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Building a Bootstrapped Empire

August 5, 2011 by · 1 Comment

London Landmarks Pattern

A bootstrapped company can definitely grow to the point where million dollar revenues are common, but that’s not for everyone. If you intentionally want to keep your team small while maximizing both revenue and profit then a simpler route may be what I call “Empire Building”.

Empire Building is growing your revenue (and therefore profit) by acquiring other small, bootstrapped companies. This requires already having a product with substantial profit, probably at least $125k/year. Taking some of that yearly profit and investing it in other bootstrapped companies allows you to diversify your product portfolio and decrease risks related to a decline in your primary business, while increasing revenue and eventually (after the payback on the profit multiple) growing profits.

What Types of Acquisitions to Target

The types of acquisitions that make sense will vary between companies, but the targeted acquisition should definitely be complimentary to the abilities of your team and your overall manpower. It doesn’t make sense for a company with 5 people to buy a business that’s heavy on the administrative workload. If, however, you operate an affiliate marketing company with a couple of employees then adding a few new affiliate sites through acquisitions isn’t likely to be a burden on your team.

Things to Consider Before Making an Acquisition

Each acquisition is going to bring with it a management cost. You need to have a good idea of all of the management time, expenses, marketing effort, SEO effort, etc. that’s required to reach the stated profit. Due diligence is critical to being able to reach the same profitability for the target as the current owners. It’s always a good idea to get the sellers to agree to work with you for a month or so to help you get the acquired company functional on your end and on the road to similar profitability.

A different mindset is required when running multiple companies (or business, brands, whatever you call it). Your attention will be necessarily split between the companies, making it slightly more difficult to make progress on any of them. If your team is large enough for you to be able to assign product managers to each business then that’s a great solution. It’s easier to be the CEO of a company with 1 product making $200k per year than it is to have 5 products each making $40k per year.

Your Thoughts?

Does your company plan to have multiple products, or do you focus on just one business? Is “Empire Building” a concept that makes sense to you? Would you be interested in a series about Empire Building?

Image credit: dimitratzanos on Flickr

Filed Under: Bootstrapping, CEO, Features · Tagged With: , , , , , ,

Interview With Dirk Stevens of Wondergraphs

July 28, 2011 by · 1 Comment

Dirk Stevens of Wondergraphs

This post is part of an ongoing series of interviews with successful entrepreneurs who have bootstrapped their companies to profitability. Read the other entries in our Inspiring Interviews series.

Wondergraphs is a beautiful, simple-to-use reporting and analysis service that has recently started to take off. Dirk Stevens is responsible for product design and business development for Wondergraphs. They are bootstrapped and successful; a great story. Here’s my interview with Dirk.

Me: Tell me about Wondergraphs and what you do.

Dirk Stevens: Wondergraphs is a Software-as-a-Service platform for business analytics and reporting. We want to help businesses get value from their data in spreadsheets and databases and help them to share reports with stakeholders in a simple, easy to use and efficient manner.

My role in Wondergraphs is focused on product design and business development. I am an all-round guy with a passion for technology and business so you could say this is my dream job. My colleagues Kim and Ruben are technology wizards and build our magic – from product to infrastructure it’s amazing what these guys pull off. In addition they do the day-to-day interaction with customers on everything related to technology.

Me: How has bootstrapping played a role in the growth and development of Wondergraphs?

DS: Bootstrapping has primarily meant working with a limited budget. I don’t think we would have done things differently if we’d have had an investor on board; we’d for sure would have moved a lot faster.

Bootstrapping keeps us focused on cash, keeps us lean and keeps us on the customer development path in a natural manner.  Those are the fundamentals for a sound business. But bootstrapping can be miserable too. When you know you could move faster if you had just a little more cash or when the team is so small that you have to do things you are not that good at or don’t like doing. In a funded company the roles in the team are more specialist and focused and probably more efficient.

