Bootstrapping My SaaS to 1 Million ARR
Just in case the title is Greek to you (like it would be for my mother, I think)…
- Bootstrapping = starting and growing your business without VCs. Only your own sweat and own (small amount of) money.
- SaaS = Software as a Service = a software product that you offer typically online, mostly subscription-based. Anyone in the world can become a customer, and your shop is open 24/7.
- ARR = Annual Recurring Revenue = the total amount of subscription-based revenue – which is quite stable and predictable.
- 1 Million: no explanation needed :-)
In this post, I’m giving you a high-level helicopter view on the first 8 years of bootstrapping a SaaS from literally nothing to a SaaS going in the direction of 1 MILLION ARR (or if you want, 83K MRR).
This blog post is the first post of our “founders journey’s” series, where we’ll openly share our errors, successes, mistakes, learning curve, frustrations, and yes-we-can moments, all while bootstrapping from nothing.
This is the blog I wish I had read when I just started bootstrapping my company.
To get each future post emailed to you as soon as it’s published, sign up for the “Bootstrapping my SaaS to 1 Million ARR” mailing list.
(2020 should be the year we hit the 1M ARR mark. Let’s see if COVID will prevent us from doing so…)
Running a service business.
In 2012, I was running a (small but profitable) software business, building custom solutions, and doing project work for all kinds of customers. We worked for many clients. A lot of them were very good collaborations and we felt like partners.
However, for a few of them, it went like his:
The client asks you how much it would cost to build a piece of software or app that does “XYZ.”
You make an offer.
They negotiate the price down.
Finally (after emailing back and forward for weeks), they accept the deal.
The project starts, and sooner or later, it seems that the scope becomes twice as big as originally asked. “XYZ” becomes, in fact, “ABC + XYZ.”
The project continues, and it appears that the client changed their mind: “ABC + XYZ” should be “XYZ + OPQ.”
When asking for compensation for the extra scope and the constant last-minute changes, the client is surprised or even upset.
The clients who ask for more and more are most often also the ones who pay very late. Or not at all.
Our worst client ever even started a juridical fight against us based on lies (which he lost completely, but still, it was a stressful period).
Despite the fact that 90% of our clients were nice to work with, 10% of them were really painful to deal with. But at the same time, those 10% were claiming 90% of our time, energy, and patience.
It’s a pity when 9 clients are nice to work with, but that 1 client keeps you up at night.
Service work can be very draining.
Aside from that, as soon as you hire a staff of developers, you have to ensure a constant pipeline of work to keep the staff busy.
Let’s say your staff costs you about 25K per month. You better be sure to SELL FOR AT LEAST 25K of deals per month; otherwise, it won’t take you long to go bankrupt.
We had deadlines to meet, clients not paying us, changing scopes and functionalities, late paid invoices, and a never-ending pressure to ensure enough projects in the future pipeline. Not to mention clients calling on Sunday evenings to explain a new set of desired features, if possible on production by yesterday.
One day, cofounder Jerry and I came to the conclusion that this was not our initial purpose of starting a business.
The FUNDAMENTAL reason why someone starts a business is so that a business SERVES YOUR GOALS and not the other way round.
This is fundamental, so let me repeat it:
YOUR BUSINESS SHOULD SERVE YOU
…and not the other way round.
You don’t start a business to be its slave.
You start a business so it can serve your personal goals.
Your business should lift you up, enlighten your life. Not drain your energy.
That goal is different for all of us.
You want to be rich? Well, start any business and work 24/7 for 20 years and you will be rich. That’s a fact. (I’m not saying you’ll enjoy it, but you’ll be rich.)
You love skiing, only want to ski, and do nothing but ski all your life? Become a ski instructor or ski professional. I’m not saying you’ll be rich, and I’m not saying it will be easy. But if skiing is your one and only passion, then go for it. The same for music, art, or any other sport.
Don’t sit there and complain about how great others are doing on Facebook.
Act, do something, and work toward your goal.
