founders of Software Promotions. Dave Collins has spoken seven times at different MicroConfs.

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They’ve worked with a lot of folks in the MicroConf community, they know what they’re doing, and they consistently produce results. You can head to bit.ly/tamegoogle or look in our show notes for a link to softwarepromotions.com.

The second topic I want to cover today is this phrase that occurred to me during the Summer Olympics this year where I saw an injured gymnast sitting on the sideline essentially not able to compete.

One of my sons asked me, even if you’re injured, couldn’t you pull it together for this one event? Couldn’t you go and do how many vaults you do in the Olympics total? It’s not that many compared to how many she’s probably done in her life.

What I told him was, it’s not the games that are hard on your body. It’s the practice. Because showing up for the game, the meet, or the competition is a brief moment compared to the number of hours that you practice.

I ran track for nine years. I was a hurdler. I ran in high school and then in college. In the 400-meter hurdles, the race is about 50 seconds long.

It’s not the race that beat up on your body, destroyed your knees, and hurt your hamstrings. It was the two hours plus of practice six days a week for four or five months before that to get in shape to play in the games. A lot of people don’t realize this.

I remember getting injured. I would hurt my knee. I would hurt something. I wouldn’t be able to race. It wasn’t that I couldn’t get out there and run one race. It was that I couldn’t practice for the two or three weeks before that. Therefore, I was not in any type of shape to compete.

The reason I’m bringing up this sports metaphor is that startups have a major similarity in that we see these brief moments. We see the Product Hunt launch of a new SaaS app. We see that something made it to the top of Hacker News. We see that something got a great PR mention, a writeup on TechCrunch or Inked Magazine. We see someone just crushing it in their outbound sales. We see a blog post summarizing their content marketing efforts.

You sit there, read it for 20 minutes, and you think, wow, everything’s going well for them. We feel like building and growing a startup is just these brief 20-minute, 30-minute, or 6-hour moments of what we see on the outside, but it’s not. It’s the hundreds and thousands of hours of practice that happens in the weeks, the months, the years, and sometimes decades before those moments happen.

I did a talk at MicroConf a few years ago called 11 Years to Overnight Success. I talked about selling Drip in 2016 and being able to retire at 41 or 42—however old I was then. I talked about how that wouldn’t have happened or how I couldn’t have personally done that without the 11 years of entrepreneurship building up to that moment. Those are the 11 years that most people don’t see.

Today, if you come across this podcast, you read an essay, you read a book, you see TinySeed, or you see MicroConf, you might say, they really know what they’re doing. They’re executing well. They have a great community. I could build this too. This doesn’t look that hard.

Usually, people who are making it not look that hard are either really good at what they do or they’ve had a lot of practice—years, if not decades.

I’d like you to take away two points from this. The first is don’t be confused or fooled into thinking that building and growing a startup is all pivotal in these little moments. Sure, these little moments come along and sometimes, you do very rarely launch that one feature that changes the trajectory of your startup, but it’s not usually the case. Usually, it’s months and years of building towards that.

Even if you do finally launch that one feature, it’s because you launched 100 before that, and you launched 100 after that are actually building the business. It wasn’t like you could shortcut it and do that just because someone makes it to the front page of TechCrunch or the top of Hacker News, just has some big, flashy launch, or product of the month on Product Hunt. There was a lot of hard work, luck, and skill that probably went into that.

In your mind, we think in terms of years, not months as bootstrapped and mostly bootstrapped founders. In addition, this has to then mentally prepare you to go on this marathon. Do not treat it as a sprint and do not get discouraged when you try the silver bullet hack of the week that you read about in a startup SaaS email newsletter put together by XYZ random venture capitalists content marketing company that they’ve hired.

That doesn’t change your trajectory. That’s where you have that managing-your-own-psychology moment of this isn’t working and it’s never going to work. This stuff is bogus, I can’t do it, or this isn’t real. There’s all manner of thinking that you can go down that isn’t true. It’s just a long journey. Some stuff is harder than it seems, and some stuff is harder for particular people than it seems.

I have heard a few people say, I tried AdWords and it just didn’t work. It doesn’t work. I don’t think AdWords works anymore.

That’s a preposterous statement. AdWords is absolutely working for certain companies in certain spaces with certain budgets and certain lifetime values who invest a bunch of time. They put in the hard work, they gain the skill, and maybe get a little lucky. I don’t know if luck applies to AdWords actually.

Same thing with content marketing. Content marketing is […] just too crowded now. Yes and no. Yes, it is crowded. No, it’s not too crowded.

It’s easy to get discouraged. It’s easy to want to think of wins in terms of weeks, that I want things to change next week or next month. But really, this stuff just builds and snowballs over time, and you have to put in the reps. Don’t show up to start a software company if you’re not willing to put in the hard work, to try things that are hard, to try things that are likely to fail, and then to double down on them and triple down on them.

I can’t tell you how many months I spent messing around with Facebook Ads before I got them to work with HitTail. People were telling me Facebook Ads don’t work. They’re too expensive. Maybe they wouldn’t have worked. Maybe I got lucky. But I built an incredible lifestyle business on that. It was because I just wouldn’t give up. I refused. I was brute-forcing that approach to make it work.

I’ve digressed a little bit from my point that it’s not the games that are hard on the body. It’s the practice. But I want you to go away thinking that this is a long-term game.

If you’re going to be unhappy during the journey, if you’re going to be unhappy today, next week, and next month, then you’re not going to be happy if you exit. You’re not going to be happy when you hit $1 million or $5 million ARR, or you sell for $20 million. You’re still not going to be happy. You have to be mentally prepared to put in the time for weeks, months, and years, and enjoy the journey while you’re doing it. It’s easier said than done, but I think it’s a good reminder for all of us.

Lastly, I wanted to cover a couple things that I’ve discovered about my own dietary patterns that I wished I had known 10 or 15 years ago because some of them negatively impacted me as I was building these companies and basically building the dynasty, so to speak.

These are some simple things that may or may not apply to you, but what I learned was the advice that I was reading in books on physiology, the advice you see on the Internet or hear in podcasts, whether it’s the 4-Hour Body from Tim Ferriss, the keto diet, or whatever diets. We’ve seen paleo. All these things come and go even within our family. I would look at things that Sherry was reading and doing and were helping her. Then, I would try them, and they wouldn’t work for me or they would actually make me feel more tired.

Something that really hadn’t occurred to me was how much body physiology, your body type, individual genetics, and all that can play a factor in it.

I have five bullets that I had responded to in a private Slack I’m in. Someone had said, what are some dietary things that you’ve adjusted?

Maybe some of this has happened as I’ve gotten a little older, but to be honest, I remember that the first one is I really stopped drinking coffee. I like coffee a lot, but I stopped drinking coffee about two or three years ago.

I remember a lot in my 30s while I was growing Drip that I had really high anxiety often. I would feel my heart pounding. I was like, oh, I’m so stressed.

It turns out I would drink coffee—again, which I love. I would drink ½ cup or drink ⅓ of a cup because if I drink a full cup, it would just send me to the moon. My body reacts very sensitively to caffeine.

Eventually, I found out that black tea doesn’t have that impact on me. Not only does it have less caffeine, but then I don’t crash afterwards. If I drink a cup of coffee in the morning, about three or four hours later, I completely crash and I need to go to sleep.

It’s great that caffeine has its impact on me. I would say I’m lucky. But if you’re out there, you are having yourself feeling high anxiety, and drinking a lot of coffee. I wish that I had discovered this sooner because it definitely had a negative impact on my quality of life and probably on some of my decision-making over many years because I just didn’t think anything about it.

I was tired so I drank coffee because that’s what everyone else did. That’s what was around the house. That’s what Sherry had. We had an espresso machine at the office. Again, I enjoy the taste of it, but now that I’ve switched to black tea, my ability to stay awake for the whole day, have a high energy level, and all that has really changed dramatically.

Second thing is I don’t drink any caffeine after about 1:00 PM. I think it is pretty common knowledge. I know most people don’t do it, but I have found that drinking after that, while I can still go to sleep, impacts my sleep quality.

The third thing is I tried skipping breakfast because people talk about intermittent fasting which I know is skipping breakfast. People joke that it’s just skipping breakfast. It really didn’t work for me. I’m pretty sure that’s because of my body type. I’m more tall and lean.

But what I found is that eating carbs in the morning—any type of carbs—makes me tired so I have to try to drink more caffeine which would then make my heart pound.

What I found is for me, it’s high protein plus tea in the morning. It happens to be two eggs and maybe some bacon if we have it most mornings. I’m fine with having a relatively boring diet. I don’t need a bunch of change.

Even when I was at MicroConf, I could order whatever I wanted at the Hotel Palace in Dubrovnik. It was an omelet and some baked beans. I love that European-style breakfast. Then, I feel great. I have amazing energy and I don’t get tired in the afternoon.

Two more things before I sign off. One is I realized the negative impact—I’m still trying to sort it out if it’s gluten or if it’s carbs—that gluten and carbs have in terms of my energy.

I don’t know if it’s because I’m older, but good grief. I love myself a good turkey sandwich slathered in mayo, mustard, and guac. It has some cheese, lettuce, spinach—just all the things. I eat and I basically almost need to go to sleep within an hour after that. I don’t remember this happening when I was younger. Maybe I just had a bunch of energy.

Again, I’m trying to figure out lately—if I had French fries which are gluten-free, is it just the carby nature of it that makes me tired? It’s not that I don’t eat carbs or don’t eat gluten anymore. It’s that when I do, I know that I’m going to be tired later and I’m basically biting the bullet. It’s like having a big dessert and being like, well, I’m not going to feel great, but man, it’s going to taste good. That’s something I’ve been really trying to attune to in my own energy level as I’m managing that.

Last thing is a hack I learned six or eight years ago that someone had mentioned to me. I think it was a doctor at one point that said, oftentimes, it’s not how much alcohol you drink in the evening. It’s how late you drink it. The later you drink it, the longer it takes to get out of your system and the more it disrupts your sleep.

I have my own personal rule that I don’t drink alcohol after 10:00 PM. It’s very, very rare that I break this. When I do, I almost always regret it the next morning. Not necessarily with a hangover, but oftentimes, I’m just a lot more tired than I should be based on how much I consume.

Since implementing this whole post 10:00 PM thing, it’s been extremely rare that I’ve had any type of negative impact like a hangover or something the next day.

Some people like rules like this and some people don’t because it feels constricting and they want to have fun. That’s awesome. But for me, when I know that my whole day can be ruined if I wake up super tired, I can almost fall into a temporary depression. I can have this outlook that everything’s going to […] just because I’m tired.

