Bootstrapping My SaaS to 1 Million ARR
“Bootstrapping My SaaS to 1 Million ARR”
Just in case the title is Greek to you (as it probably would be for my mom), let me break it down:
- Bootstrapping = starting and growing your business without VCs. It’s all on you, my friend — your own sweat, your own tears, your own (modest sum of) money.
- SaaS = Software as a Service = a software product, mostly subscription-based, that you offer typically online. Anyone in the world can be a customer, and your shop is open 24/7.
- ARR = Annual Recurring Revenue = the total amount of subscription-based revenue. This is usually quite stable and predictable.
- 1 Million = no explanation needed
In this post, I’ll give you a high-level overview of our first eight years of bootstrapping a SaaS from literally nothing to a SaaS headed toward a 1 MILLION ARR. Or $83K MRR (monthly recurring revenue).
This blog post is the first of our “Founders Journey” series, where we’ll openly share our experience of bootstrapping from nothing. We hope to inspire you with stories of our successes, struggles, mistakes, frustrations, and yes-we-can moments.
This is the content I wish I had read when I first 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. Hopefully, COVID won’t prevent us from doing so!)
Running a Service Business
In 2012, I ran a small but profitable software business. We built custom solutions and undertook projects for all kinds of customers. Many felt like our partners, and we enjoyed wonderful collaborations.
But not all working relationships went that smoothly. For a few clients, the story went something like this:
- They ask you how much it’d cost to build a piece of software or app that does ABC.
- You make an offer.
- They negotiate the price down.
- After you email back and forth for weeks, they finally accept the deal.
- The project starts.
- But soon after, the scope doubles in size. ABC becomes ABC+DEF.
- The project continues, and the client changes their mind. ABC+DEF becomes DEF+XYZ.
- When you ask that the client compensate you for the added scope and the frequent last-minute changes, they get upset.
- Often, these clients that constantly ask for more and more pay very late. Or not at all.
Our worst client ever even brought us to court. Fortunately, the judge saw through their lies and we won, but it was still a stressful period.
While 90% of our clients were nice to work with, 10% were anything but. And those 10% claimed 90% of our time, energy, and patience.
Service work can be very draining.
Of course, those difficult clients weren’t our only challenges. We also had to ensure a constant pipeline of work to keep our staff developers busy.
Let’s say your staff costs you $25K per month. You better be sure to SELL AT LEAST $25K worth of deals per month. Otherwise, you’ll go bankrupt, fast.
We had tight deadlines, non-paying clients, changing scopes of work, late paid invoices, and never-ending pressure to ensure enough projects in the future pipeline. Not to mention clients calling on Sunday to explain a new set of features they wanted — if possible, on production by yesterday.
One day, cofounder Jerry and I were fed up. This was not the vision we had for our new business.
The fundamental reason we started a business was so that it could serve our goals — not the other way round.
This is fundamental, so let me say it to you now:
Your business should serve you — not the other way around!
You don’t start a business to be a slave to it.
Your business should lift you up and enliven your life. Not drain your energy.
You start a business so it can serve your goal. And that goal is unique to you, as any other goal is unique to someone else. That goal is different for all of us.
Want to be rich? Well, start any business and work 24/7 for 20 years and you’ll be rich. That’s a fact. I’m not saying you’ll enjoy it, but you’ll be rich.
Love skiing and do nothing but ski for the rest of your life? Become a ski instructor or ski professional. I’m not saying that you’ll be rich or that it’ll be easy. But if skiing is your one and only passion, then go for it. Same for music, art, or any other sport.
Don’t sit there and complain about how great others are doing on Facebook.
Act, do, work. Move toward your goals.
So, our goal was this: financial independence. We wanted to build up one or more passive streams of revenue. Being rich was not our goal.
We didn’t want to trade our time for money.
Or eat out of someone’s hand. Or dance on someone else’s stage.
So no, we didn’t want to have to coddle a client because they still owed us $15K and because we were scared to upset them if we didn’t fulfill their new unrealistic demands and deadlines.
And no, we didn’t want to have to work our ass off. We just wanted to work our ass off if we felt like it — because… well, working it off was fun and made for good exercise, or something.
We didn’t want to have to rely on a few big clients. Instead, we wanted a wide spectrum of smaller clients so none could dictate what we had to do.
We didn’t want to do what just one person forced us to do. Instead, we wanted to build a simple and clean software solution that was appreciated by a large market of enthusiastic users.
Instead of writing on-demand software for five clients (paying us each $20K), we wanted to write software for 20,000 clients — paying us each $5 per month.