Our goal was this: to be financially independent and build up (one or more) passive revenue streams. Being rich is not our goal. We just wanted to be financially independent, and have a passive and predictable source of recurring income.
Not trade our time for money.
Not eat out of someone’s hand.
Not dance on someone else’s stage.
Not have to please a client because they still owed us 15K of late payments and we are scared of upsetting them if we don’t fulfill their new unrealistic demands and deadlines.
Not HAVE to work our ass off, but work our ass off because we like what we do and WANT to do it.
Not depend a lot on a few clients, but have a wide spectrum of smaller clients so none can dictate to us what to do.
Not do what one person forces us to do (like writing software in such a way that it will become unmanageable), but build a simple and clean software solution that’s appreciated by a bigger market and enthusiastic users.
We wanted to be able to work on a rainy Sunday if we felt like doing so, and do a bike trip on a sunny Monday without having to ask permission for it.
We wanted to see our kids grow up, play music, and sport as much as we wanted and felt was needed.
I’m a saxophone player, and I want to play it daily without having to ask for permission. It’s my mental yoga.
Instead of writing on-demand software for 5 clients (paying us each 20K), we wanted to write software for 20K clients, paying us each $5 per month.
We wanted something scalable, which could run on autopilot. We didn’t want to trade our hours for money anymore.
Out of the hamster-wheel.
A bootstrapped and product-based software business was clearly the right type of business to fulfill our personal goals.
Bootstrapping a product business.
By now you should need no convincing that in 2012 – 2013, we were so PASSIONATE about and DEDICATED to transforming our service business into a product business.
We were SO dedicated that we would do anything to succeed and bootstrap a SaaS business.
We read books about bootstrapping, SaaS, marketing, products, passive revenue, and financial freedom. For hours, days, weeks, and months. Every spare moment.
Reading true stories puts your mind into the right mindset. If they could do it, we can too, right?
(In a future blog post, I’ll talk about all the books I did read, and which ones you should read, too.)
We would look up, dig, and find out how bootstrapped SaaS companies succeeded. Or why they failed. How much they grew in the first year. How they came up with their first idea.
In 2012, we decided to spend 50% of our time, energy, staff, and dedication on “bootstrapping our SaaS product,” while spending the other 50% on working with the nicest possible clients in the software service industry.
That meant that half of our revenue was lost. We were making a loss, working our ass off day and night. Weekends included.
We didn’t want to drop our software service business all of a sudden, just in case the SaaS product didn’t work out. And obviously, we needed the cash to self-fund our own products.
That 50/50 split was very difficult, but it worked out to be a good thing in the end. It’s always very tempting to take a quick wad of cash and take on another project (and abandon bootstrapping your product), but it is not the way out of the rat race.
We had to work ourselves out of this. With sweat, weekend work, and less money.
ROI stands for:
- return (something you will get later)
- investment (something you do now)
First the hard work, then the result.
There’s a popular Chinese proverb that says, “The best time to plant a tree was 20 years ago. The second best time is now.”
Most people want quick results and instant solutions.
They want to be the next Facebook overnight. They want to be rich, but not work for it.
They are jealously looking at the musician on stage (“What a nice job!“), but they don’t want to practice 2 hours per day for 15 years.
They dream of a nice body without the daily exercises, hard sweat, and the right type of food.
Quick and instant growth is impossible if you are bootstrapping.
Some want to shortcut this with VCs. Throw more money at it to speed things up.
It’s one way, and in the traditional press, those companies get all the attention. A title like “XYZ raises 3 million” sounds better than “XYZ got their fifth client paying $49 a month.”
For us, it was not the way since it would mean that we’d give up our freedom.
It also makes things more complex. Instead of focusing on “getting funded,” we prefer to focus on “getting paying clients” and keeping our freedom.
I also have seen stories (from very close) of VC-funded companies, where the VCs would just close the money tap after the first or second year, leaving cashflow-negative startup founders to struggle and go bankrupt.