That’s something I hadn’t realized 10 years ago. But now, when I wake up that tired, I don’t make any long-term decisions. I noticed that in myself and I’m able to manage that. I either take a nap because I work from home. I take a short nap if I really need it, which doesn’t happen very often anymore because of these things that I’ve implemented. I’m able to just do the work and come back another day when I feel perhaps more focused, more high-energy, and more motivated to do things.

Those are just five quick things that I wanted to throw out. Like I said, I’m not saying that these particular things should or shouldn’t apply to you, but what I’m saying is be aware of your energy levels and your moods based on what you’re eating and how you’re sleeping.

There are all these patterns that are so important that we don’t think enough about whether you’re a software developer or an entrepreneur. I was always so focused on growing the business. I wasn’t paying attention to a lot of things like this.

These are things that I really only had time to discover after leaving Drip. Then, I had all this headspace to start realizing the impact that these things had on me.

From someone who wishes that he had discovered these things a little earlier, I hope that you might take a moment to think about them in your own life.

Thanks so much for joining me this week on another Rob Solo Adventure. I appreciate you tuning in every week to Startups For The Rest of Us whether it’s been an episode, a month, or a year. I’ll be back in your earbuds again next Tuesday morning.

Thanks to our sponsor, Software Promotions. Software Promotions has been managing Google Ads and Google SEO for clients for 22 years if you can believe it. They’ve worked with more than 600 businesses. They’re no nonsense and have a lot of transparency.

One of the cofounders, Dave Collins, has spoken seven times at MicroConf, so you’ve likely seen his videos if you’ve checked out our YouTube channel. He’s also spoken at Business to Software and countless other conferences around the world.

If you’re looking for someone to help you with your Google Ads, whether you’re just getting started, whether you want an expert eye, or whether you want someone to manage that for you as well as SEO—from audits to getting down and dirty with organic search—Dave and Aaron know what they’re talking about. Those are the co-founders of Software Promotions.

You can head to bit.ly/tamegoogle to learn more about Software Promotions, or head to softwarepromotions.com and let them know you heard about them on Startups For The Rest of US. Thanks to David and Aaron for sponsoring the show.

Rob: Welcome to this week’s episode Startups for the Rest of Us. I’m Rob Walling. This week, I had a great conversation with Einar Vollset. If you don’t recall, Einar Vollset is my cofounder with TinySeed. He’s also the founding partner of Discretion Capital which is an advisory firm that advises SaaS founders who are in, let’s say, the $1–$2 million and up ARR range when they decide that they want to sell. You need people who know what they’re talking about and Einar’s one of them.

The fun part about our conversation today is we bat around funding for bootstrappers and really specifically, there’ve been a couple conversations I’ve had over the past couple of months that have got me thinking about talking about this on the show, because obviously this funding has become much more viable for bootstrappers. It’s not just bootstrap or venture paths. There’s this whole thing in the middle that we talk about. TinySeed is obviously part of that. I think there’s still confusion and misconceptions. It’s just amorphous and often hard to understand what’s going on and of some of the realities of it.

We spend this whole episode batting around when should a bootstrapper think about raising funding? When should they not? Why is it a good fit? We talk a little bit about terms and how much founders should think about raising, and just everything we’re seeing. The cool part is he and I have pretty different perspectives. I guess we share perspectives on a lot of things being the cofounders of TinySeed but I also have a lot of experience with other angel investments that I made before TinySeed that are still around, and I see different examples there. He has experience with his Discretion work and even the companies that he started before TinySeed. My hope is that it is helpful in just providing a little more of a level set and some more thoughts on this topic. With that, let’s dive into my conversation with Einar Vollset.

Einar, thanks for joining me once again on Startups for the Rest of Us.

Einar: Good to be on again, Rob.

Rob: We get to talk about funding and thinking through bootstrapping versus funding, or even these days it’s not just two options. It’s not just should I self-fund? Should I bootstrap? Should I raise a venture? There are all these avenues you can go down, whether it’s a TinySeed-like accelerator raising a small angel round for a couple of hundred thousand dollars. To me, my take is it’s gotten more robust and easier for founders who are in the MicroConf, Startups for the Rest of Us–type community and they’re in that situation to raise money on terms that make sense to them. Because 10 years ago, I didn’t know of a single company in our space that could raise money, not from essentially institutional folks who wanted them to become unicorns.

Einar: There’s equity and there are different types of investments too now that weren’t a thing five years ago. Things like non-dilutive revenue based financing, PIPE, that sort of thing.

Rob: Yeah, a lot of options. I know when I did my MicroConf talk in Vegas, it was US growth, maybe it was 2018. It might have been 2019. Who can keep track with Covid? Everything before Covid and everything after. I did a talk and I was talking about the state of bootstrapping and how I saw more companies raising funding not to go venture track but to raise one around maybe two, $200,000–$500,000.

I pointed out customer.io. I’m an angel investor in Churn Buster, WriteMessage, CartHook, LeadFuze, all these folks who are like, we’re not looking at IPO. We’re not going there full weight. As I saw it happening, obviously TinySeed came out of the need, where I only had so much of my own money to be able to put that in. We did TinySeed because there was a need on that side. It was pretty obvious to me that more bootstrap-ish capital-efficient founders want to raise money these days.

Einar: I think so. One of the missions for me, the reason why I love doing TinySeed is because I think that kind of investment and that kind of founder really enables them to quit their day job, and there can be many more founders like that if you have the capital going to these places.

Rob: I want to be clear. Obviously, Startups for the Rest of Us, we’re almost to 560 now. We’ve talked a lot about bootstrapping, but we also talk about funding. Even going back to 2013 or 2014, I talked about fund-strapping with Collin from customer.io. Mike Taber, the co-host emeritus of Startups for the Rest of Us, and I had several episodes on when to think about taking angel investment on funding versus bootstrapping, 19 questions to ask, that was episode 411 back in 2018. It’s not right for everyone. I think that’s one thing we want to talk through today is when does it make sense?

I’m going to be honest, I don’t know if you and I have ever talked about this, but I’ve seen founders who I just thought would just be bootstrappers forever and never raised rounds take funding. They have very good reasons for it and they don’t regret it. Folks like Craig Hewitt with Castos. He was in TinySeed batch one. I just thought he was going to bootstrap everything. Ruben Gamez with Bidsketch, and now Docsketch […] took money from us. He did it to move faster. He did it because it makes some things just a little easier. It hasn’t changed his business other than having more resources to work with.

Einar: I think you mentioned Collin, too. He’s doing incredibly well now. He’s open about his numbers. I think he’s doing $22 million ARR right now.

Rob: But when you talk to him, he’s totally along that line too, like I don’t want to be a unicorn. I want to build a real business, a $22 million ARR SaaS company in the email space. Now, I think they’re doing a crowd fund. I know they’re doing a crowd-funding thing right now to raise money. I believe they’ve raised two smaller rounds before that. The very first round was a couple of hundred thousand dollars. I don’t know if the second round was, but I think it’s probably all in Crunchbase.

But you’re right, it’s founders like that who see it. There’s bootstrapping, there’s VC, and then there’s this whole thing in the middle now. It’s still amorphous, I think. That’s what we’re leaning into obviously with TinySeed. We’re going to cover some topics, like why I raised if you want to.

And again, this podcast is not about raising funding. If you don’t raise funding, you’re not in the club. It’s nothing like that. It’s just another tool in the tool belt. It’s another option, revenue-based financing, this type of funding, whatever, to help you get there faster which has really been a mission of MicroConf, Startups for the Rest of Us, all my writings from day one. How can we help more entrepreneurs succeed, more founders become self-sustaining, and this is another option.

I may have mentioned a few of them already but when you see founders raising these small amounts of money, let’s say through TinySeed or through doing other angel rounds, when is that a good call? When should they think about that? How are they using the money to essentially accelerate their business in the best case?

Einar: I think when we first started, one of the main ways that I thought about it for TinySeed founders would be people who had enough, had some kind of revenue coming in but it wasn’t really enough to make it their main focus. I still think there’s a good chunk of the founders that we backed that are like that. They’re at $3000, $8000 MRR or something like that. Particularly, $8000 MRR or two founders are probably not self-sustaining at that point.

I think taking money in order to effectively pay yourself and say I’m not going to burn through all my life savings or remortgage my house to take this risk. I want basically to offload that risk to someone else who has a higher risk appetite than me. I think that’s one of the better reasons to do it.

I also think one of the most surprising things is how many people are at the point where probably they don’t use the money that we give them to pay themselves but they use it potentially to accelerate the channels that are already working or feel like this gives them the leeway to just be a little bit more experimental with the growth channels they can go after.

If you’re totally bootstrapped and you’re basically just about self-sustaining, how keen are you going to be, like I’m going to hire an STR service and run that for three months for $15,000 and then potentially hire a sales person and try that channel out. Or a re-up, start a Google Ad campaign to try out this new channel. I think it offloads some risk and it enables the founder to take more risks and potentially grow their business substantially faster.

Rob: I like that thing about offloading risk because there have been several founders who I know who have taken money, Derek Reimers is an example. After the Drip acquisition, he has enough money that he could basically angel fund himself. But he took TinySeed money back in batch one and when I talked about it like why did you do that, because you have that much money plus some in the bank. He said it takes some risk off the table. It’s more runway but it’s also less of my personal risk and I don’t give up control. It’s just not a huge loss except for a few points of equity, in essence, which I figure if it’s successful, that’s probably not going to matter in the end.

Einar: Absolutely.

Rob: I like that idea. That thought of taking some risk off the founder. True bootstrapping, as you said, there’s a ton of risk on you personally and it can be stressful.

Einar: It’s going to be stressful. I also think it is a certain level or privilege to be able to bootstrap a lot of the time. It means that you have a bunch of savings, you made a ton of money doing something else, or a lot of the time your spouse makes enough money so that they can cover the whole household. I think just enabling this kind of funding means that more people who necessarily aren’t already in that situation can take the risk that’s just inherent in starting something like a software business.

Rob: That makes sense. From my end, the folks that I see raising and doing well with the money, they want it to move faster, they want it to decrease risk as you’ve said. Usually, not every time, they want it to make a key hire that they can’t afford.

Actually, these days with a lot of big companies are remote now, talent is more expensive than it used to be. Correct me if you’ve seen other situations, but the main hires I’ve seen are to hire a marketer, somebody to have run DemandGen or an agency to do the marketing. The other one is more development talent, like a senior developer who can technically lead so that the founder can maybe step away, or if it’s a nontechnical founder that they have, that person now who’s running the show. I think those are the two big ones I’ve seen.