It’s said that with outside financing entrepreneurs are less hungry. I am not too sure about that and I am not sure if that’s so relevant. A good entrepreneur certainly wont be less hungry! And with more people and money on board from the start, it could be that some people have a lessened sense of urgency, but from a pure business progress perspective 10 people giving it “just 90% is still twice as fast than 3 people giving it 150%…

Now that we’re through the tough parts of building the business and we’re at the point of scale, I am happy about the great things we learned and achieved. I recently met with a fellow entrepreneur who has been funded with several $million and he is jealous of our independence, while we are jealous of his resources.

Me: What marketing advice do you have for other startups on a bootstrapper’s budget?

DS: Ooh…I believe marketing is something we could have done better so here’s some thoughts on principles that I believe set the tone for how we market and sell.

Build a beautiful product that eases a real pain of real customers. We’re down to earth guys who believe in classic economics: offer clear value and charge fair money for it.

Be real and love what you do. If you take pride in building your business and making a difference in your market then people feel that and like to be associated with you and tell their friends and colleagues.

Take things step by step. Our first marketing campaign was sending a video of our beta version to a few potential customers.  We didn’t want to bite more than we could chew. We have a complex product and in the beginning our technology was too immature to handle many customers at once. Our TechCrunch article last week was our first large scale marketing and was planned a long time ago because we wanted to make sure that we’d be able to support many customers.

I’d ask all fellow entrepreneurs to please keep your marketing environment friendly and limit the useless plastic marketing crap. We can do without all that polluting crap we receive in the mail or when visiting a conference. (How many bottle openers, bags, mini-mouses and whatnots do we need?!)

Me: What advice do you have for new entrepreneurs when it comes to choosing between bootstrapping and seeking outside funding?

DS: Rather than spending time on courting people with money by running spreadsheets and predictions of the future, I believe you should build your minimum viable product and start selling as soon as possible so you get money from customers and learn from your customers. Your customers are really your investors – they’re as vested in your success as you, they give you money, quality time and feedback, and they certainly don’t want to run your company!

Maybe along the way, you’ll find an investor who shares your passion for your product or market and can afford to fund you based on your dreams (because you probably have little facts to prove it’s more than dreams) and that would be great, but don’t count on it.

Software development freelance work is in general easy to find and well paid, so we started Wondergraphs with a few months consulting projects to get some cash in.  That cash gave us about a one-year runway.

Me: What financial advice do you have for other bootstrappers out there?

DS: I have got a question on scaling growth that maybe on other bootstrappers’ minds also? At what point would you consider attracting outside funding and what form would you prefer? Or would you rather fuel your growth by giving out more stock options to hire talent? Have you ever thought of asking partners for some form of investment?

Your Turn

How would you respond to Dirk’s questions? I’ll post my own response in the comments.

Please take a few minutes to look at the Wondergraphs blog and follow Dirk on  Twitter. Thanks again to Dirk for the great interview.

Filed Under: Bootstrapping, Features, Interviews, LeanStartup · Tagged With: , , , , , , ,

The Beauty of Recurring Revenue

July 12, 2011 by · 1 Comment

Graph With Stacks Of Coins

Recurring revenue (or rebilling, monthly billing, periodic billing, repeat billing, whatever you want to call it) is a business model based on charging monthly fees for a service. This term is most often applied to software as a service applications, but also applies to brick-and-mortar businesses such as insurance agencies and bank fees. Recurring revenue allows a company to grow revenues exponentially quicker than single-sale based products such as app-store purchases or trips to Whole Foods.

One of the most exhilarating parts of running a business with a recurring revenue model is watching the number of customers grow month to month and the seeing the corresponding growth in projected monthly revenue. A business that brings in just $500/month, but adds about $300/month will be seeing over $4000 in revenue monthly inside of a year. This kind of growth is entirely possible (and common). Imagine where that business can be in 3-4 years. This may not raise the eyebrows of too many venture capitalists, but it’s a bootstrapper’s dream scenario.

The Recurring Revenue Growth Model

Running a recurring revenue business lends itself nicely to financial modeling and forecasting. Understanding a few variables will let you accurately forecast where your company will be in X months.

Key Variables

Churn rate – The percentage of customers that cancel their recurring accounts each month

Growth rate – Two possibilities here; either the number of users that your company grows by monthly or the percentage of growth, whichever is the most consistent month-to-month.

