Finance For Bootstrappers – Part 2


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?


Why I Dislike The Term “Lifestyle Business”

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?

Too Many Irons in the Fire


The biggest day-to-day problem that I’ve had (and I’m assuming many of you can relate to) is having too many different large projects going on at a time. At MediaLeaf we nearly always have one or two new web apps in development as well as the day to day work on our existing businesses. Each of those things is a major time consumer, requiring dedicated attention from both marketing and development.

My current count has MediaLeaf with 6 different businesses, each with a varying degree of work required. The established businesses need less development work and more time spent on marketing and social media. The new businesses need more development work on new features, pivots, bugs, etc. All of the businesses require some amount of customer support. MediaLeaf itself requires a substantial amount of time spent on finance, payroll, taxes, legal, etc. That’s a lot of work that needs to be done on a continual basis, especially for a small team.

A multitude of problems can arise from situations like this. This entire list is from personal experience.

  • Entire projects get neglected due to fire-fighting on existing businesses
  • Development time suffers due to large customer support burdens
  • Marketing and social media marketing suffer because of development on new projects

There are certainly many more combinations or problems and responsibilities that fall by the wayside in busy companies. The most important factors are how you combat these situations and minimize them as much as possible. Any CEO in  a small company has to understand that fire-fighting is going to be a constant. Unless you have a staff of at least 15 people you are always going to have nearly your whole team working on priority issues.

Tips for Handling Excessive Workloads

Here are a few of things that I’ve implemented at MediaLeaf to help us cope with the vast amount of work that we have to accomplish with our small team.

1. Schedule Work In Weekly Chunks

At the beginning of each week you should set a direction for that week. The primary objective that you choose to work on for the week should be the single most important thing that is facing your company. It can be development work on a new startup that you have coming or maybe it’s adding a new feature to an existing business. The point is that you should just choose one theme for the week. This helps everyone on the team understand what the priority is and helps keep attention where it needs to be. If you have smaller projects then it may make sense to schedule work in daily chunks instead of weekly.

2. Customer Support Doesn’t Have to Be Continuous

Customer support has always been a significant proportion of our time spent, so we’ve experimented with various methods of fitting it into the daily routine. We don’t have a dedicated support team, so support duties are spread to everyone in the company. Support is always a priority and takes up time each day, but don’t make it take more time than it needs by constantly checking to see what work is out there.

We’ve went through periods where we did all customer support tickets once per day (we don’t do phone or live chat support) and we’ve had times where we answered tickets consistently as they came in. Here’s what we’ve learned: it doesn’t matter how often you do support, as long as you do it and do it well. Customers don’t really care if they have to wait 24 hours for a response if they get a good response and are satisfied. Our current process is to answer tickets about 3 times per day, and those times vary depending on who has the support duties for the day.  We never have customers tell us that our response times are too slow, so we feel pretty good about our what we’re doing.

3. Push Administrative and Financial Work To Once Per Week

Financial work, such as handling payroll, paying taxes, etc. can all be accomplished in day, probably even in a single morning. You should do the same with administrative work, such as filing, ordering office supplies, and general organization around the office. Pushing these routine, but not time critical, tasks to a regularly scheduled day will let you get them done when they need to be done without letting them affect the more important tasks.

4. Follow Your Favorite Productivity System

A good personal productivity system, such as Getting Things Done (affiliate link), The 4-Hour Workweek (affiliate link), or anything else that works for you is always a good idea. You only have so much time to work, so you have to be sure that you’re getting as much done in that amount of times as possible.

What advice do you have for handling incredibly large workloads? How do you manage multiple companies or large projects?

Making The Jump From Side Project To Full-Time Job


Are you spending your vacation days working our your side project? Nights and weekends too? Most anyone who has ever started a new business as a side project dreams of the day they can quit their day job and focus on 100% of their time on their entrepreneurial pursuit. I was lucky enough to be able to make that same transition a few years back. Here are a few things to consider when contemplating “the leap”.

Can You Afford It?

This is the most obvious and critical question of all. Money isn’t everything, but it sure is handy for paying the bills. I’m assuming that if you’re getting ready to quit your day job that you either have enough income through the new business to support yourself or that you have enough savings to live comfortably for several months. The most difficult part of leaving a job is seeing that regular paycheck disappear. Having a husband/wife and kids compounds the issue even further. How does your significant other feel about the risks you’re considering? Are they comfortable with the increased amount of uncertainty that you’ll be bringing into your lives?

What About Health Insurance?