The classical press doesn’t tell those stories.
(More on Bootstrapping versus VC in a future post.)
There is no such thing as “the idea.”
I still hear people coming to me with an idea, but I would have to sign an NDA before they would reveal it.
Well, let me tell you that “having an idea” is worth nothing. I have a stack of ideas, some of them very good candidates to start up a new business.
Having an idea is one thing; working your ass off for 5 years to make it real is another.
To get started, we had idea-generation sessions. We cold-called over 200 people in different kinds of (SME) businesses and niches to interview them, so we could find the right, big pain points whose solutions were important enough for them to pay for.
People happily pay if you reduce their “pain.” Solve any pain point, and people will throw money at you.
Much more on “idea generation” and “pain point solving” in a later blog post, so make sure to subscribe to the mailing “Bootstrapping my SaaS to 1 Million ARR” if you are interested.
We then selected different product ideas in different niches. We gave up on some of them and continued with others, depending on if they were B2B or B2C, if they were doable as bootstrappers or not, the target audience, and much more.
We chose to build an app for field reports, punch lists, and construction collaboration. Target audience: architects, contractors, and safety professionals in the construction business.
It was a hard and long road.
In the early days, we fine-tuned our product and target audience a few times.
Each time, we kind of had to restart from zero.
But we didn’t give up until we felt we had the perfect product/market fit — a sweet spot — in the market.
In the early years of bootstrapping, our first obsession was to “break even on MRR.” We wanted to be able to pay all our bills and staff purely with MRR. That would allow us to drop all service work. A huge achievement.
Just imagine that you have built a little kind of “machine” running on semi-auto-pilot (a piece of software in our case) which works 24/7 for you and provides you, every month, enough money to pay all of your bills. Month after month.
It’s not about profit in the very first days. It’s about breaking even so you can buy yourself an incredible amount of time. Time to work 100% on the product business.
For us, the day we got break-even on MRR was also the day we could refuse any single service work. Of course, we didn’t throw all our service clients and projects through the window, but the fact that we could simply stop accepting service work was a big thing.
Check out this wonderful blog post on “ramen profitability.”
Also, check this one from our bootstrapping friends at Canny.io.
(Today, we still continue working with a handful of good customers from the days when we did service business, but we obviously don’t accept any new service deals anymore.)
Once we got break-even on MRR, we focused on:
- No longer trading time for money (service work). That would allow us to spend all our time on our product.
- Getting profitable, even if it was just a little. Being able to put some money on the side (no matter how little) each month is a motivation-booster to continue. We have been profitable since then, and we will always try to run profitable month after month. We keep our costs (marketing, people, etc.) always slightly below our revenue curve. It forces us to spend money only where it’s really needed and avoids unnecessary costs.
- Making our product better, more simple to use, and enjoyable to work with. Day after day, week after week, month after month, and year after year. We still do that today. We release new features, fine-tune, and make UI improvements on a weekly basis. We are obsessed with simplicity for the end-user. Writing simple software is more difficult than bloating your product with features. We laser-focus on solving pains in our clients’ businesses.
- Customer support and attention. As a small bootstrapped company trying to get your first few clients, you have little in your arsenal to impress. Except: awesome support and client attention. Jerry and I still do lots of client support ourself every day. It’s a goldmine for new ideas. We make it a priority to serve our clients to the maximum, and listening to their needs, demands, and questions. Good luck trying to talk directly to the founder of a big company.
- Automating our business where needed. As the number of clients grew, so did the administration, support, and the number of edge cases. We automated (and are still automating) most recurring administration and support-related tasks, so our business runs on auto-pilot and we can focus more on software development instead of support and administration.
- Hiring people only when there was a clear need for them. We hired only when it hurt not to do so. When we desperately couldn’t follow the workload. That way, we were (and still are) obliged to spent our time and energy on the most essential things only. When you over-hire, you keep people busy with unneeded tasks that also require your attention.