There’s a big difference between growing by a consistent percentage each month and a static number of accounts. Growing by a percentage, assuming your growth rate is higher than your churn rate, will yield long-term growth to your company. Conversely, if you grow by a static amount, e.g. 100 accounts per month, then your churn rate will eventually neutralize your growth. It may take 3-4 years for the churn rate to catch your growth, but it will happen.

Recurring vs Non-Recurring Sales Comparison

It’s pretty easy to see why recurring revenue is better than non-recurring revenue. For illustration purposes lets assume that company A sells a service for $5/month and company B sells a similar product for $15 single use. Here are a few observations that result from comparing the two companies.

  • Company A will need to have customers hang around for at least 3 months to match the revenue generated by company B, per customer.
  • Company A only has to make a sale once per customer. Company B has to make the sale every time a customer wants to use the product. Advertising costs clearly fall on the side of Company A.
  • All things being equal, company A’s total monthly revenue will quickly surpass that of company B, assuming that company A’s churn rate isn’t overly poor.

Your Turn

Do you have a business that generates recurring revenue? What kind of churn rates do you have?
Image Credit: kenteegardin on Flickr
Filed Under: Bootstrapping, CEO, Features · Tagged With: , , , , , , ,

Beginning CustDev for Bootstrappers

July 6, 2011 by · Leave a Comment

Google Master Plan (frame 3)

Customer development is well-published topic, so I won’t spend time defining it or rehashing it’s benefits. This post is all about how to get started with custdev in a bootstrapped environment. Custdev can be used in any business environment, but it’s particularly useful for bootstrapped companies, where budgets are usually tighter. Also, it’s best to use the customer development process when starting on a new business or product, as opposed to trying to add it in later in the product development cycle.

In a nutshell, the goal of customer development is to help get you to a product that appeals to customers in a decent-sized market. You accomplish this by constantly validating your assumptions about your new product and making changes when those assumptions fall apart.

First Steps

If you’re considering bringing a new product to market then customer development is going to be your best friend (or your worst enemy, depending on the results). Before you spend any time actually developing your product you should start the process of validating it. The validation process itself is pretty simple. The methods depend on how your new product relates to your existing products.

1. Related Products. If your new idea is a product related to an existing product that you have then you already likely have a built-in base of customers who could quickly validate your idea. Try to setup in-person meetings or phone calls with a few of those customers. Tell them about your new product and see if they are interested. Test their interest by asking them to start paying for the product then and there.

2. Completely New Market. If the product is in a new market then you’ll need to rely on the more traditional customer development methodology. Create a simple PPC campaign with a landing page that directs users to a mailing list. The number of entries to the mailing list is a rough approximation of the potential for the idea. Try to conduct interviews with the mailing list members and validate your idea.

Review Your Learnings

Are you getting the interest in your new product that you expected? If not, it may be time to pivot. Use the learnings from your interviews to make adjustments. If there is no interest at all in your product then this is a good time to cut your losses and let the idea die. If you decide to pivot then you should start from scratch with steps 1 and 2 above and validate the new solution.

If you did get some serious interest in your product then you should move ahead and start creating prototypes. Conduct another round of interviews and demos for the prototype. From there you can revise the prototype or move full-on into production.

This is a simplified approach to customer development. I whole-heartedly recommend you read some of the following books to get a more complete understanding of the process. Comments welcome!

Resources

What is Customer Development by Eric Ries

The Four Steps to the Epiphany (Affiliate Link) by Steve Blank

The Entrepreneur’s Guide to Customer Development: A cheat sheet to The Four Steps to the Epiphany (Affiliate Link) by Patrick Vlaskovits

Image Credit: jurvetson on Flickr

Filed Under: Bootstrapping, CustDev, Features, LeanStartup, Tips and Tools · Tagged With: , , , , , ,

5 Practical Sources for Bootstrapping Funds

June 27, 2011 by · Leave a Comment

United Finance Co.