Einar: I think it’s telling how different our approach is, the founders that we talk to because that’s not what I see.

Rob: What do you see? That’s why you’re here, right?

Einar: Yeah. I see people mostly hiring a customer success–type person, just to take customer support load off either key engineers or the founders. Then I see people hiring sales. They’re trying to either just STRs in order to fill more of the funnel for the founder to do the close, or for the founder to say I’m ready for an account exec who can do demos so I don’t spend all my time doing demos.

I see a bunch of those things, too, where it’s like they would have gotten there to where they needed to hire (say) customer support or other sales people but maybe that would take another 18 months. Just the fact that they can hire now just means business moves faster.

Rob: I think to look at it from the opposite side, what are the scenarios or the situations where a bootstrap founder probably shouldn’t raise, probably should think about just continuing to bootstrap? I’ll throw it out right from the start. My sentiment is that if you don’t have or are pretty dang close to product/market fit, meaning that you’ve built something people want and are willing to pay for, I think you should keep grinding until you get really close to that.

Now, I’m not saying you have to have a sustainable marketing channel and a bunch of leads coming in and a whole built out funnel, that would be great. It gives you a better valuation. It makes for investors interested. But if you’re at $2000 MRR and you’re getting onesie-twosie people coming in, some people are churning, and it’s an early product still, my sentiment is that’s not something I’m personally interested in investing in and I don’t know a lot of investors who are willing to bet that early. Do you agree or disagree?

Einar: I think there are a lot of investors looking to bet that early. Your story has to be different. If anything, I actually think it’s easier to raise money when you have no revenue, if you have a good story.

Rob: In SaaS? I don’t think in B2B SaaS.

Einar: Well yeah, but even so. We’re going to do this thing. You’re six months in and you have a 20% monthly churn that people can look at. It’s hard to explain. The difference I think is if you’re going to go to market and try to raise with no revenue, just a plan or a vision and stuff, that plan or vision has to be much larger because the kind of investors who are interested in investing at (say) $12 million pre, without a product, and just two or three engineers, because the risk is now so high, it needs to be something that they believe can be a unicorn. You’re in unicorn territory.

If your story isn’t up into the right, they’re going to be like, meh. We see a lot of pitches for people who haven’t proven anything yet. They really have to believe and be excited about the story in a way that if you’re doing $8000 MRR and you’re growing 10%–15% month over month with no churn, it’s a very different thing for people to invest in.

Rob: I don’t know any investors and I’m friends with 12 or 15 angel investors. These are all former founders, so people I met at MicroConf. I don’t know anyone who invests in a SaaS app pre revenue. You know what, there’s a couple.

Einar: […] I know a lot of them.

Rob: See, I think that’s the difference.

Einar: You’re telling me like let’s talk. I know tons of people who will do that. But again it has to be a big vision.

Rob: It has to be a venture scale business.

Einar: Venture scale, IPO, take over the world, changed this. Those kinds of investors typically do well. If anything, I do think it’s sometimes easier to sell the dream rather than trying to explain the numbers in this regard.

Rob: I would agree with that and I will just say, and you and I by the way don’t agree on everything on this podcast. That’s why you’re here, otherwise I could monologue this whole thing and just do a Rob solo adventure.

Einar: We’re just talking about marketing hires and things like that. Nobody’s talking about marketing hires ever.

Rob: When I’m talking to them, it’s like don’t talk to Rob if you’re going to do sales hire. Talk to Einar. My take is with B2B SaaS, if you want to build a $10-, $20-, $30-million business, if you have a really good network—let’s say you’re a second time founder, you’re a Josh Pigford, you’re a Derek Reimer, whatever, anybody, Rand Fishkin—can you raise pre revenue? David Cancel right on his fifth one. I don’t remember how much he raised, but he was $5 million out of $15 million or $20 million valuation with just an idea because it’s David Cancel.

But most of us aren’t that person. Most of us are doing this for the first time. If you don’t have a strong network or some type of in and you’d want to build a B2B SaaS company $10-, $20-, $30-million, I have not seen someone be able to raise around at that point pre revenue.

Einar: Crucially, the thing to think about is I do think you can raise. Like I said, I know several investors who want to do this. You can raise with just an idea, a deck, just a team, or whatever, but then the vision has to be big, and that does usually excludes you or precludes you from actually doing the exit at $20 million or $50 million. Just the mechanics of the way that investments are being made in that case with liquidation preferences, valuations, and rights for investors to block things and things like that, means you’ll end up in a situation where you have to really go for $100 billion, $500 billion exit or nothing. There is very little middle ground there.

Rob: Another type of business that I think should probably not raise is step one business if we think about the stair step approach. Step one businesses are usually oftentimes built on a platform, like a Shopify add on, a Heroku add on, a WordPress plugin. Usually, they plateau at some point that is far below what any investor, even bootstrap-friendly investors want. And there’s platform risk to the, you built something big enough, Shopify comes knocking and bad things happen. You build something big enough, Heroku hasn’t done this as far as I know. But any platform can kill you or just say pay us 20% or 30% of your revenue all of a sudden.

Einar: I do see break up instances on both building platforms. That does happen, but I certainly think the risk is higher. I think investors will be more like what happens here if they build this in house or cut you off in some way, shape, or form.

Rob: We, being TinySeed, have invested at least one and I’d say a few businesses that have platform risk including Rails Autoscale—Adam was on the podcast just a few weeks ago, and that was a conversation we had early on. How does this scale? Because Rails Autoscale be a $5 million or $10 million ARR business as it stands now? Personally, I’m pretty sceptical and Adam is too that the space maybe just isn’t that large. Then we said, how do you reduce platform risk and how do you get to X million in revenue? As long as a founder is thinking about that then at least there’s room to grow there.

Someone asked me on Twitter—maybe it was eight or nine months ago—why is there no TinySeed for info products, or course creators, makers? It was an honest question. I appreciate it. I answered it and basically said, because they don’t scale like SaaS. Because they’re often reliant on a single individual, not all the time, but often rely on a personality or personal brand, and the exit multiples aren’t there. That’s a part of why this works, is that SaaS sells for such a crazy high multiple. Not that everyone has to sell, but that is one driver of returns.

I think another time when founders should probably not raise money is if they want that true four-hour work week lifestyle business, if they want to work part time. I did this. I did this for a couple years with HitTail. It was great. I worked 12 hours a week. Not that suddenly your investors are your boss, because that’s not how it is. I think bootstrappers think investors are probably a lot more involved than they think they are, or managing their time, or like send me your time clock and your timesheet. That’s not how it is.

But I do think if you want to work 10 or 15 hours a week, go bootstrap an amazing business and make it a lifestyle. I’ve had several of those. I think the moment you think about getting external funding from someone else, to me it’s a commitment to no, I’m going to grow this. I’m going to be committed to this business full time. I’m not going to go start other side projects during this time.

Not that you can’t do anything. You could set up a blog, a podcast or whatever. But if I invested in a founder personally and they were doing a SaaS app, and suddenly they started another little side project SaaS app, I would have a conversation about what’s the plan there? Do you plan to focus or do you plan to split time? What’s the deal? Do you agree with that or what do you think?

Einar: There’s always a pivot. I don’t know. Most investors come along, there will be IP assignments and stuff from the company. If you start a company and then you work on those products and then you start a side business, now is your investor part owner of the side business too? Is that a pivot? What is it? There are certain things to think about.

I think you’re right. Running a B2B SaaS business was most of the time we’re talking about. It’s a full time job if you’re planning most of the time. If you’re just planning to do a four-hour work week, then I probably would look at info products or some of the more smaller scale.

Rob: Step one plays are great. I did this with HitTail. But HitTail was like a single feature, almost. It had multiple streams but it was not the place that we’re talking about. It was SEO pure tool. I just had a couple channels that worked mostly on autopilot. It didn’t have to do sales. It was self-service. Churn was high because the price points were low but that didn’t matter. I got up to $25,000–$30,000 a month, a great lifestyle business.

But that would have been dumb for me to then go out and say I’m going to take investment for this. Unless I wanted to then double down to be like, look, I’m going to make this into an SEO suite or a rank track. There are things that can expand the market, but I personally wasn’t interested in doing that in that space.

Einar: In some cases it makes sense to go after the bigger thing after a while. I still remember when PagerDuty launched. I was like PagerDuty, what? Is this a business? What the hell? And now, they’re a publicly listed company. Okay, I was wrong. Sometimes there are things that are bigger than you think (I think) a lot of the time. Early stage investors, despite what some investors will tell you, I think it’s almost impossible to really, really have a good sense of what’s going to work. There’s just a lot more randomness and luck and things in there that accounts for a lot of it.

Rob: Yeah. When I think of funding options for bootstrappers these days, obviously there’s accelerators like TinySeed, there are other funds that do similar stuff. I’ve heard of the Weekend Fund which is from Ryan Hoover who’s the Product Hunt founder. I don’t know if they’re bootstrapper friendly or if they’re venture only. I think that’s a conversation to have with folks. If you’re going to take funding to be like I would sell if I got an offer for $20 million, to be up front about that.

If the investors want to invest then I don’t think you should take the money because you’re going to have this conflict now when you get that offer for $20 million that’s going to change your life, and you push back on it. The investors are going to say no, $100 million or $1 billion, or bust. You have to be on the same page. There are investors out there—I know angel investors—who are willing to take that 3X, 5X, 10X versus the unicorn play.

Einar: I think this boils down to the trade-off in terms of valuation that you take too. I think this is more traditional […]. The higher valuation you can raise the better. Look at us, we raise a $20 million pre or $12 million pre. You raised a $12 million pre and you sell for $20 million, even if you have the right to do so, and you do it, your investors are not going to be happy. That’s not what I wanted. That’s pretty much a failure for people. Just because of the economics of how the investors and their investors operate. That’s the trade-off, really, when it comes to what optionality are you taking off the table by taking a super high valuation and raising a ton of money.

Rob: That’s a really good point. Most of the more bootstrapper-friendly funding sources that I’m familiar with, the valuations are lower than if you went to Sand Hill Road at Silicon Valley and it’s two people in a garage with two laptops, they have a product, they can get whatever—$5 million or $10 million—then coming out of YC, everybody doesn’t get the $10 million thing, whether they’ve launched or not, which is just crazy.

Einar: Last I heard on a pre-product launch, on demo day, it’s like $12–$20 million pre.

