SaaS Interviews with CEOs, Startups, Founders
13 Lessons I Learned Bootstrapping to $20m in Revenues
16 May 2024
Chapter 1: What is the main topic discussed in this episode?
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Chapter 2: What is the key question for building billion-dollar bootstrapped SaaS companies?
I want to start out my talk with a question, because I always like to start out my talks with questions. And usually these questions are something that I talk about around a couple other founders. And this question, the more that I thought about it, the more that I realized it was actually a lot more complicated to answer. than initially when I asked it.
And that question is, how do we build billion dollar bootstrapped SaaS companies? How many of you guys are bootstrapped right now? Just a raise of hands. Perfect. And how many are venture backed? OK, cool. You guys are going to be pissed off, but don't worry about it. You're going to learn something from this as well. So here's some interesting statistics.
Bootstrap SaaS medium growth rate is 28.5% from 3 to 20 million ARR. That's pretty good. Another statistic that I saw was SaaS median growth rate over 10 million ARR is 24%. So growth goes down, obviously, a little bit as you're scaling the organization. However, if you split out venture-backed companies, Bootstrapped actually grows 6.7% faster than venture-backed companies.
Now, isn't that very counterintuitive? Don't you usually have a bunch of people that are at conferences like this and say, no, no, you need to raise money because that's going to allow you to grow faster. But no, Bootstrapped companies grow faster than their venture-backed counterparts. Past 10 million ARR, they actually grow faster than their venture-backed counterparts.
There is a lot more failure rate on the smaller ones. But once you get past that 10 million ARR mark, Bootstrap actually grows faster. So this was really weird for me, because I thought to myself, OK, so if we want to build more billion dollar Bootstrap SaaS companies, we have to start to think differently. Because to be completely honest with you, the information is different.
The conflicts are different. The economics are different. The culture is different. The business is different. But in my opinion, it is better. And that's not just my opinion. That's a fact. So how do we build billion dollar bootstrapped SaaS companies? Well, my answer is that bootstrapped SaaS needs a different playbook than venture-backed companies.
We need a different methodology in order to be able to build those types of companies. And I would also add on that bootstrapped companies learning from venture-backed companies is counterproductive to their overall growth. So we've seen a lot of bootstrapped companies. We've seen a lot of venture-backed companies that have talked over the last two days at SAS Open.
But what I really wanted to do was focus specifically on the 13 counterintuitive insights that I had bootstrapping an eight-figure SAS. Now, this is the slide to say, please don't leave the room. I know what I'm talking about. My name is Leah Martin. I'm the co-founder and chief innovation officer at Time Doctor, which is just a really great way of saying.
I basically just get to play around with the research and development team all day long, which I've been loving, by the way, over the last year. I'm also the co-organizer of Running Remote, which is the largest conference on remote work. I also co-wrote
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Chapter 3: What statistics highlight the growth of bootstrapped versus venture-backed companies?
And we spend none of the time on the greens. We basically just set a more aggressive target for next year. Next one, camels, not unicorns. reduced resources eliminates optionality. When you have a ton of cash, it's really easy to be able to work on crazy new things and go in directions that you wouldn't necessarily be interested in pursuing in the first place.
You kind of solve problems with money. And we see a lot of this with a lot of venture-backed companies. But I actually almost wanted to make this one of my counterintuitive insights, which is make EBITDA. For everyone that's here right now, who has some net profit, some EBITDA in their books? How many have like 5%? Keep your hands up. 10%? 20%? 30%. Whoa, you're buying the drinks.
Okay, thank you very much. So in my opinion, one of the things that my financial advisor actually sat me down about six years ago, and he said, Liam, you have 94.5% of your net worth in a private company that you can't sell. you need to start taking some risk off the table. And so we did. And that's very counter to grow at all costs. Reinvest everything you possibly can inside of this business.
And in my opinion, that was the right move to make, which was start to make some profit. And it completely protected us against a lot of problems that we had down the line. I would say 10% is good. That is a rule of thumb minimum. 20% is where I would really put the target at.