Bootstrapped companies need funds to get started just like funded companies. The difference is where those funds come from. A bootstrapped startup likely only needs a few thousand dollars to get going… just enough to pay for some hardware, and possibly some salary for non-founder employees. Many would-be founders don’t have access to a few thousand dollars, so they never get off the ground. Here are my suggestions for practical places to find the funds that you need to get your startup moving.

1. Friends. Check with any of your friends who have businesses of their own to see if they would be interested in giving you a $5k loan to help you start your own business. Set very specific terms for the loan’s payback and then treat your friend as a bank, paying them as agreed every single month.

2. Family. Asking family members for a loan is often uncomfortable, but if you have someone in a position to give you a loan then there’s no harm in asking. Be sure to make it clear that the loan is all about business, not a personal loan.

3. Banks. Banks aren’t exactly in a lending mood today, so this one may be a little more difficult. If you have a really great credit score and little debt then it’s possible that you can secure a small personal loan to help finance your early-stage startup.

4. Sell Something. Sell something of yours that has value. Have 2 cars? Sell one of them. Baseball card collection from the 80′s? Sell it. Selling personal items can be difficult, but it’s a good feeling afterwards. The simplicity and freedom of having less “stuff” is terrific.

5. Start a Consulting Business. Do some side-projects to pay the bills while your startup is still in the red. There is plenty of consulting work available for your skillset, whether it be design, development, SEO/SEM, etc.

What advice do you have? What are some other practical places to look for startup funds? Comments appreciated!

Image courtesy Curtis Gregory Perry on Flickr

Filed Under: Bootstrapping · Tagged With: , , , , , , , , , ,

The MediaLeaf Technologies Story

June 24, 2011 by · Leave a Comment

MediaLeaf

I’ve only talked about my company, MediaLeaf, in passing here on the blog. It’s high time that I give a little overview of what we do, where we’ve been, and where we’re going.

Our Story

I have been working on various websites and online projects since the late 90′s. I (with the help of my wife, Jennifer) did everything from freelance design and hosting to selling items on eBay. We used to make ridiculous profits selling items on eBay, before the site became so over-saturated. eBay paid for a significant portion of our college experience. Here’s an example: Each year after New Year’s you can buy wall calendars for around $5. We used to sell those for around $50.

After graduating college in 2001 I began working on several nights-and-weekends projects in addition to my full-time job. Everything from freelance development to starting my first membership website. We continued building and growing those businesses until 2004, when I incorporated the company and MediaLeaf Technologies was born.

The second MediaLeaf membership website was started in 2004, opening the door for me to quit my day job and focus on MediaLeaf full-time. MediaLeaf has continued to grow ever since. Along the way we have added several business, such as SparkCDN and Shrinking.

We’re still a small company, currently with 6 team members. We do a tiny bit of client work, such as SEO and hosting, but 99% of our revenue is still generated from our own sites.

Going Forward

MediaLeaf is evolving and we’re becoming a bigger player in the web app space. Over the next couple years I’m planning for us to focus heavily on mobile and broaden our portfolio of web apps even further.

I expect that our team will continue to grow in the next 5 years, but I don’t necessarily want us to ever get larger than 10 or so people. Our core values and providing excellent customer service, quality products, and being nimble, so preserving those is critical.

Feel free to contact me with any questions regarding MediaLeaf.

Filed Under: Bootstrapping, Misc · Tagged With: , , ,

Inspiring Interviews: Chris Garrett

June 9, 2011 by ·

Chris Garrett

This post is part of an ongoing series of interviews with successful entrepreneurs who have bootstrapped their companies to profitability. Read the other entries in our Inspiring Interviews series.

Chris Garrett is a successful social media consultant and blogger who is an ardent supporter of bootstrapping. I had been reading his blog for a while when I found an article from him about bootstrapping over at another blog. That’s when I put two and two together and decided that I had to interview Chris. Here’s my interview with Chris Garrett.

Jim Lastinger: Tell me a little bit about your company and what you do.
Chris Garrett: I guess you could describe me as an internet marketing consultant but really I teach people how to profit from their ideas, knowledge and experience by growing an audience of people who know, like and trust them – it’s about getting people to be attracted to you and trust you enough to take up your solution or advice.

