Highlights

  • Is it OK if you want to make a low-chance-of-success career decision mostly because you hate being told what to do and therefore cannot, in your own words, be successful in a “real job?” (Location 134)
  • Is it OK to have the hubris of thinking your product is better than the other hundred already in-market and that it makes sense for a 101st to exist? (Location 136)
  • So you possess the personality defect that drives you to join this coterie; now comes the hard work. (Location 153)
  • Most of what you’ll need to do, you’ve never done before, and you’re not good at it, although you think you are. (Location 157)
  • But there are key areas, early in the life of a bootstrapped company, where lack of competence is a leading cause of death. (Location 164)
  • Focusing your attention and your learning on these specific areas that are covered in this book—market, pricing, and also marketing/sales, team, metrics, and personal mindset—gives you the best chance to succeed. (Location 167)

Introduction

  • It implies that you need someone else’s permission to build your company. That you’re not a real entrepreneur until an investor tells you that you are. (Location 219)
  • After nearly two decades of working with startup founders, I know that bootstrapping takes longer to generate life-changing wealth than the moonshot approach of raising venture capital. But the likelihood of some kind of a “base hit” is much, much higher. You might think of it as a .01% chance of making $100 million versus a 20% or 30% chance of making hundreds of thousands or millions (and maybe a higher percentage if you don’t make the common mistakes). (Location 233)
  • There are superpowers to being bootstrapped. One is that you don’t need anyone’s permission to start or build your company. Another is that your business doesn’t die until you quit. Bootstrappers don’t run out of money; they run out of motivation. (Location 240)
  • If you’re looking to build a business on your own that pays your bills but doesn’t grow beyond that, this book will have mixed value for you. There’s a significant difference between launching a product that generates $20,000 per month and one that makes $200,000 per month, starting with foundational elements like the idea and the market. (Location 273)
  • If you want to build a business that allows you to stay small and live the four-hour workweek, I suggest checking out my first book, Start Small, Stay Small: A Developer’s Guide to Launching a Startup (even if you’re not a developer). (Location 276)

The Playbook for Building a Multimillion-Dollar SaaS

  • Step 1: Your First Product You’ve got a simple product with a simple marketing plan, usually with a single traffic channel, like a WordPress plugin or Shopify add-on. Basically, something that allows you to start generating revenue and learn the ropes. (Location 292)
  • Step 2: Rinse and Repeat Step 2 involves doubling down on the model that worked in Step 1 and repeating it until you own your time. Take a look at what made that product a success and repeat it with another product. Continue getting good at the free or low-cost traffic channels that are working for you. (Location 295)
  • Step 3: Standalone SaaS Product (Location 298)
  • SaaS is complex to build and market, and there’s a long on-ramp to any kind of substantial revenue. The point of the Stair Step Method is to allow you to gain experience, skills, confidence, time, and revenue before starting the difficult challenge of building a standalone SaaS product. (Location 299)
Why Is SaaS the Best Business Model?
  • John Warrilow wrote an entire book on how to do this with traditional, non-subscription businesses called The Automatic Customer: Creating a Subscription Business in Any Industry. (Location 369)
  • Recurring revenue protects you during recessions and builds on itself every month. (Location 372)
  • Don’t bootstrap a SaaS product if you want to start a startup for the excitement or the press coverage. (Location 388)
  • two-sided marketplace, if you have 10 people on one side and 1,000 on the other, your business is a failure. With B2B SaaS, if you have one, 10, or 100 customers, you have a business. (Location 396)
  • Because of the low cost of servicing additional customers, SaaS companies reach gross profit margins of 90% and net profit margins of 50% or more at scale. (Location 408)
  • Still, it’s not uncommon for a growing SaaS company doing $1 million or $2 million annually to sell for four to eight times top-line revenue. (Location 413)
  • I decided to focus this book on topics that will help a business with some semblance of product-market fit take its company to the next level. (Location 422)
  • With SaaS, product-market fit starts very weak and often begins to strengthen when you’re around $10,000 or $20,000 MRR. (Location 424)
  • The process of moving from “a product people love” (product-market fit) to “a product people love, and you can find more of them every week” (escape velocity) involves building your product for your ideal customer, finding one or more marketing channels that work, building moats, reevaluating pricing, building your team, unlocking SaaS Cheat Codes, and finding and fixing bottlenecks in your funnel. (Location 426)
  • These Cheat Codes—expansion revenue, virality, net negative churn, and dual funnels—can grow your business at an incredible pace if you get them right. (Location 438)