We wanted something scalable, which could run on autopilot. That way, we wouldn’t have to trade our hours for money anymore.
We wanted to be able to work on a rainy Sunday if we felt like it, and do a bike trip on a sunny Monday if we felt like it.
We wanted to see our kids grow up, play sports, and play the music they loved.
And I wanted to play the music I loved! I’m a saxophone player, and I want to play it daily without asking having to ask for permission. It’s my mental yoga.
Okay, getting off of the hamster wheel now.
A bootstrapped and product-based software business was clearly the right type of business to fulfill our personal goals.
Bootstrapping a Product Business
From 2012–2013, we were so dead set on transforming our service business into a product business. We’d do anything to succeed and bootstrap a SaaS business.
So, 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 from inspirational books — like the 4-Hour Workweek, The Magic of Thinking Big, The Compound Effect, and many others — puts your mind in the right mindset. After all, if they could do it, so can you, right?
(In a future blog post, I’ll share all the books I read, and which ones you should read, too.)
And we dedicated ourselves to learning 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, and staff on bootstrapping our SaaS product. And the other 50%? We worked 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.
But 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 for another project (and abandon bootstrapping your product), but that’s not the way out of the rat race.
We had to work ourselves out of this. With sweat, weekend work, and less money.
But we kept ROI front and center.
ROI stands for:
- return (something you’ll get later)
- investment (something you do now)
First the hard work, then the ROI.
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. Or to be suddenly rich, without working for it.
They want to be like the amazing musician on stage, but they don’t want to practice two hours every day for 15 years.
They dream of a nice body, but they don’t want to put in the daily exercise or eat the right food.
With those analogies aside, let’s get back to the world of startups…
Quick and instant growth is impossible if you’re bootstrapping.
Some want a shortcut with VCs — just throw more money at it to speed things up.
Sure, that’s one way. And in the traditional press, those companies get all the attention. A headline like “XYZ raises 3 million” sounds better than “XYZ got their fifth client paying $49 a month.”
But for us, we had a different way. Because you see, we didn’t want to sacrifice our freedom.
Instead of focusing on “getting funded,” we preferred to focus on “getting paying clients.” That way, we could keep our freedom.
From very close up, I’ve seen mortifying stories unfold for VC-funded companies. The VCs would just close the money tap after the first or second year, leaving cashflow-negative-startup founders to struggle and go bankrupt.
Well, the press doesn’t typically tell those stories.
(More on bootstrapping versus VC in a future post.)
I still hear people coming to me with “an idea,” but I’d have to sign an NDA before they’d 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.
But just having an idea is one thing; working your ass off for five years to make it real is another.
To get started, we held meetings for the sole purpose of generating ideas. We cold-called over 200 people in different kinds of SME businesses and niches to learn about the pain points they were willing to pay someone to banish.
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 solving pain points in a future blog post, so make sure to subscribe to our “Bootstrapping My SaaS to 1 Million ARR” mailing list if you’re interested.
Next, we selected different product ideas in different niches. We gave up some of them and continued with others. How did we decide? Well, a slew of considerations really, like whether they were B2B or B2C, the target audience, whether they were doable as bootstrappers, and much more.
At some point, we decided on what might be considered our biggest project yet: an app for field reports, punch lists, and construction collaboration. Target audience: architects, contractors, safety professionals, and those in the construction business.
It was a long and arduous 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. Eventually, we struck a sweet spot in the market — the perfect product/market fit.
In the early years of bootstrapping, our first obsession was to be “break even on MRR.” We wanted to be able to pay our staff and all our bills purely with MRR. That would allow us to drop all service work. A tremendous achievement.
Imagine that you’ve built a little kind of “machine” running on semi-auto-pilot (a piece of software in our case) that works 24/7 for you, providing you with enough money every month to pay all your expenses.
Initially, it’s not about profit. It’s about breaking even so you buy yourself tons of time — time to work 100% on the product business.
For us, the day we broke even on MRR was also the day we could refuse service work. Of course, we didn’t throw all our service clients and projects outside the window. But being able to stop accepting service work was huge.
Check out this wonderful blog post on “ramen profitability.”
Also, read this post from our bootstrapping friends at Canny.io.
(We still continue working with a handful of good customers today from the days when we did service business, but we don’t accept new service deals anymore.)
Once we broke even on MRR, we focused on:
- Product work. No more trading time for money (service work).
- Getting profitable, even if it was just a little. Being able to put some money on the side each month (no matter how little) boosts motivation to continue. We’ve been profitable since then, and we’ll always try to be profitable month after month. We always keep our costs (marketing, people, etc.) slightly below our revenue curve. This forces us to spend money only where it’s truly needed. We avoid unnecessary costs.