JL: How has bootstrapping shaped your company?
CG: The biggest impact was when I left my job to start the company – I said I would never go into debt to fund it so I waited until I had a good enough contract lined up that would fund everything else. Now the smart thing to have done would have been to have money in the bank set aside for if anything went wrong, but I was lucky enough that before the worst happened I had everything in shape!

People have called me stupid, that I could have grown exponentially faster and bigger, but you have to understand A) I have been burned in several startups and B) My business is more about having freedom and lifestyle rather than being big or breaking any profit records

JL: Would you accept any venture capital now if you needed it?
CG: If the right project came up I would consider it, but I have seen the damage that can be done to a business by just taking what is on offer without thinking everything through – people don’t just hand you a bag of cash, there is always a deeper impact from control through to what the business becomes.

JL: How do you manage creating new businesses/products in a bootstrapped company (financing, workload, etc.)?
CG: First I keep overhead low, and the overhead I do take on is on a project basis and therefore funded out of that project. I do a lot of partnering. I build income generating assets to cover any payments that need to be made.

JL: What advice do you have for new entrepreneurs when it comes to choosing between bootstrapping and seeking outside funding?
CG: Look at the goals of your project, the lifestyle you want to have, how rapidly you need to grow, and what it will take to grow. Do you NEED the stuff you think you need? OK, you might need to invest in sales, stock, location, staff, but do you need outside investment to acquire and maintain these costs? Sometimes you do, sometimes you don’t. Don’t just do something because that is “how it’s done”.

To give you an example, I used to work for an agency that had as many account managers as designers, most of whom were not fully occupied, meaning those designers had to do additional billable hours or increase the rates to cover those people. A good account manager can earn their keep by getting additional work out of clients and keeping them happy, but of course not all of them were good account managers. A lot of the times those people meant well but just slowed down communication and were a net cost to the company.

JL: Any financial advice for bootstrappers?
CG: I think the simplest way of putting it is to look at outside cash as a cost to the company. Somehow that money has to be repaid, and sometimes the conditions are not worth it. Look at all the options before putting your hand in the cookie jar!

Please take a few minutes to look at Chris’s blog, follow him on Twitter, and check him out on Facebook. Thanks again to Chris for spending a little time with me.

Filed Under: Bootstrapping, Features, Interviews, Social · Tagged With: , ,

Inspiring Interviews: Spencer Fry of Carbonmade

May 23, 2011 by · Leave a Comment

This is the first in an ongoing series of interviews that I plan to do with successful bootstrappers. I hope to bring a variety of viewpoints on the art of starting and running a business from a bootstrapping perspective.

Spencer Fry

I’m excited to have the first interview for my new series ready to go. My hope is to introduce you to some people that you may not necessarily be familiar with who have been successfully bootstrapping their companies. The first interview is with Spencer Fry. I first found Spencer through a Hacker News link and I’ve read just about everything on his blog since then. He’s the perfect guy to help me kick this thing off.

Without further delay, here is my interview with Spencer Fry of Carbonmade.

Jim Lastinger: Tell me a little bit about Carbonmade and what you do.
Spencer Fry: Happy to. Carbonmade is an online portfolio for creative people to show off their work. It’s for anyone who makes anything. Our team is mostly located in New York City with a few folks outside the city (Chicago, Las Vegas, and Canada). My role at Carbonmade is the “Everything Else” guy. I handle everything else that isn’t design or code. I wrote two pieces on my website that shed more light on what I do.

JL:  How has bootstrapping impacted Carbonmade and your prior companies?
SF: Bootstrapping has been a big part of my life. I’m well-known in New York City circles as the “bootstrapping guy.” CarbonmadeI never had access to capital or any interest in raising it to start a company. To me it always made sense to try and make revenue from the launch of your business rather than waiting for massive user growth before turning on the faucet. I’m not opposed to raising money, but to me it’s less interesting at the start of your business and more interesting when you’re looking to raise money to propel growth forward.