Market

  • Most entrepreneurs don’t have enough conversations with potential, current, and past customers. (Location 446)
  • There’s another reason entrepreneurs don’t talk to customers: fear—fear that they’re bothering them, fear the customer will say something they don’t want to hear, fear that it’s a waste of time. (Location 449)
  • the conversations you have with customers, whether via email, chat, or on a call, will be some of the most valuable time you spend understanding your market, especially in the early days. (Location 451)
  • The key to getting actionable information from customers depends on whether you’re doing early customer discovery or researching how (and whether) to build a new feature. But typical questions might include: Can you walk me through a sample flow? What problem are you trying to solve? What do you currently use to solve this problem? What did you use in the past? What are some of your biggest frustrations about this solution? (Location 463)
  • For a great resource on doing customer interviews as a founder, check out the book Deploy Empathy: A Practical Guide to Interviewing Customers by Michele Hansen. (Location 472)
  • Your job is to figure out the problem your customer is trying to solve, not just build the solution they suggest. (Location 527)
  • Question #1: What’s the Use Case for This? (Location 530)
  • You can get at this by asking questions such as: “What leads you to want that? What problem are you trying to solve with this feature? What are you currently using to get that done?” (Location 532)
  • Question #2: What Percentage of Customers Will Actually Use This Feature? (Location 538)
  • Question #3: Does This Fit with My Vision of the Product? (Location 547)
  • One elegant solution to many of those “big lift” feature requests is to add integrations. Problems that might take weeks or months to solve are often already solved by another product. (Location 550)
How Can I Compete in a Competitive Market?
  • it can also be a fantastic place to grow your business once you get a foothold. (Location 560)
  • For one, a competitive market is proven. (Location 561)
  • it can be a great place to find an underserved niche of customers who are frustrated with what the big incumbents have to offer. (Location 563)
  • But if you’re getting a foothold in a mature market and you’re ready to scale up, here are some ways to do it. Compete on Price (Location 566)
  • Competing on price is tricky, but you can get traction if you offer more than 80% of the product for half the cost. (Location 568)
  • I’m not recommending that you remain the low-cost provider indefinitely, but before you’ve built a strong brand, this can be a good strategy. (Location 574)
  • Compete on Sales Model (Location 576)
  • Many incumbents in competitive markets have a high-touch sales process where customers must schedule a demo before learning the price. They may also have mandatory setup fees. (Location 577)
  • If you enter the space with a low- or no-touch sales process and your pricing is listed on your website, you can start winning customers who don’t want to jump through so many hoops. (Location 579)
  • Compete on Product (Location 584)
  • How to Market Against Large Competitors (Location 594)
  • If they’ve been dominating the market for years, they probably also have a group of users who have defaulted to using them but are frustrated by the experience. (Location 598)
How Much Should I Worry about Competition?
  • In my experience, unless you’re losing deals to specific competitors on a regular basis, it’s more helpful to keep your eyes on your own paper. (Location 612)
  • Your number one goal should be serving your customers—not perseverating over your competitors’ every move. (Location 613)
  • High-Level Updates. If an announcement is big enough to merit space in your industry news sites, it’s probably worth paying attention (Location 615)
  • Deals You’re Losing. If you’re losing deals to a competitor, you should figure out why. (Location 619)
  • From the outside, it might look like your competitors have their act together. But if you’re not in the room where decisions are being made, all you see is a polished image. Don’t let that polished image fool you into thinking your competitors know what they’re doing. (Location 624)
  • a caveat, if your competition raises a lot of money—like $5 million or more—be aware they might be trying to suck the air out of the market by either offering a free solution or dropping prices. (Location 634)
How Can I Build a Moat?
  • Integrations (Network Effect) Network effect is when the value of a product or service increases because of the number of users in the network. (Location 651)
  • In SaaS—particularly in bootstrapped SaaS companies—the network effect moat comes not from users, but integrations. (Location 656)
  • A Strong Brand (Location 662)
  • Having a strong brand means you’re in a lot of conversations. When people discuss options, you’re in the mix. People are talking about your product on their podcasts and forums and to their colleagues. (Location 664)
  • Once people recognize and trust your name, you become a brand rather than a commodity. (Location 666)