Rob: That’s insane.

Einar: But here’s the thing. What has changed (I think) in the last 10 years up in the Valley is because the dark days of 2008 and 2009 and almost nobody was investing, which turned out to have been the best time to be investing in things like Airbnb, Dropbox, and things, fundamentally, I think what has changed is and I think this is debilitating for founders who are struggling with this because you read all these stories about there’s so much money in this space now. You should go out and raise money right now because there’s never been more money in the ecosystem.

If you look at the inflows into venture, that’s true. There’s a ton of money going in but they tend to go after fewer and fewer deals. You end up with a very binary outcome where it’s like I know you’re superhot to the point where venture capital associates are cold calling you on a Friday night or there’s crickets. There’s nothing. That’s very, very tricky to deal with. Particularly if you’re trying to raise a lot of money and you’re in the crickets camp, and then you read all these stories about it’s the easiest time ever to raise money. I’m like, it’s the easiest time to raise money for a particular kind of company, opportunity, and founder. If you don’t want to do that or it’s not what you’re after then it can be very hard.

Rob: I think that’s a really good point to think about. So let’s say today Einar, you had a B2B SaaS app doing $5000–$100,000 a month in MRR and you decided that you did want to raise that round. Obviously, I would love it if you’d come to tinyseed.com and your email address. We are now having open applications. We’re now running two batches per year, so every six months, we open applications. We’d love to chat. We even have a mid-batch application if you’re doing anything north of $5000 MRR. We have those coming through when we’re having conversations so we can fund people as it makes sense for their journey.

But let’s say you were doing $10,000–$20,000 MRR and you decided for whatever reason that you didn’t want to go through a program like TinySeed and you’re going to raise it on your own. You want to raise $200,000–$250,000. In my head you got to work your network. If you don’t have one I’m not sure what to do. When I thought about raising six or seven years ago, I was like, I don’t know who I will talk to or who will give me money.

But I would then look at using a convertible note or a safe. People can Google; we’re not going to define it here. There is a way you don’t have to do a price round now and get stuff on your cap table. That can take more time. There’s more due diligence in that, but a convertible note or a safe is a promise of essentially future equity to investors. Is that the approach you would take?

Einar: Probably so. I’m more pro selling equity, too. I think that’s fine. The problem with selling equity is a lot of the time it ends up. Most investors—people don’t know these either and this is not true for us—will make the founders pay for their legal fees. Part of the reason why safes and convertible notes took off in things is because it’s cheaper on the legal front and that is doubly valuable because most of the time, traditionally at least investors have been like I’m going to have you pay for my lawyer.

If you’re taking $250,000 and it becomes a protracted back and forth with legal views on either side, you could easily be in a position where like, you got $250,000 investment, but now $40,000 $50,000 of that is in legal fees for you and the investor that you both have to pay out of that $250,00. But if you can deal with someone who can very effectively and efficiently do a priced round, then I don’t think there’s a huge downside to that.

Rob: That’s what we do and we do it efficiently, right?

Einar: Yeah, it is. There’s some tax benefit and there is some clarity there (I think) a lot of the time, in terms of who owns what. It’s less of an issue with more of the TinySeed–type companies or bootstrap–type companies where you’re not doing fundraising every 18 months, but some of the challenges with the safe notes and the convertible notes is if you multiple rounds of this and one after the other and some bridge stuff in there, it actually comes quite difficult after a while to figure out how much your company’s left, because they convert at different caps at different times and different triggers and all that stuff.

There is something to be said […] I’m buying equity and valuing your company and if we think it’s worth $2–$3 million and we’ll buy 10% for whatever. I do think there’s a nice sense of that. The challenge, particularly, if you run into unsophisticated investors or maybe investors who are used to larger rounds or later-stage stuff, you can get stuck and blow easily $50,000 in legal fees, which is obviously counter-productive for a $250,000 round.

Rob: To untangle that and I guess my advice there is don’t raise a bunch of different caps and valuations. Keep it simple.

Einar: That’s the problem for people. This is the thing. If you’re going the more traditional venture route, then while you’re raising money, you erase money, so you burn hard. You burn hard, then you’re running out of money, and you have to raise more money, so you can keep burning hard. There are people with 13 safes and they’re like, is there someone with software that can help me figure out or an analyst that can help me figure out how much the company is left?

Rob: Yeah, don’t do that. If you’re a bootstrapper, you’re not going to be raising all the time. My advice would be not to do that. As a bootstrapper, you don’t need to be raising all the time and it’s a distraction. You’re not on a venture treadmill where you need to raise every 18 months. I would chill out a little bit, I’ll keep it simpler.

One last note on safes and convertible notes is that if you truly are thinking maybe this might be my only round, you’re essentially committing to giving equity in the future, usually at the next funding round or if there’s an acquisition. If you do plan to run the company, you want to run it for 10 or 20 years and take a profit, safe and convertible note.

That’s not legal advice. We’re not lawyers like that’s a disclosure. But it’s not the best. I mean it can screw investors. To be honest, it’s top […], I believe, where they raise the money on safes and convertible notes, they never raise another round, they haven’t sold, so all the investors don’t technically own the equity, and the founder can actually literally legally take money out of the company and put it in his own pocket. Him or the other founders, I guess, whoever owns the equity. It’s a weird situation.

I think if you are thinking about doing it longer term, then equity probably makes a bit more sense to think about that. The other thing is there was the pre TinySeed. I did angel investments; wound up working out very well, but the founder used convertible notes. At a certain point, he just said all right, we’re just converting to equity at this rate. We’re just converting this at the cap or something like that. He just decided he wanted everyone on the cap table. He wanted to clean it up and he didn’t want to keep his interest involved in this and that. It was just a decision as a founder he meant that to simplify everything.

Founder thinking about raising money, what do you think the dollar amounts? Where should they land? I guess should is a strong word, but there’s a minimum that makes sense. I don’t think you should go try to raise a $75,000 round because the time and the legal fees alone are not worth it. On the top end, what are your thoughts on small and large?

Einar: It’s a little different if you’re just taking a pre-specified money from us or YC or whatever, it’s like $120,000, $180,000, $200,000 whatever. In general, if you’re going to raise money, it’s probably worse to raise at least $150,000–$200,000 I would say. At least that’s true I think in the US. It becomes one of those things that if you can’t raise that much, is it really worth the pain going through and having investors at $75,000? As an example, just costs. If you were to do special-purpose vehicles, this is one of the ways that you can put a bunch of people on a single line item on your cap table.

AngelList will do that for the investor. On the investor side, it’s going to cost $8000 to do, which is actually reasonably cheap. But if you’re raising $75,000, that’s the material part of the actual investment that comes through. This is pretty significant dilution for the investors to take. I do think that it has become a stage where this doesn’t make any sense. I think that’s probably about $150,000–$200,000 or something like that.

Rob: We should point out that accelerators like TinySeed are different from that. Most founders who get funded by us, I’d say the vast majority is $120,000 to about $250,000 is the general range. But since our process we fund 20 companies at once and we fund the entire round, this is very different from you going and trying to find four investors at $25,000 each and then trying to close a round. There will be a bunch of costs on you and more complexity trying to wrangle them than dealing with a fund like TinySeed.

Einar: I think that’s true. It’s just much more efficient for us and we pay our own legal fees, so we’re incentivized to make it an efficient process instead of something that just drags on and on.

Rob: Then AngelList has an RUV or Roll Up Vehicle. I don’t know so much about it, but I think the idea is it’s a no fee RUV. It’s to help with convertible notes and safes. But I think it’s pretty new. Have you heard about this?

Einar: Yeah. It’s not entirely clear to me. I should probably look at how it’s different from an SPV. At AngelList, the SPV fees are about $8000. RUVs are similar to that. It’s certainly the same deal. The reason why you would have an SPV is because you want to be able to say there are 25 people who want to throw in $10,000 each, but I don’t want 25 people on my cap table for assorted reasons. You put together an SPV and then the SPV is the one that invests. I think a Roll Up Vehicle is the same. It’s entirely unclear to me how they’re technically different.

Rob: Here’s one thing about RUVs is they basically say you have to be a US C-Corp in order to do it. That’s going to cut a lot of folks, bootstrappers who want to stay LLCs want to be in corporate in different states. They basically say if you’re raising safe and equity round, you’re likely eligible for a no fee RUV with zero care for investors. But again, I haven’t dug into it to know how that all works and how AngelList makes the money, or if they’re just doing it out of the kindness of their heart. You think that’s the reason?

Einar: It could be.

Rob: No, I don’t think that. Not that AngelList is bad, It’s just their business, they have to make money on this stuff somewhere. In my head, I agree with you. I think $150,000–$500,000 is the most common. That’s the most common range that I’ve seen across. We have 41 TinySeed investments and between Sharon and I, 18 private angel investments pretty much made before TinySeed. That’s almost 60 companies and that has by far been the range, $150,000 up to $500,000. There are obviously exceptions. There are people who have a really great network, they’re a second time founder, and they can go out and raise $600,000 in their first round. But that has been pretty unusual in my experience.

Einar: Yeah, I think that’s true. There are people who do it. It’s just a matter of what are you trying to do with it? What are the trade-offs in terms of optionality? If you raise $2 million or $3 million, then investors are expecting you to spend it. It’s not like we don’t expect you to spend it. In some cases, we have to tell founders why are you not doing this? It seems expensive. I was like, we will give you money. You should spend it. It seems like a good use of the money. But that’s even more pronounced if you’re raising $2 million or $3 million.

If you’re raising $2 million or $3 million then investors will not be pleased if 12 months later there is $2 million or $3 million in your account. Unless that’s because it’s been growing crazy.

Rob: I think with that in mind the idea is the more you raise, the more of your company you have to sell. It all depends on valuation as well. Valuation is really set by the market, but the market looks at what’s your traction. Oftentimes, what’s your MRR? What’s the story you’re telling? What’s the certainty that people think that you are going to be able to provide a return? What is that return? We’ll get into it.

The second is, is an exit down the line or is it taking profit out of the business? If you say I’m going to be an LLC and I want to take profit out of the business and run this for 10 or 20 years, you will significantly reduce the pool of investors who are willing to invest in you. I’m not saying that’s a good or a bad thing, but just realize that there are far more investors who want you to exit.

Einar: I think fundamentally, one of the things there is if that’s your goal, if your goal is to keep it forever and then pull cash out and distribute cash over time, then honestly what you should be looking at is more likely things like revenue-based financing. The investors who are looking for more dependable cash flows are more likely to be putting their money into those kinds of vehicles. Equity-type investors typically are looking for higher potential upside than what comes from just profit distributions.