- Long-term and evergreen marketing. We prefer blogging, inbound, and word-of-mouth referrals over paying ads and outbound. Though we do some outbound, most of our new leads come from blogging, inbound, and client referrals. Good support is also a kind of marketing.
Since MRR kept on growing, we jumped over “ramen profitability” and became profitable.
We are not the type of business that will spend more money because there is more money. Less is more. We prefer simple, light, and burden-free.
In line with our personal goals.
The more you have, the more you have to.
We’ve all worked from home since day 1, when we were struggling to get the first few clients.
Now that we’ve been profitable for several years, we are “supposed” to rent an office.
But I’m not sure. Apart from the fact that an office costs money every month, you need to clean it, drive to the office every day (and possibly contend some traffic jams), ensure there is coffee, decide who sits where, and put earphones on in order to avoid hearing your sales colleague calling the whole day.
We prefer simple. Less is more.
The day when it becomes a no-brainer for us to have an office, we will rent or buy an office that same day. But “that’s how it’s supposed to be” or “we have the money for it” is not a good reason.
Fast forward to 2020: bootstrapped, free, profitable, and growing.
Fast forward through 8 years of sweat, stamina, joy, lows and highs, and the daily grind.
They are 2 very similar SaaS apps for the construction business to facilitate the creation of field reports, site inspections, following up on work at the construction site, and handling construction communication between parties involved.
Both of them are bootstrapped from the ground up, profitable, and growing month over month!
Here is a chart of the MRR over time.
The monthly cost of all our employees, servers, marketing, support, and hardware is less than the MRR. Each month, there is money left on the table. We can’t believe this is real.
We are financially independent. We can sleep enough, work from home, see our kids.
We don’t wear suits and ties. No traffic jams. Few obligations. I can play the saxophone every day :-)
No pressure to get the next deal signed in order to pay our staff.
No trading time for money, or customers yelling about deadlines or threatening us with court claims.
We work very hard, but because we want to do so. We enjoy our working days and building our product and growing our business.
We have a recurring stream of revenue rolling in each month. The total ARR is going in the direction of 1 million.
We see many many users across the globe — from countries and tropical islands we even didn’t know existed — using our product. Big multinationals, mid-size contractors, and solo architects. Banks, retailers, architects, contractors. Pharma.
Our customers are very loyal and positive. We feel appreciated. And if we release new features, we often get a thank you note from a couple of clients.
We work very close with our customer base in order to improve our product on a constant basis.
We feel appreciated by our customers, and it pleases us to see how our product is used and how valuable it is. It makes us happy.
We work with a nice and relatively small team of carefully selected people in whom we believe. Quality, not quantity.
Employing more people is not a sign of success. People often think “growth” is defined by how many people you employ. We think that’s wrong.
Slow, controlled growth. No dependency on VCs that put us under pressure because last month’s growth was not as expected.
Our cash on the bank does not depend on the next infusion of capital to survive for the next 2 years.
More businesses die from indigestion than starvation.
We have no loans to pay back.
We feel there is still a huge potential for our product. And as the business gets more automated, the product more stable, the marketing and sales machine more oiled, and as the MRR grows month after month, it will only get more enjoyable.
We are reaching the letter R from the word ROI :-)
More insight into our bootstrapping process? Subscribe…
This blogpost belongs to the “founder story” series on our ArchiSnapper blog, covering the subject “Bootstrapping my SaaS to 1 Million ARR.”
In the next months and years, I’ll blog openly about the highs and the lows, the mistakes, lessons learned, the pros and cons of bootstrapping.
I’ll share numbers, talk about our philosophy and way of thinking, which books I read, how exactly we came up with our SaaS idea, how we got our first client, and why we think everyone can be successful, too.
Please subscribe to the mailing list if you want to be the first to hear about new blog posts on this subject, and leave a comment (or email me at pieter at archisnapper dot com) about what exactly you want to know regarding our bootstrapping process.
See you then, freedom fighters!