  • Maybe your digital asset management software could work for anyone, but if you decide to focus your product on museums and make sure it talks to the collections management tools they’re already using—and that your marketing and website are speaking the language of that world—you may be able to build a brand moat around a segment of (Location 671)
  • the market that can be tough for competitors to cross. Positioning is a book in and of itself, so I’ll point you to Obviously Awesome by April Dunford as one of the best positioning books for SaaS companies. (Location 673)
Owned Traffic Channels
  • Even if you own a high-traffic search term on Google, Amazon, or the WordPress plugin store, you can have a pretty commoditized product that can still succeed. (Location 680)
High Switching Costs
False Moat: Unique Features
  • Unique features are a fantastic differentiator—for a few months, until a competitor duplicates them. (Location 696)
  • Believing these features in and of themselves are a moat, though, is a trap. (Location 699)
  • By definition, a moat should endure; it should sustain itself and grow stronger as your business grows. (Location 700)
  • Should I Translate My Product into Other Languages? (And Other Common Mistakes) (Location 703)
    • Note: .h2
  • With some rare exceptions, heading down the following roads is a distraction at best and a major blunder at worst. (Location 704)
  • solution is not to pursue these distractions but to strengthen your product-market fit or improve your marketing and sales efforts. (Location 706)
  • Translating Your Product into Other Languages (Location 709)
White Labeling
  • To justify the effort of white labeling, I recommend charging an up-front fee. We’re talking tens of thousands of dollars—$30,000 to $50,000 at a minimum. If someone balks at paying that fee, they’re not willing to put enough skin in the game to warrant your efforts. (Location 726)
Adding Other Verticals Too Early
  • The danger of adding other verticals flippantly is that it can lead to a lot of complexity in your product. (Location 735)
Underpricing Your Product
  • Pricing too low holds your business back in two major ways. First, if you’re charging $10 instead of $100 a month, you have to find 10 times as many customers. (Location 742)
  • Second, you’ll have a much harder time finding those customers because you’ll be severely limiting the marketing channels you can afford to use. (Location 743)
  • Pricing (Location 746)
    • Note: .h1
  • Like most things in SaaS, finding the right pricing structure is one part theory, one part experimentation, and one part founder intuition. (Location 749)
  • Most founders price their product too low or create confusing tiers that don’t align with the value a customer receives from the product. (Location 751)
  • On the low end, if you have a product aimed at consumers, you can get away with charging $10 to $15 a month. The problem is at that price point, you’re going to be dealing with high churn, and you won’t have much budget to acquire customers. (Location 753)
  • You’ll have more breathing room (and less churn) if you aim for an ARPA of $50 a month or more. In niche markets—or where a demo is required or sales cycles are longer—aim higher (e.g., $250 a month and up). (Location 757)
  • If you have a high-touch sales process that involves multiple calls, you need to charge enough to justify the cost of selling it. For example, $1,000 a month and up is a reasonable place to start. (Location 759)
  • No matter where your business sits, one thing is true: “If no one’s complaining about your price, you’re probably priced too low.” (Location 766)
Segmenting Your Customers
  • MailChimp’s prices are based on subscriber count, so subscribers are their value metric. (Location 788)
  • This works because the more your customers use your product (and the more value they get out of it), the higher the price they will pay. (Location 790)
  • If you design this so that the value metric is tied to your customer’s success, they will be much less resistant when moving up to the next level. (Location 792)
  • Seat-based pricing is a common value metric for SaaS, but I recommend offering it only if two users from the same company see different things when they log into your product. (Location 796)
  • For example, if User A logs into the CRM and sees tickets assigned to them by User B, seat-based pricing makes sense. If both users log in and have the exact same experience, they might as well just share a login. (Location 798)
  • Feature Gating. The second way to unlock expansion revenue is by expanding the features your customers can access at higher plans. This tends to be less effective than value metrics because it’s not as intrinsically tied to the growth of your customers’ businesses. (Location 800)
  • tend to encourage people who are in the early stages to start by using just one model, then refine that as they get to know their customer base and what they need. But in many cases, having per-seat pricing with two or three levels of feature access is not a bad way to go. (Location 810)
  • sell to enterprises and service their accounts. A loose rule of thumb is to charge 10 to 20 times more than your standard plan. If you are only charging two or three times more, you won’t be able to hire that customer success person or salesperson you need to manage the high-touch sales process, let alone cover the cost of acquiring enterprise clients. (Location 820)