And 30% is if you think that there are going to be some rough economic times in the next couple quarters, boost yourself up to 30% EBITDA to protect yourself in terms of that downside. Next one, large TAMs equals bad for bootstrapped companies. Again, this is probably something that people are not going to like very much when I say this.
These three books, how many of you have read Crossing the Chasm, Blitzscaling, or Scaling Up? Almost everybody, right? What they teach is that, and I'm just using Crossing the Chasm as an example, you should be focusing on your early market segment, not the big mainstream market. So when we started Time Doctor, we had a probably a billion dollar total addressable market.
Now, post COVID with everyone using remote work, our industry became a lot bigger. It's probably worth 20 to 30 billion at this point. And so we recognized that if we wanted to start the same business today, we would never do it because we just don't have the resources to be able to do it.
And there are lots of competitors right now that are raising $50, $100, $200 million to be able to compete against us. But they've got to overcome the entrenched brand that we've built, which is very, very difficult for them. And we actually were terrified around 2021 because we had like seven companies that raised over $100 million to come directly after our market.
And so far, none of them have really penetrated the market that badly because we already had that early market segment. So focus on the markets that are early. I would say below $10 billion is where I would really go. But if you can get it lower to a billion dollar total addressable market that you think is going to grow in the future, that's where you should go.
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Chapter 4: How can bootstrapped SaaS companies learn from venture-backed companies?
So we're doing quite a bit better than Alvaro, which is Obviously, something else that I could talk to you about. Next one.
Chapter 5: What are the 13 counterintuitive insights from bootstrapping a SaaS company?
Brand is the most important thing. Past 10 million ARR. I really do believe this. So when COVID happened, a A lot of companies just went and bought our product because they were like, well, we don't really have a remote team, but we identify what you guys do, which is time tracking for remote workers. And then when COVID happened, we just saw a massive, massive influx of revenue coming in.
And we didn't really know where it was coming from, but we recognized long-term that it was from our brand impression. And if you have a company that's worth more than $10 million, particularly If you have a large customer base, let's say more than 10,000 customers, they're going to talk, and that referral engine is something that's going to feed you to 100 million. in my opinion.
How do you test this? Well, you increase prices, and you see if they stay. That's one of the best ways to test that. We did that through experimentation, and it was one of those things that we should have done it 10 years ago, and we didn't do it. We realized that there was almost no impact on conversion and churn by raising our prices by 20%, which just automatically raised revenue by 20%.
Next, product-led first, sales-led later. This is a bit of a story of March of 2020. And everyone kind of knows what happened in March of 2020. The entire economy completely imploded, exploded, exploded for real work, imploded for everything else. So February of 2020, we were doing about 20,000 in new business MRR. By March, we were doing 115,000 in new business MRR.
And by April, we were doing 212,000. in MRR. We literally took the sales team that was working on about 10% of all deals, and we said, if you're working on an $100,000 ARR deal would be important to that sales team. And we all of a sudden said, only work on million dollar deals. the product-led engine actually converted all of those customers.
98% of our customers were converting through our product-led model, where a lot of our competitors didn't have that. And they basically wasted all of those leads where we ended up actually being able to get them. Funny story, we had a G20 country literally deploy on our software through a PLG model. I don't know how the credit card worked, but they deployed 500,000 employees on the system.
And we went down for like an hour and a half. It was absolutely insane. And then we called them and we were like, stop. Stop doing this. We're going to shut down your account. We'll try to onboard you properly. And that resulted in 202% growth in 2020. But again, by focusing on the actual PLG base, we could have our sales team focus on the cream on the top.
And a sales team is going to cost you a couple million dollars to really deploy at scale. So it's incredibly important that you keep those costs small, you build the product so it can sell itself, and then you add the sales team on top. Next, pay less attention to competitors. Here's a couple slides to be able to reinforce this. This is Forbes Statista, Top Reasons Why Startups Fail.
There's also something from Fractal. Again, this is just stuff that I googled. Get Out Competed is the fourth and eighth Top reason why startups fail, ran out of cash is the second most important one.
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