- Improving our product, making it simpler to use, and more enjoyable to work with. Day after day, week after week, month after month, year after year, decade after… no wait, we’re not that old yet. Anyway, we still do that today. We release new features, fine-tune those features, and make UI improvements on a weekly basis. We’re obsessed with simplicity for the end-user. Writing simple software is more difficult than bloating your product with features. We laser-focus on solving our clients’ pain points.
- Customer support and attention. As a small bootstrapped company trying to get your first few clients, you have little to impress them with. Except: awesome support and client attention. Jerry and I still do lots of client support every day. It’s a goldmine for new ideas. We make it a priority to serve our clients to the max, listening to their needs, demands, and questions.
- Automating our business where needed. As our clientele grew, so did the administration, support, and the number of edge cases. We automated (and are still automating) most recurring administrative and support-related tasks, so our business runs on auto-pilot. This lets us focus more on software development and other business-critical tasks.
- Hiring only when absolutely necessary. That is, we hired when it hurt not to, when we could no longer handle the workload. That way, we were (and still are) obliged to spend 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 and word-of-mouth referrals over paid ads. 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 our MRR kept growing, we jumped over “ramen profitability” and became profitable.
We’re not the type of business that will spend more money because there is more money. We prefer light and burden-free, which aligns with our personal goals.
Because really, the more you have, the more you need to keep it simple.
Here’s an example:
- We’ve all worked from home since Day 1, when we struggled to get our first few clients.
- Now that we’ve been profitable for several years, we should rent an office space, right?
- Well, I’m not so sure. Apart from the fact that renting costs money every month, keep I’m mind that you also need to clean the office regularly, drive to it every day, possibly contend with traffic jams, ensure there’s coffee, decide who sits where, and put earphones on so you won’t be distracted by your sales colleague making calls all day.
Again, we prefer simple. Less is more.
The day it becomes a no-brainer for us to have an office, we’ll rent or buy one that same day. But just because “that’s how it’s supposed to be,” or because “we have the money for it” doesn’t necessarily mean it’s the right move for us, right now.
Fast-Forward to 2020: Bootstrapped, Profitable, and Growing
They’re two very similar SaaS apps to help construction businesses make field reports, conduct site inspections, follow up on work at the construction site, and handle construction communication between various parties.
Both websites are bootstrapped from the ground up, profitable, and growing month after month!
Here’s a chart of our MRR over time.
The monthly cost of all our employees, servers, marketing, support, and hardware is less than the MRR. Each month, there’s money left on the table. We can’t believe this real.
But it is. We can sleep well, work from home, and see our kids.
Yes, sweet financial independence — it’s a beautiful thing.
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 so that we can pay our staff.
No trading time for money, or customers yelling with deadlines or threatening us with court claims.
We work hard — not because we need to, but because we want to. Our workdays are fun, because we enjoy building our product and growing our business.
We have a recurring stream of revenue rolling in each month. The total ARR is moving toward 1 Million!
Many fans from across the globe use our product. They live in countries and tropical islands we didn’t even know existed. Big multinationals, mid-sized contractors, and solo architects. Banks, retailers, architects, contractors. Pharma.
Our customers are very loyal. It’s always a thrill to see how they use our product and how valuable it is to them. We make our customers happy, and they make us happy. And they appreciate us. In fact, whenever we release new features, we often get thank you notes.
Yet, we’re still at it and still loving it, working closely with customers to improve our product on a consistent basis. Complacency has no place in our culture.
We work with a nice and relatively small team of carefully selected people we believe in. Quality, not quantity.
Employing more people isn’t a sign of success. People often think “growth” is defined by how many people you employ. We think that’s wrong.
It’s all about slow, controlled growth. It’s about not depending on VCs who pressure you because the growth last month wasn’t as expected.
The amount of cash in our bank doesn’t depend on the next infusion of capital to survive for the next two years.
We have no loans to pay back.
And there’s still huge potential for our product! As the business gets more automated, the product more stable, the marketing-and-sales machine more oiled, it will only get more enjoyable.
Want More Insight Into Our Bootstrapping Process?
This blog post belongs to the “Founder Story” series on our ArchiSnapper blog. It covers 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, the lessons learned, and the pros and cons of bootstrapping.
I’ll share numbers, talk about our philosophy and ways 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 succeed, too.
Please subscribe to the mailing list if you want to be among the first to hear about new blog posts on this subject. And please 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!