The fact that with revenue-based financing–type things, it’s a little bit more determined how this has to work and it’s a bit more predictable in terms of the cash flow that investors can expect versus if you’re taking an equity investment and you’re saying I’m just going to pull profit out and distribute it over time, effectively what you’re saying to the investors is trust me, I’ll do that. Don’t worry. I’ll do it.

But if you take more revenue-based financing, you’re entering into a legal contract to do it. The incentives are slightly different there. Now, the problem of course is the stage we invest, like super, super early, the earliest stage, it’s almost impossible to get revenue-based financing because your revenue is so low.

Rob: I think at this stage we invest which is early, a lot of founders don’t know. They don’t know who if longer term they want to run it and pull profits off. They don’t know if they will get an offer for $5 million or $10 million. When you see that number on a check or in an email, it changes your perspective. I’ll tell you what. You suddenly realize, wait a minute. Let me get this straight. I can pay my house off. I can fund all my kids’ college funds. I could feasibly never have to work again or never have to work in anything I don’t want to again.

That […] changes your whole outlook on life overnight. They may want to go raise a venture round later. That’s where something like TinySeed comes in. That’s one of the reasons we started this. We wanted folks to have that option. To be able to buy themselves some time to build the business to the point where it becomes maybe a little more obvious of where it should go in the direction the founder wants to take it.

Einar: That can work out different ways, too. We have founders who tell us that if I got $10 million, I’d sell it. Now, they’re doing very well and they’re like, no way will I sell for $10 million. It goes both ways. It’s just nice to have that optionality I think. We do have founders who are like, this is a big opportunity. I just want to go and raise a ton of money and go the venture track. I’m like, great. Do that.

Rob: That’s the fun part. That’s what I like about it. Anyone who’s known me, listened, read, or just been involved in any of the content I’ve been putting out for 15 or 16 years now, knows that the bottom line mission for me is to help more founders succeed faster and have a sustainable business of any kind. A sustainable business may mean that they’re able to sell it for millions or tens of millions or enough money. Maybe their life-changing money is $500,000 because that changes your life in the short term and they’re able to go start another business.

But that’s why I love doing this podcast. That’s why I love being part of MicroConf because our community is focused on helping each other. That’s why TinySeed is such a part of the mission, why it was so cool that you and I essentially agreed on that, that this needs to exist in the world.

In 2018, as we were talking about this and figuring out, should we start TinySeed? Does it work? I knew there was a desire on the founder side because of all the people that I had invested in. It was like, all right, I’m out of money in terms of writing more checks to startups. I need to keep my allocations between Bitcoin and Ether and public equities and all that reasonable. What I didn’t know is would investors, in essence, be willing to invest in this asset class? That other side of the market place came together pretty quickly, which has been nice.

Einar: We started seeing that on the buyout side, too, with Discretion Capital. We started seeing that 5 or 10 years ago, it was like, if you had $2 million or $3 million ARR B2B SaaS business growing reasonably well but clearly not going to be the next Airbnb, there weren’t a lot of interests on the buy side, versus that has really changed on the buy side as well.

That makes it more feasible to basically get money from investors who want to come in at the early stage there. Potential exit market and it’s just they see that people are selling for 4, 5, 6, 7, 8, 9, 10 times ARR at $1 million, $2 million, or $3 million. That becomes a viable thing to back at that point.

Rob: What’s good today is if you are building SaaS, it’s so capital-efficient. It can be extremely profitable if you decide to keep it. It can be extremely lucrative if you decide to sell it. If you gain traction, there is money out there. You and I’ve talked a lot about TinySeed here, but we’ve talked about pipe.com, revenue-based financing. There’s a whole world. Just type in RBF or revenue based financing into Google and you’ll see 20 or 30 players in. There are a lot of options out there. Then there are again other funds that are thinking about this stuff.

I just think we live at such an amazing time. If you want to bootstrap, awesome, do that. That’s what I did with all my SaaS apps. But you know what, one of the reasons I started TinySeed is I wanted just the fund to exist for me because during the Drip years, we needed money and we were doing all types of crazy stuff to cut costs and it was super stressful. I wanted to really quickly raise a couple of hundred thousand dollars. It would have been a big difference but I just don’t have the time to do it, and I don’t know if I have the network, which in retrospect I probably did. I don’t know there was all this indecision around it. I think almost de-stigmatizing it or perhaps normalizing it just a bit more I think is helpful in the space.

Einar: I just want to back more founders. I think more people should be doing their own thing—wherever they’re based in the world—rather than feeling like the pinnacle is to go work for Google or something.

Rob: I think that makes a lot of sense. Well sir, I think we’ve covered this pretty well. If folks want to keep up with you, you’re @einarvollset on Twitter. Of course, they can keep up with us at tinyseed.com if they want to hear more about it. You blog prodigiously on your dot-com, don’t you? Do you have one blog post in the past year?

Einar: einarvollset.com? Yeah. It’s a table that shows IRR versus multiple for the […].

Rob: Amazing. Says the guy. I’m not shaming you. I mean, the last time I blogged was probably two or three years ago.

Einar: At least, you put things out. I was thinking about this. I was like if you follow me on Twitter, you’re mostly going to see me complaining about the Giants. Like I said, I’m not the marketing guy side of things here. I’m more the background dude.

Rob: You are headed to the UK. You’re actually going to be in or around London for two or three weeks, four weeks here, sir?

Einar: Four weeks. I will be there through the end of the summer and then come back for the kids’ school to start here. Then I’m probably going to be in around Europe and London throughout the fall, really.

Rob: Part of the reason you’re there is personal, but part of the reason is because we are raising a European TinySeed fund. If you’re an investor, whether you live in Europe or whether you just want to have exposure to essentially assets of early stage B2B SaaS located somewhere in the EU, Europe area, they should reach out to you. They should go to tinyseed.com/invest. There are a few questions there that pings you directly, and you’ll be able to meet in person because you’re fully vaccinated. That is super cool. Awesome. Thanks again for joining me, man.

Einar: Thank you.

Rob: Thanks again for joining me this week. A lot of good ratings. Five-star ratings are rolling. It’s been super cool. I think we’re approaching 920 worldwide ratings. I want to get to four figures. If you haven’t given us a rating or review, I’d appreciate either or both.

We received this great review from Gilmore Golf from the UK. Five-star, refreshingly honest, and relevant. I’m a fairly new listener who’s now working their way to the back catalog of episodes. But I want to leave this review to thank Rob for all the value, insight, and education he shares for free. I now have a renewed energy and inspiration to pursue my entrepreneurial ideas without compromising on the most important things to me, in other words my family. Thank you, Rob. Please keep going.

Thanks again. This is the kind of stuff that makes me want to keep going in and makes the whole team behind Startups for the Rest of Us make us want to keep going. Thanks, Gilmore Golf. If you haven’t left a rating or review, I would really appreciate it. That wraps up for the week. We’ll be back in your ear buds again next Tuesday morning.

Rob: In this episode of Startups for the Rest of Us, Mike and I will talk about all things startup. This is Startups for the Rest of Us episode 543.

Welcome to Startups for the Rest of Us. The podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing startups. Whether you built your 5th startup or you’re thinking about your 1st. I’m rob.

Mike: And I’m Mike.

Rob: We’re here to share our experiences to help you avoid the mistakes we’ve made. Where are we this week, sir?

Mike: Not much, hanging in there. Just catching up on some TV these days and trying to relax a little bit in between various things that are going on. Have you heard about a show called For All Mankind?

Rob: I’ve heard about it on a couple of nerd podcasts I listened to, but I don’t remember what it’s about.

Mike: It’s pretty cool. Have you heard of Man In The High Castle where it’s kind of like an alternate history?

Rob: Yeah. I watched the first season of that.

Mike: It’s similar. It’s about the space race between the United States and the Soviet Union. The main difference is that in the very first episode, what they did is they had the Soviets end up getting to the moon first. There’s a lot of historically accurate things in there, but then they obviously take extreme creative liberty with a bunch of different historical facts or pieces of things that happened.

It’s fascinating how they put that spin on it because a lot of it is very true to history and realistic like Buzz Aldrin, and Neil Armstrong, and people whose names you would recognize. But then they changed certain aspects of history as they went along. It’s just really interesting, the way they do it. It’s got a lot of twists and turns, especially if you’re a history buff and you like history, you don’t actually know what to expect next because they are changing things.

Rob: Wow. That sounds really cool. Is it a TV show like 10 episodes?

Mike: I think it’s in its 2nd season now. We’ve watched nine episodes. It’s on Apple TV+. It’s like Disney+ but it’s Apple TV+. It’s there and we’re at the 9th episode. We just finished the 9th, and we’re about to watch the 10th. I think the 2nd season is out and that’s the only reason why I actually even tried to give it a shot. But after the 1st episode, I was hooked. I was like, wow, this is really good.

Rob: That’s super cool. I need to check it out. Sharon and I were talking and we need to find a new show. We talked about Game of Thrones a few weeks ago and it was like, I like when that was on because they had something every week during the summer or whenever it came out. We watch This Is Us as well, which is good, but it’s only 44 minutes a week and I think it’s going to end soon as well. I have to check it out. I, of course, love the sci-fi alternate-history type of stuff. I’m just a fan of that kind of thing.

Mike: Yeah. It definitely plays the whole what-if scenarios of history, obviously. You have your own preconceived notions about what could happen, but you can always discuss like, oh, how would this turn out if this happened instead?

Rob: Exactly. That reminds me actually, one of my kids watched Frozen II again, like two weeks ago. Have you seen that movie? Have you seen either of the Frozens?

Mike: I have.

Rob: Okay. The main character, Elsa, has ice powers where she can shoot ice, and make snow, and do all these things? Well, two of my kids started getting into this argument about who would win in a fight and I don’t know how they got there. It’s kids, right? Elsa or Spiderman? I was like, obviously—

Mike: —Elsa, of course.

Rob: Wait, what? Seriously?

Mike: Yeah. Why?

Rob: Because Spiderman would smoke her. Are you kidding me? He has the spider-sense. She wouldn’t be able to hit him at all. Can you imagine her trying to shoot her snow rays at him and him knowing where they’re going to be? That’s really what the spider-sense is. It’s almost like a predictive mechanism.

Mike: Yeah. But she’s got superhuman strength, and reflexes, and endurance. It’s not really a whole lot different. You could almost say that she’s got a form of spider-sense as well.