JL: Would you accept any venture capital now if you needed it?
SF: We’re thankfully in a positon where we don’t need to raise venture capital. It’s difficult to know what I’d do if we needed money to survive, which is actually a terrible position to be when raising money. You’re unlikely to get a good deal or a deal at all. Honestly, I probably wouldn’t start a company where I had to put myself in the position of having to raise money.

JL: What advice do you have for new entrepreneurs when it comes to choosing between bootstrapping and seeking outside funding?
SF: The lives of a bootstrapping entrepreneur and an entrepreneur who has raised money are far different. It’s great having access to a large bank account and being able to spend freely on hiring who you want, etc., but it can also lead to your downfall. I think you need to look at what type of company you’re trying to build. Some companies by definition need capital to be built: Twitter and Facebook are great examples. Companies such as Carbonmade, Harvest, and HypeMachine less so.

JL: Any financial advice for bootstrappers?
SF: Cash flow is the most important thing you can spend your time understanding. You need to make sure you stay on top of things. You can certainly put yourself in a terrible position by over spending.

That’s it! Thanks to Spencer for spending a little time with me. Please take a look at his sites if you haven’t already and follow him on Twitter.

Filed Under: Bootstrapping, Interviews · Tagged With: , , , ,

Finance For Bootstrappers – Part 2

May 12, 2011 by · 1 Comment

$20,000

This is the second post in a series about Finance for Bootstrapped Companies.

One of my favorite posts until now was the original Finance for Bootstrappers post. I decided to make the topic into a series of posts because it’s such a broad and expansive topic that it couldn’t be adequately touched on in a single post. In fact, it should probably be it’s own blog. So there’s an idea of any aspiring bloggers. On with the tips…

Businesses Have Budgets Too

I whole-heartedly believe in the value of a budget for your business. Having a budget gives you an initial idea of just how much money you can spend before the month starts. Without a budget it’s entirely too probable that you’ll end up spending more than you make at some point, and once you do that it’s hard to get back into the black.

Your budget should include absolutely all income and expenses that you realize in a month. If there is an entry in your checking account then it should be in your budget as well.

You also have to understand that a budget is a monthly task and the results will differ each month. No two months are the same. Incomes will vary each month, even if slightly, due to accounts payable terms, holidays, etc. The same goes for expenses.

When it comes to budgeting (and business finance in general) I really rely on the advice of Dave Ramsey. His thoughts on personal finance translate very well to business situations as well.

Have Some Savings Available For Emergencies

Emergencies and unexpected expenses do come up, so you have to be prepared for them as best you can. You should have a money market account, separate from your main checking account(s), that you accrue emergency savings in. Even if you can only accumulate a couple hundred bucks a week then it’s worth it.

I advise putting it in a money market account simply because you will earn some small amount of interest. You shouldn’t put it in a non-liquid account or invest it in stocks because it may not be readily available should an emergency arise. If you want to do business investing then you should have another account just for that purpose.

Stay tuned for the next entry in this series. What business finance and financial management tips do you have? Do you have an emergency account for your company?

 

Filed Under: Bootstrapping, Tips and Tools · Tagged With: , , , , , ,

Why I Dislike The Term “Lifestyle Business”

May 6, 2011 by · Leave a Comment

Shower Time

I have a hard time with the term “lifestyle business”. There are many definitions of what exactly a lifestyle business is, but I think the prevailing definition is any business which doesn’t have a sale  as an exit strategy or where the owner of the business puts personal motivations ahead of the success of the business.

Let’s take my company MediaLeaf as an example. I have no plans to ever sell my company, or any part of my company. This is where a VC would write me off as owning a “lifestyle business”. However, I don’t see MediaLeaf in that way at all. I believe it is as valid a business as any in Silicon Valley. What about butchers, salons, grocery stores, etc.? I highly doubt that most of those kind of businesses are built with an eventual buyout in mind, but that doesn’t invalidate them.

Instead of “lifestyle business”, let’s simply call them businesses. They all have the same basic goals, which are to make money for the principles of the company.

What are your thoughts on lifestyle businesses? Do you like/dislike the term?

Filed Under: Bootstrapping, Misc · Tagged With: ,
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