If you’re used to having health and dental insurance through your day job you may be in for quite a shock when you see how much it costs when you’re paying for it individually. The cost of health insurance is going to depend on several things: your age, general level of health, location, family situation, and more. You should consider how often you visit the doctor or tend to get sick when thinking about whether or not health insurance is a priority. If you have kids then you’re more likely to need coverage. Before quitting your current job you should inquire about COBRA coverage and costs. COBRA gives you up to 18 months of coverage through your current employer’s plan. You will pay 100% of the cost, but you don’t have to worry about finding insurance right away. You can expect this cost to be at least $500 for individuals and $750 for families monthly. You’ll have the option to choose just health insurance or health and dental coverage.

What About Retirement?

Starting your own retirement plan (Roth IRA is the way to go) is easy enough. I recommend rolling over any amount you have in your employer’s retirement plan into your own account so that you can manage it yourself. Depending on your age you may want to limit the amount of money you put into your IRA, just to give you more cashflow flexibility for a few months after the transition.

Make A List of Pre-Requisites For Quitting

Something I did that I highly recommend for everyone is making a list of all your pre-requisites for quitting your day job. The list should include all of your concerns and requirements. Make the list at least 3-4 months ahead of time to give yourself enough time to thoroughly think everything through. Once you get to the point where no major concerns remain on your pre-requisites list then it may be time to act. Some examples of things to be on the list are:

  • Have $XXXX saved and available for living expenses
  • Have new retirement accounts created
  • Research insurance costs
  • Have new business incorporated
  • Have home office ready (or research new workplace)

DON’T Take a Vacation First

I really hope that you don’t decide you need a vacation before you start working on your new job full-time. The best thing that you can do is to jump in with both feet and hustle as hard as you can right from the start. I remember being so passionate and excited to start working full-time at MediaLeaf that I couldn’t possibly think of doing anything else or delaying it any longer. If you would rather take a vacation or a break than get started with your new venture then you may have the wrong motivations and should reconsider decisions. For those of you that have successfully made the jump, what are your experiences? Any advice for others looking to do the same thing?

Profit Versus Revenue

Profit and Loss

Profit and revenue are pretty basic terms when taken at face value. The picture becomes a little bit less clear when you apply them together and try to understand their relationship to your business and growth. A simple equation to understand the relationship is PROFIT = REVENUE – EXPENSES. The proportion of profit to revenue is your profit margin. Seems pretty simple and straightforward, right?

I’ll give a couple of examples to get started. Let’s say that company A has $50,000 of revenue each month with $30,000 of expenses. And company B has $30,000 of revenue and $10,000 of expenses monthly. Both companies have the same monthly profit, but company A has much more expense to achieve that profit. Company B clearly has a better profit margin (67% vs 40%).

So which company is in the better position for the future? Both companies have the same profit, but company A has more revenue. Having more revenue will theoretically allow company A to borrow more. (Have you ever noticed that business credit card applications only ask for the company’s revenue, not profit?) Company B has less expense and needs to make less revenue each month to be profitable. Both positions have benefits, but which is right for you and your company? I believe that company B, in general, is in a better position for future growth because their cash-flow needs are less, allowing them more flexibility and time to grow.

It’s important to think about the profit vs revenue picture when considering new business opportunities or significant new features to your existing business. If the new ideas will get you an extra $10k/month in revenue but will also result in $10k/month of new expense, are you really any better off? What good does increasing revenue do if profit does not also increase? At that point you are just moving from being company B to being more like company A. You have just decreased your margins and taken on new expense. The new expense opens you up to more cash-flow risk.

I would argue that a company that can qualify for more credit, like company A, will at some point need to take on more debt than a company that can’t qualify for as much. If your company produces widgets and has pretty significant cash-flow needs then you may benefit significantly from the added security that available credit would provide. If your margins are high then most likely your cash-flow needs aren’t as great, so available credit wouldn’t help you tremendously. I should make it clear here that I believe in a business having as little debt as possible, but the reality is that many small businesses with lower profit margins will need to rely on available credit at some point; more so than their higher margin brethren.

I suggest the following for all businesses: try to increase your profit without having to significantly increase your revenue. Each incremental improvement in your profit margin improves your cash-flow situation, which is the lifeblood of any business. For companies like company A, you first try to reduce expenses. If that doesn’t yield significant results then it’s time to look at your product offering and see if you can realign to improve margins. For companies like company B, you don’t have as much expense to eliminate, so try to grow your revenues without increasing cost.

This article was originally posted on our company blog. I’ve updated it slightly for this audience.