Rob: Wait, superhuman strength? Does Elsa have that?

Mike: Well, it’s superhuman agility. It’s not really a strength, but yeah.

Rob: Really?

Mike: Yeah.

Rob: How does she have superhuman agility?

Mike: Well, it takes that to be like sliding around on those ice runners and stuff that she puts together.

Rob: No. My kids will grab a piece of cardboard and they’ll go down the slide standing up at this park here near us.

Mike: I’m sure that looks very elegant.

Rob: At least they don’t fall and crack their head open. They’re not wearing a helmet. I disagree that she has superhuman agility. She’s not a superhero. Spiderman is. He’s the friendly neighborhood Spiderman.

Mike: She’s not a superhero? She got all these different powers. She can control ice, can create ice, and control water—

Rob: Yeah.

Mike: —manipulate the weather, freeze people’s brains and hearts. Come on.

Rob: Was that in one of the movies? Did I miss that?

Mike: Yeah.

Rob: Here’s the thing. I don’t think of her as a superhero. I think of her as like a person who can do some stuff and maybe more like Storm or Iceman—if I’m going to go back to the superhero genre. Did you read Marvel’s Secret Wars from the ‘80s? The comic series?

Mike: I did not read it. They recreated a bunch of those in the last 8 or 10 years.

Rob: Yeah. They had something called Secret Wars in the last 10 years that they published. My understanding is it’s different than the one from the ‘80s. I probably need to read some of those just so I can tell the difference because growing up for me, it’s called Marvel Superhero Secret Wars. It ran, I would guess ’84-’85-ish and it was like a 12-issue limited series. It was the best story that I had ever read in comics up to that point for me. In this, all the superheroes and supervillains get brought to this battle planet. I forgot what it’s called, Battle Planet maybe. It’s made up of all these pieces of planets from the extended universe or whatever. They’re told to fight one another by this guy called the Beyonder, the supreme being in essence like he’s god.

Mike: Cosmic entity.

Rob: Cosmic entity, yeah. In it, issue three, Spiderman is listening to the X-Men. I think I have a summary right here. He happens to come up on the X-Men—I’m reading this off of marvel.fandom.com—comes upon the X-Men who are holding private counsel with their leader, Professor X, while they discuss the distress they are receiving from the other heroes because they’re mutants.

Professor X has decided that his team is going to leave to join up with Magneto who’s actually a bad guy. Spiderman hears them and then the X-Men tries to grab him, and sir, he clowns them. It is embarrassing. It’s Storm. It’s Wolverine, Cyclops, Rogue, Colossus, and Nightcrawler, all against Spiderman. He just slaps them around like they have no idea what they’re doing. When I imagine him fighting Elsa, it’s no contest for me.

Mike: I feel like you’re glossing over a glaring detail of that whole thing which is the fact that he was infused with some of the Beyonder’s powers.

Rob: I don’t think he was.

Mike: I think he was.

Rob: You’re just saying the opposite of what I’m saying. That’s where you say, am not.

Mike: Are, too.

Rob: What evidence do you have of that? You haven’t even read it. He doesn’t have the black costume yet. This is actually in issue eight where he gets the black costume that later becomes Venom. It’s an alien costume. I’m really spoiling this 35-year-old thing. If you want to know more about Secret Wars, I can tell you how it ends, too. But no, I don’t think he had the extra powers dude. I just think, hand-to-hand combat, he clowned the X-Men, and I think he would do the same to Elsa, sir.

Mike: Direct from Wikipedia, “These tales include him receiving the Beyonder’s power and creating a new Parker City. Spiderman and the thing, spying on Dr. Doom in a story featuring Spiderman’s suspicions concerning the Hulk.”

Rob: Wait, what? That was Wikipedia? That was the Secret Wars in general or this episode?

Mike: Marvel Superhero Secret Wars. They do specifically refer to 2010. Maybe it’s not original.

Rob: Got you. Zing.

Mike: But this is also from 2010, the one, I believe, it came from Spiderman’s point of view.

Rob: That’s interesting. I do need to read that. It sounds like.

Mike: Yeah. I think you’re wrong sir.

Rob: I don’t think so. Okay. From Quora, “Who would win, Spiderman or Iceman?”

Mike: Yeah, probably Spiderman.

Rob: Well, actually this is funny. Really the only main answer since this is a hypothetical scenario which I just laughed about, of course, it is. It’s two superheroes.

Mike: No, it’s not.

Rob: Since this is a hypothetical scenario, I’ll be ignoring the morality, the core of these characters, et cetera. Basically, who would win if it was a fight to the death? First things first, analyzing their powers. Spiderman can easily lift 10-30 tons and can run and move at a speed above 200 miles an hour. I didn’t know that. Spiderman is faster, stronger, more agile, more intelligent, and more skilled than Iceman. Also, his spider-sense warns him of any danger and he also has a near-omnipotent awareness about his surroundings. He can also jump up to 7-10 stories across or upwards. How are you feeling about Elsa now, sir?

Mike: Elsa has the ability to strike a person with an icy blast that does not harm them physically, but magically freezes their heart or mind.

Rob: That could be a problem.

Mike: Magically freezes their heart or mind.

Rob: What range does that attack have?

Mike: I don’t know, but given that she turned the entire countryside into a frozen wasteland, I feel like it’s probably fairly high.

Rob: Yeah, if it’s in D&D, terms at 60/120, 12/24 squares, how is she going to get close enough to throw anything?

Mike: I think it boils down to who wins initiative combat.

Rob: Yeah. No doubt. They rolled D20s, they’re at their dexterity. I’m going to give him a big dexterity bonus. Hey Mike, do you think people know what day it is?

Mike: I don’t know. Maybe. Probably not.

Rob: If not, they should look at their calendar.

Mike: That’s probably a good idea.

Rob: This is not a regular episode of Startups for the Rest of Us.

Mike: It’s not?

Rob: It’s not.

Mike: I’m going to stop. Should I come back tomorrow?

Rob: Yes. Come back tomorrow. Let’s tell them the backstory. This stemmed out of a conversation that we had two MicroConf Europe’s ago? The last one was in Croatia, right? 2019?

Mike: Yeah.

Rob: And because there wasn’t one in 2020, obviously, due to the pandemic. We were at dinner, special thanks to Benedict and Christoph for treating us to dinner that evening, and somehow you and I after a couple of old fashions, wound up getting into this conversation for real. Do you remember that? I have no idea how we got there though.

Mike: I vaguely remember, but I know you were wrong. I remember that.

Rob: I remember. I was completely sober and you weren’t. It makes sense why you wouldn’t remember.

Mike: Oh sir.

Rob: But yeah, and we started arguing this, and it was funny, and then the people around us were laughing. We got way nerded out. We didn’t even bring up Wikipedia and Fandom. But I think it was Christoph or Benedict who said, you guys should really record that at some point. We said we should do it next April 1st. Somehow, we missed last year’s. Probably the pandemic stressed us. I wasn’t paying attention, but I’m glad that we were able to finally get that out, Mike. I still think Spiderman would win unless she just froze his heart. If she could freeze his heart or his brain, that feels like cheating.

Mike: Cheating in a battle of the death?

Rob: Cheating in a battle of the death.

Mike: A hypothetical battle of the death? Okay.

Rob: I want it to be hand-to-hand.

Mike: That wasn’t in the guidelines. It was not in the rule book.

Rob: No.

Mike: Page 7, section 35B.

Rob: For what? The outline for this conversation? Yeah.

Mike: No, the battle of the death handbook.

Rob: Yeah. Thanks for spending some time with us and lighting in the feed up here. I appreciate you taking the time. I really enjoyed chatting about this. That was fun.

Mike: Yeah.

Rob: Take it easy.

Mike: Alright, take it easy. Bye.

Rob: Thanks again to Mike for joining me on today’s episode. In case you’re listening to this years down the road, this episode was released on April 1st of 2021 and that is April Fool’s Day celebrated in 11 countries around the world. I hope you enjoyed this slight deviation from our normally serious content and I’ll be back in your earbuds again next Tuesday morning.

Welcome to this week’s episode of Startups for the Rest of Us. I am your host, Rob Walling. I’m trying something a little different this week. I came across this really long email that I had sent about 15 years ago, and then an ensuing email thread talking about software products, and really talking about me acquiring this product, DotNetInvoice. If you’re familiar with it, it was the first product that I made any substantial revenue from.

What’s interesting about this, there are a couple of artifacts of that time—phrases and companies—that you’ll hear me mention. But what is even more interesting is just to see the mindset of where I was at, where this space was 15 years ago, the thinking, just how nascent it was, how there were no examples of being a solo founder, and building a bootstrapped software company that didn’t go and raise funding. My aspirations were not large. They were truly to pay my mortgage or to make $8000 or $10,000 a month and be able to quit consulting. Even though that’s all I wanted to do, the topic of funding is mentioned several times in this thread as we try to iron this out.

To give you a context, this email was to a friend of mine who is also a longtime colleague, and for who I had done a ton of consulting work. He had run an actual consulting agency during the dot-com boom, and then had pivoted that when everything crashed into basically a remote agency. This is 2001–2002 and it was just a remote group of developers. There were only a few of us that he was keeping busy. We were contractors and I was able to work from home for the first time in my life, and that was super game-changing for me. I was able to set my own hours, for the most part, and for him, I always respected his sales chops. He just was a person who had business acumen.

I did not grow up knowing people who had business acumen, who knew how to market, who had money. When I used to hear the term friends and family round, I thought, what friends or family do I have that has enough money that they aren’t mostly living hand-to-mouth, and that could possibly write me a check to start a startup? It was just ridiculous. That was actually something that I always struggled with and I didn’t like the, it was who you knew who would get you the funding, and I just felt like and was such an outsider to that entire tech scene. Having grown up, my dad worked in construction and my mom basically raised us. She was a receptionist at a veterinary clinic, and that was our life.

I didn’t know anyone who ran a business aside from someone who owned a local ice cream shop. I remember thinking, man, that’s so cool. I want to run my own business. But that was it. You can hear my naivete around business life, starting a company, growing a company, and what it’s going to take. I had literally read the Inc. Magazine, Entrepreneur Magazine, the Red Herring, and Business 2.0. That was my picture of, if I’m going to build a software company, if I’m going to try to build a product, this is how people do it and that’s how I need to do it as well.

Although there are several takeaways from this email and from the whole conversation that I bring up in this episode, one of the big ones is just that I was trying to do something without a model, and that’s how a lot of us get here. We feel like the current models we’re being presented with just don’t feel right.

When you keep hearing about venture funding and you look at the WeWorks on the front page of TechCrunch and Ubers, and you hear some of them laying off these employees, a lot of them treat the employees in this constant need for funding and this thirst for this billion-dollar outcome, for some people—for a lot of us, I would say most of us—that just feels off. It doesn’t feel like who we are and the company that we want to build.

Although, as I say, almost every episode, we want to build ambitious startups, we don’t want to do it at the expense of relationships, of just having to treat people poorly, and make decisions based on satisfying investors. Even just the all-or-nothing idea of I have to have a billion-dollar outcome or else I’m a failure, that’s not the norm.

It’s so unfortunate that the press covers that because these are such edge cases. They’re such the one in a hundred, or thousand, or a million, whatever number you want to say, where so many of us just want to build an interesting business, want to grow it, want to change our lives, and change the lives of the people who are involved in it, but why does it have to be an all-or-nothing, bet-the-farm to grow to a billion dollars?

This was during the mental turning point that I was having, and you can see some of that coming out in this email thread. So, without further ado, here’s the email, the subject line is Business Proposition.

I’ve been thinking for a good couple of years that no matter how much our rates go up, we’re always scrambling for leads and working 9:00 AM to 5:00 PM to pay the bills. If we don’t work, we don’t get paid. This is not a terrible thing, of course, since our hourly rates are high and we make a good living. But from my years of reading finance books, I’ve come to believe there are three levels to making money. The lowest level is working for someone else, the next level is working for yourself, and the top-level is making passive income, whether it be through other people working for you as you’ve leveraged very well or through real estate or a product.

The product idea has come up before. I recalled you and one of my coworkers discussing a web-based product for service companies in a certain area of the country. I’m not sure if I was working for you at the time, but I thought it was a good idea.

I’ve also taken stabs at passive income through technology like when I built FeedShot, which makes around $100 a month—woohoo—Flogs, which I sold. It was too much work for too little payoff. And Dig started a personal finance section basically, was going to make it irrelevant. And some forum software I owned called Chitchat.net, which I sold a few months ago after trying to market it and not having the success that I wanted.

Although these haven’t been failures per se, they have not been the smashing success as I once hoped. But I’ve learned a lot in the process about marketing online, Google AdWords, search engine rankings, and supporting a product.

The next step in this evolution was when I was at a client site, and I realized they have a fat stream of recurring revenue because they have customers who pay them around $10 per month to use their hosted online time tracker. The company is only seven employees and they’re bringing in quite a bit of money in annual revenue. It’s not revenue they have to sell for all the time, a good chunk of it just appears monthly in their bank accounts. Now, they’ve been around for a long time and they built a nice customer list, but this seems like a nice business to be in.

With that in mind, it’s always been in the back of my mind to build or buy something that I can leverage, something that scales better than my one hour of work. I’ve explored many, many products and websites in the past couple of years as I trawl the ‘website for sale’ boards on eBay, SitePoint, and DomainState, realizing a lot of these things sell for far less than I could build them for, strange though, that is.

Most of them are crap, or things I’m not interested in, or things I don’t think will scale to the level I’d like. But I found one recently through sheer coincidence that fits all the criteria I’ve set up. It’s in .NET, it serves businesses which I’d prefer over consumers. Even back then, it’s crazy, it’s well written. I’ve seen the source code and it’s already selling to real customers.

The product is an ASP.Net invoicing app called DotNetInvoice. I saw a link to it from a post the developer made. He was actually just describing his portfolio of things he developed, looking for someone with marketing knowledge to help him market and sell his ideas better.

I clicked on the link, thought the site is clean, sells the product well, and the product demos really well. I emailed and asked if he’d be willing to sell it. He said he wasn’t opposed to the idea. At this point, I’m thinking it’s going to take a lot of cash to buy the thing. I found out that he and another developer wrote it and they’ve averaged between $700 and $1000 per month in sales for the past six months or so, which in this present day, Rob—cutting in—turned out not to actually be 100% factual.

Their site ranks high for some decent keywords and they get several 100 unique visitors per month with no advertising. They sell a supported version of the product and an unsupported one, but they sell almost none of the supported version, so he says they barely do any support. Somewhere around an hour or two per month, they’ve obviously spent hundreds upon hundreds of hours building the product in the site. Version 2.0 has 60 web pages and 20 database tables. You and I both know how long that would take to build and how expensive it would be at our rates.

It’s interesting for me to read this, looking back over these years because several of the things that I’m saying did not pan out, were not actually true, and I didn’t know any better. I didn’t know how to do the due diligence that well. These are things that a modern-day broker would have sussed out. Back to the email.

The potential I see in this product is threefold. Number one, I like the fact that it’s selling by itself through keywords and word of mouth, that’s a good revenue stream and something that should be put back into the product, whether for the development of new features or for marketing.

Number two, the next level I see is to create a higher-priced version and start hitting up small- and medium-sized businesses that are in need of invoicing software. This thing automates recurring invoices. Talk about a killer app for snowblowers, pool guys, landscaping companies, web hosts, et cetera. Some of them would require time on the phone selling, and that’s why we need to increase the price because I don’t think the economics of selling a $98 product will work out if we have to make sales calls.

Finally, this seems like a fabulous opportunity to create recurring revenue. Why not modify this thing so we can host X number of clients of the same install and become an ASP? And this is me jumping in. ASP was an Application Service Provider, and that was what SaaS was called before we called it SaaS. But what’s interesting is then I use SaaS later in the next couple of sentences. I’m not sure why I did that, but ASP was still a term. Back to the email.

We could charge $12 to $149 per month—I have no idea why I came up with those numbers, it’s so random—and compete with the other service out there. I’m not sure if I meant to say service. I don’t know what SaaS or ASP invoicing software there was at the time. I don’t know FreshBooks has launched. Back to the email.

Software as a Service seems like a great business. The larger SaaS companies are even being given a lot of funding right now because Wall Street likes the recurring revenue. Read these two issues ago in Red Herring magazine, which is now defunct. It’s so of its time, it’s just so incredible. It does feel like a lifetime ago in terms of just the lack of knowledge of how things actually worked. For me to say, I don’t think the economics of selling a $98-product will work if we have to make sales calls. Of course, they won’t. You need to sell thousands and thousands of dollars per sale to make it worth the sales calls.

Now, that was a hard part of doing this. I don’t know anyone else on the internet who has done this. I didn’t know anyone who was talking aside from Joel Spolsky, and I had just heard of Basecamp. I actually mentioned them later on in this conversation. I linked to basecamphq.com and then talked about how these guys are getting some traction right now. It really is this pioneer end of the internet, the pioneer days of this whole SaaS model, and I was just trying to figure out, man is this something that will even work? Can you do it at this scale? I’m still thinking in terms of funding like, oh, if we get some traction, we can raise funding, which again, is not something that, why would I think that? Why didn’t I just want to build a profitable business? Because there was no model for it. Back to the email.

I made him an offer, $10,000 for everything. He counted at $15,000 and I counted this morning at $11,000. I’ve not heard back yet, but I expect to this weekend. I’ve verified the past four months of site traffic and revenue with screenshots, which is how I’ve typically done it. I verified they rank on the first page of Google for various keywords, I’ve seen the complete V 1.1 source code, samples of the 2.0 code. It’s not exactly how I would have done it, but it’s very clean and appears to be pretty well-documented.

Here’s where I start to get down to the nitty-gritty, the deal. This is the longest email ever. I can’t believe I even sent an email like this. This feels like it should be an ebook or something. Back to the email.

The final thing I like about this idea is that I can own something, not to say it’s bad building and maintaining other people’s stuff, but I’ve come to the point where I want to change from what I’ve been doing for the past six years. I know you’ve been doing it even longer. I feel like I have the experience, the knowledge, the motivation to make something like this pay big dividends. Actually, I only have some of the experience and that’s where you come in. I think this team needs two sides: the technical person and the salesperson. Certainly, we would both be involved in both areas, but you understand what I’m getting at.

Of all the people in my life whom I trust, you are one of the most gifted at sales, have an amazing understanding of tech, and I know that we make a good team. No one else fits this bill and that’s why I propose we consider doing this venture together. As a thought through making this happen, I’ve realized that many discussions need to take place about which new features to develop, which markets to go after, how to price it, and others. Those will be so much more fruitful with two smart people involved.

My thoughts are as follows, and these are not set in stone. Number one, we go in 50/50. We split the upfront costs of the software, try as best as we can to work an equal number of hours each month.

Number two, this is certainly not going to be our primary source of income. I plan to take 4–6 hours each week during work time since I have no free time anymore due to the baby—who’s now almost 14 years old—to put towards this project. The more revenue we make, the more time I can give it, shrinking the number of consulting hours I work. It would be up to you if you want to work on it during work hours or not.

Number three, if you don’t have time, don’t have the desire, don’t like the product, don’t like the idea, please don’t feel any pressure to do this. My feelings will not be hurt and our relationship will not change in any way. I’ll probably move ahead even if you decide not to but we’ll make adjustments from the plan I’ve outlined above. But seriously, I realize I’m throwing a lot at you here and I will be 100% cool if we aren’t able to pull this together.

Number four, we would sign a partnership agreement. Hey, getting it into writing, that was good.

Number five, we would have to agree to reconcile, meaning, your friendship is worth more to me than this business. If this […] hits the fan at some point, you and I must agree to overcome the problem and figure out how to stay friends. Of all the items on this list, this is the one I will not budge on.

I imagine you have a zillion questions right now. Feel free to send me an email or give me a call on my cell. I’ll be in touch once I hear back from the DotNetInvoice guys.

Aside from just the early stage, my lack of knowledge and experience in just the early stage of this, and just the whole space, I feel like I thought this stuff through pretty well. I was pleased to see that I was valuing relationships over the business and that was such an important thing to me. In retrospect, this would have been a terrible partnership. As much as we were friends, and we still keep in touch now and again, but we haven’t talked on the phone in years. We emailed—I don’t know—once a year, tops, once every couple of years. I still like and respect him, but he went off and did his own thing and I went off and obviously did my own thing.

Knowing what I know now, I was scared to do it on my own and I felt that I wanted there to be someone else there so that I didn’t make a bunch of mistakes and that’s understandable. But I also think I was grasping around at anyone I knew who had business experience. Since he had been running this successful agency, this consulting firm for several years and I had done a ton of work for him and we got along, I felt like that would be a good thing. I just don’t think it would have worked well and trying to pivot it into his skill set. He was a salesperson, not a developer.