Finance for Bootstrappers

Money Money Money

Financing is usually the largest obstacle for a bootstrapped company. You have to be able to pay yourself and your team, as well as any vendors that you use on a monthly basis. Cash flow truly is king; it reigns over your business decisions. I’m certainly no expert, but being a CEO for 10 years has required lots of learning. This is the first post in a series designed to give you a few ideas to help you think through your financing and cash flow issues.

Aggressively Manage Salaries

As a founder you should strive to keep your salary as low as possible. You need to make enough to pay your bills, but the priority is to make sure that your team is compensated well to keep up motivation and productivity. A founder’s yearly salary does need to be high enough to avoid unwanted attention from the IRS. It’s better to take distributions from your company as money comes in as opposed to paying a higher salary.

I also recommend reviewing salaries on a yearly basis. If business isn’t as good as the year before then you should feel completely justified in lowering salaries a bit. There’s no rule that says you can’t cut salaries. The viability of the business has to come first, even at the expense of employees, though that should always be a last resort. If you’re giving a raise, make sure the raise is something that you know you’ll be able to afford for an entire year. If you want to give a $10k raise, but only feel comfortable giving a $5k raise, then you should give a $5k raise.

Work With Vendors

If you have large vendors that you need to pay each month you should work with them to find a payment schedule that works best for your cash flow situation. For example, if you have a regular monthly payment of $10k to a vendor then it would probably be easier, in terms of cash flow, to make 2 $5k payments a couple of weeks apart. If you’d rather stick with just one payment then try to schedule that payment for an optimal time of the month for you. Vendors, especially ones that take large payments, are used to working with their clients, so you should take advantage.

Avoid Debt

If the recent financial meltdown has taught us anything it’s that we should avoid debt if at all possible. I whole-heartedly believe that a business should avoid debt, but I realize that’s not always possible. I recommend against using credit cards to make small purchases. That $5 Starbucks trip should just be put on your debit card. Save the credit cards for larger purchases (if you can’t pay with debit).

What are you thoughts on small business finance? Feel free to leave any tips in the comments, as well as any suggestions for what you’d like me to talk about in the next entry in this series.

Why VC Isn’t For Me


I’m a proud bootstrapper and have been for the last 10 years or so. I’ve ran a few successful companies without ever being offered and without seeking venture capital. I believe that you can build highly successful companies via bootstrapping and that by no means is VC a prerequisite for success. Many young entrepreneurs come up with ideas for startups and immediately start thinking about life in Silicon Valley and pitching to VC’s. It doesn’t have to be that way. Bootstrapping is a perfectly viable, and acceptable, alternative to VC, and there are several reasons I believe so.

You Don’t Need The Money

It doesn’t take a fortune to start a new company; it’s getting cheaper each year. All you really need to validate your startup idea is a good domain name, a working website, and some social media kung-fu. Web design costs less than it ever has and you can always get a hacker friend to partner with you and handle the development side. You don’t need $100k to get off the ground… it’s probably closer to $1k. Plus, working within a bootstrapper’s budget will make you a more fiscally responsible company, which can only help in the long run.

I Don’t Want to Give Up Control Or Ownership

Losing board seats to a VC is not something I’m interested in. I’m sure that they can be helpful and provide terrific advice on certain issues, but I’d rather focus on my existing circle of friends and entrepreneurs for advice. They are likely to be just as helpful without requiring a % of the company.

Silicon Valley Isn’t For Me

I’ve been asked countless times why I don’t live in Silicon Valley if I’m in the startup industry. I don’t have anything against San Francisco or Silicon Valley, it’s just not where I want to live. I want to have the freedom to live anywhere I please, without being compelled to spend time in SF. I like the sunny beaches of Florida – it’s just a personal preference.

Like I said earlier, I’ve never looked into venture capital. So I’m sure I have many misconceptions about the process of applying for VC and it’s benefits. I’ve been reading a lot lately about the pros and cons of VC vs bootstrapping (mostly written by VC’s) and I’m still standing firm on my position. What are your thoughts? Do you think VC is a good idea? Comments are always appreciated!

OMG, Not Another #custdev Blog


I’ve been pretty successful as a web entrepreneur over the past 10 years. I think it’s high time for me to start putting some of my experience to use benefiting all the entrepreneurs out there. This blog is going to be about all things related to starting and running your web based businesses. I’ll write about what I know and what I’m interested in. I’m currently thinking there’s going to be a lot of talk about customer development and lean startup, since they’re both hot topics and very interesting to me.

So that’s what’s waiting for you here. Read more about me to get acquainted. Contact me at any time if you want to talk. I want this blog to be as conversational as possible.