I think that would have probably not worked because the product, the way I then went about—I’d doubled down on SEO, I did a bunch of Adwords, and just up those skills, just did a bunch of marketing, got inbound leads, and sold it. I just don’t think that his skill set of doing high-touch sales would have been that valuable to it. We both would have felt bad about it and that things worked out the way they did, but I want to continue with the story a little bit.

We went back and forth a few times and he basically said, hey, I can’t make a decision right now. But then he had some interesting things to say about the fact that he was running this remote small agency back before most people were doing it. He says, I think that’s a better model, and I’m making pretty good money doing that, and products are going to be a pain. He said, I feel like if I could just get a little more work, get a couple more contractors—I was essentially contracting for him—that he could do better than trying to grow a product.

I came back and said, yeah but you’re not building anything that is worth anything. Can you sell an agency that has three, four, five contractors and is doing however much a year in revenue? Are you building long-term value?

What’s interesting is we both had goals of freedom, but he wanted to just accomplish things. He wanted to make a lot of money, which I do not hold against anyone—any business person who’s trying to launch their company—but for me, it was much more. I think about freedom and the ability to create what I wanted and to make-build interesting things that I had control over. I don’t think he had that same drive, and that’s okay.

This is a lot about knowing yourself, whether you just find this out, or you take StrengthsFinder, you take the Enneagram, or you talk to people around you who tell you this is what drives you. Knowing yourself is such a big part of this, and looking back over this conversation, it is really fascinating that he digs in and successfully defends the agency model. He says, look, I make quite a bit of money. I don’t work that much and instead of losing focus, wandering off, and doing a product, adding a few more contractors is probably the way to go.

At some point he says, I’m not saying that growing this agency sounds like a lot of fun or it’s anything I’m passionate about, but if it just gives me more cash flow while I explore other opportunities, that’s an opportunity. But one thing that it came down to, he said, the bigger problem than sales actually is finding good people. I could probably keep another two developers busy if I found decent folks.

And that had been a big issue, was scaling the agency. It was not about sales for him because he was good at it and had a lot of contacts. It was finding developers that he didn’t have to micromanage and be constantly project managed. He goes on to say, I’m 100% on board with building and selling products, but that model has its own challenges. Growth can be much more rapid, but you have to invest a lot of money upfront to develop the product and continually invest to improve it. You’re also constantly under threat by free services.

This is such an interesting point because it is completely, I don’t say it’s relevant at all to be done anyway, but it is funny and it was thinking at that time. You’re constantly under threat by free services. How would you like to have a web reporting tool and then have Google come up with a free one? I’m sure he’s referencing Google Analytics. I don’t remember when Google Analytics came out, but that was kind of I was thinking at the time is that all these big players just released free versions of everything, which I don’t think has totally come to pass as we have seen that B2B SaaS is done quite well. Then we went down a pretty interesting thread.

I’m skipping over the boring stuff, but at one point he said, I’ve had a couple of product ideas I could do very well, and one of them was project management and a time tracking tool. I said, have you checked out basecamphq.com? These guys seem to have some momentum in this space. There are quite a few web-based project management products available, but I’m not sure how many of them have time trackers built-in. A lightweight PM time-tracking invoicing app does sound interesting and then he said, here’s what I recommend. How about we start working on a business plan together? I’ll give my time freely whether I decide to partner with you or not.

I remembered thinking this is the bootstrapper in me or the person who wants to start their own companies. I was like, I don’t want to make a business plan. He was more of a business school-type thinker and I wanted to build a business instead of a business plan. Maybe that’s where this ‘build a business set of slides next’ thing that I say comes from, but I really remembered feeling averse to the idea and not kind of. I remembered thinking, that’s the least fun thing I could do here. I really do just want to get this thing, dig in, figure out how to grow it, bring in more leads, and not spend time. We were talking about the Palo Alto Software. It’s paloalto.com and it’s this business plan creator thing and the thread basically ends.

I don’t know what my thinking was at the time because my last thing says, yeah, let me order a copy, and we can do that. And we just never moved forward. I remember thinking a little bit if that’s your approach to things, that is a bit of a red flag for me.

Honestly, that’s not to say that creating business plans is a bad thing, but it’s not how I’m wired and it wasn’t how I wanted to build a product. It wasn’t how I wanted to build a business. I did want to get boots on the ground. I wanted to start talking to customers, driving traffic, and doing all the things that we do that we talk about in this space.

I’m guessing he did too, but he wanted some high-level plan. When I thought about that, even when I think about it now I’m just not sure it would’ve all been guesswork. I would’ve gotten in this business plan creator and it would say, how much do you think revenue will be next month? Then next year? And we would have been making stuff up.

The business plan would have been a list of, what was it? I’m going to build some features, and hear marketing approaches? What else do you need with such a simple product? We don’t need a business plan for not raising capital, or it’s not a super complex thing, and there are not 10 of us working on it. This is my internal monologue. I’m not saying that this is 100% right for everyone because I do think there are people who want their thoughts to be structured. They want to make that plan and try to be able to stick to it, but it’s never how I thought of building new things.

What wound up happening was I acquired the software on my own, and I moved forward with it. I found out that the revenue wasn’t as high as it had been. They had basically sent some launch emails to an email list to get the revenue juiced up. The screenshots were correct, but it was not on-going traffic and they said, oh, we had a mess up with our PayPal. We can’t go back more than four months, but if I was able to go back prior to four months, it would have shown that there was $200 a month or something it was selling. It was a mess. The code was an alpha phase. They were trying to sell it to people. People were really mad because there were bugs. It’s like you have invoicing software, what is your one job? It’s to do the math correctly, and they literally had math errors in the software.

I was working the consulting during the day, and then I was doing these nights and weekends. I put in quite a bit of time. Over about six weeks, I’ve fixed literally dozens of bugs that I found in the software, and customers were super mad. They just felt they had been oversold and let down, and I responded to a bunch of emails. I was doing all the support via Gmail at that time.

I basically said, look, I’m the new owner and I’m going to fix all this stuff. Just hang with me. Some people have paid—I forgot what’s the lowest price they’d charge—probably between $30 and $49 for the early access pricing, and then they had raised it to $98. They had said there was a supported and unsupported version so they didn’t have to provide support, but all the people who bought it and then wanted support because there were bugs or because they didn’t understand, they didn’t want to be told that it wasn’t supported. It’s not a way to get out of supporting something, so I quickly got rid of that whole thing and everything came with support.

But then I realized a couple of things. One, this software is too cheap and it was $98 at that time. I didn’t experiment and said, selling about three copies a month right now, I’m going to raise the price to $295. Next month, it sold three copies at $295, and it made $900 the next month, and then I was, oh, this is interesting because that’s in essence, probably approached what our rent payment was at the time. That was the year of my wife’s residency at Yale. We were there and I remember thinking this is interesting. Can I triple this? Can I 10X this? How big does this actually have to get in order for me to quit consulting? And that was the dream at the time.

Now, what was cool is that this is where I was building that tool belt. I learned a lot about SEO, Google AdWords, and I learned customer support. I learned copywriting, I was reading books on how to write better copy. I was learning just all the stuff around software development that involves building a product, supporting that product, marketing that product, and doing lightweight sales on the product. I didn’t want to jump on the phone with someone for a $300 product, so I made that clear upfront.

And I cut my teeth on this one. This is the first one that generated more than $100 or $200 a month and I eventually got it up. I remember the best month ever was about $5000, but most months were between about $2000 and $4000. That was a really nice chunk of change, given that I was working full time as a consultant during the day, and the learning experience was amazing.

Later as I moved on, I built out a whole portfolio of products, started moving into SaaS, and at a certain point I had just enough going on as I was writing my book and starting the podcast in MicroConf that I found a business partner who is coincidentally a mutual friend of the guy who I had the email thread. Just for that long email thread, the three of us knew each other. I basically brought him on as a business partner, and he bought in, and we were 50/50 on DotNetInvoice for a few years. Then at a certain point, it just didn’t even make sense for me to be working on it anymore.

I had so much else going on at such a different level. It truly was that stair step. It was a great stair step app. It was a one time sale. It had a couple of traffic channels that I built my tool belt on, and I tried to grow it. I thought it was going to be a $10,000, $20,000, $30,000 app. I looked into making it into a SaaS, all the things that you would do. Spent a couple of years as I was building and acquiring other apps on the side, and it just never grew. The market wasn’t that big for it.

A big thing was it was bought by .NET developers who are either consultants, and they wanted to implement it, use it as a codebase for consulting projects or they wanted to control their own data and didn’t want to use the SaaS version. The market was not huge, but it did have a niche. This is where I learned all these things. It’s like, oh having a niche, going B2B, higher price points or better. I built out that tool belt, this is where I started thinking about stepping up from one to the next. And is that worthwhile? Of course, I didn’t come up with stair-stepping until years later.

I really do look back with terror because that $11,000 check I wrote for this app was pretty much all the money I had in the business bank account and that was all side work that I had been doing. It was a tremendous investment for me. It was very scary. When I wrote the check, and I got the code and the customers were all mad, what have I done? What went through my head? What have I just done? I could have bought a car or two—because most of my life, I’ve only driven used cars—and I had just dropped all this money. I’m screwed now, and my back was to the wall.

That is something I’ve talked about in the past is there was something about I couldn’t give up. I couldn’t just quit. I couldn’t let myself do that because my back was to the wall because I had written that big check. I felt like I was on the hook for that and that I had to bring it to fruition, or else admit that this wasn’t possible. Admit that I couldn’t do it or just that isn’t a feasible approach. I couldn’t let that happen.

I did work 60-hour weeks for a couple of months, turned it around, and again, did a ton of learning. I have zero, I shouldn’t say zero regrets. Of course, there are regrets, like could I have dug into PayPal more? Could I have probably overpaid for the app based on how much revenue it was doing? There are like regrets like that, but in the scheme of things, it just doesn’t matter at this point.

To put a bow on the story, in the end, I was doing so much other stuff with HitTail and I don’t even remember if I’d started to Drip, but they just had a certain point where it wasn’t worth focusing on anymore and I wasn’t upholding my end of the bargain as a partner in the business. I eventually just gave it to that business partner that had come on several years earlier, and all that worked out, and we’re still on good terms. He and I talk and reminisce about it every once in a while, and it turned out to be a pretty interesting story.

I hope you enjoyed this walk down memory lane. Hopefully, you may have learned something. Maybe it was just an entertaining story. Maybe it inspires you to take some action and get your back to the wall. Keep shipping. Thank you for listening. I’ll see you next time.