Should I Offer Freemium?

  • Freemium works best with a simple product that doesn’t require much work for the customer to get value, where the support burden is reasonably low and there’s some level of virality built into the product. (Location 831)
  • If your freemium users aren’t at some level helping push growth of your paid tiers, offering a freemium plan isn’t the right call. (Location 841)

Should I Ask for a Credit Card Up Front?

  • Dropping the credit card requirement is an attractive option because you can get ten times as many trials if you don’t ask for a credit card. Although I typically default to asking for a credit card up front, it helps to understand the pros and cons. (Location 854)
  • When thinking through requiring a credit card up front, ask yourself: How high is my support burden for each customer going through the trial? (Location 860)
  • Do I have the bandwidth to multiply my support burden by 10, knowing there will be many more tire kickers? (Location 862)
  • But I’ve seen founders decide at a later date to open the floodgates by removing the credit card requirement. Here’s what these founders had in common: Their companies were early but established. They had more than $20,000 MRR. (Location 876)
  • They knew their customers and market intimately. They knew their conversion, churn, LTV, and other metrics by heart. They had the resources to handle the influx of new trials. (Location 880)
  • Just remember the golden rule of experimenting: Only change one variable at a time. (Location 894)

When Should I Raise Prices?

  • I recommend revisiting your pricing every six to 12 months because if you’re like most founders, you’re probably charging too little. (Location 903)
  • Across all SaaS marketing approaches (which I talk about in the next chapter), maybe five are available if your ARPA is, say, $20 a month. If you charge $500 a month, it’s closer to 10. And if you charge $5,000 a month, you have every SaaS marketing approach at your fingertips. (Location 907)
  • So it’s not solely about making more money. It’s about providing you with more options to grow your business. (Location 909)
  • I charged $49 a month and kept getting feedback that it was too expensive. I could have dropped the price to $19 or $29 a month, but I didn’t want to build a cheap (Location 921)
  • tool. (Location 922)
  • I wanted to build a tool that was an easy sell at $49 a month. (Location 922)

How to Raise Prices

  • One simple option is to decrease the value metric of your plans but keep the prices the same. If today, customers get 3,000 subscribers for $49, switch it so tomorrow they get 2,500. Your pricing in dollars stays the same, but people need to upgrade to higher tiers faster. (Location 929)
  • Another option is to hide your lowest pricing tier on your pricing page. This should be relatively quick to hide, and you’ll see the impact of sign-ups relatively quickly. (Location 931)
  • If you know for certain that you’re going to raise prices, make this a marketable event—especially if you’ll be grandfathering in current users at the old rate. (Location 954)
  • Announce the price increase ahead of time and let the world know that if they’ve been meaning to try your app, now’s a good time. If they sign up for a trial now, they’ll be grandfathered in at the old price. (Location 955)
  • Why consider grandfathering old customers? If you’re worried people might go to a competitor If you’re worried thousands of customers will write in angrily to your support people If you’re worried you’ll damage your brand and your reputation (Location 961)
  • Use Rob’s Rule of 10: If raising prices for existing customers will not grow MRR by at least 10% (ideally more), it’s rarely worth considering. (Location 965)
  • Here are a couple of tips: Never promise to grandfather customers for life. Next time you raise prices, you might not want to. Or you might sell the company and the new owners don’t want to honor that deal. Lifetime deals are for one-time sale stuff, not for SaaS. Enterprise customers expect annual increases of 5% to 10% as standard, so build that into your contracts. (Location 970)
  • you’re not going to grandfather in existing customers, give yourself a comfortable amount of time between announcing price increases and actually implementing them. (Location 975)
  • I recommend two to four months, depending on how difficult it is to switch away from your product. (Location 976)
  • When you announce a price increase, use this template: (Location 980)
  • Set the stage for the value your product offers (i.e., we’ve been around for (Location 981)
  • some time, we’ve become a trusted provider in this space, etc.). “We’re changing our pricing.” Let them know up front what’s going on. Provide high-level justification about why you’re changing your pricing (i.e., we’ve added tons more value, we’re in a completely different space than when we launched, we’re expanding our features, etc.). (Optional) Offer more specifics about whom it impacts, when price increases will go into effect, etc. (Optional) Provide more justification if you feel it’s necessary. (Location 981)

Marketing

How Do I Find More Customers?

  • Marketing strategy is all about deciding which approaches to try in which order, tracking the return on investment (ROI) of those approaches, and building on them to grow the business. It’s a difficult role to outsource. (Location 1021)
Marketing Funnels
  • A marketing funnel describes the stages of your customers’ journey from the moment they learn about your business to the point at which they become paying customers. (Location 1028)
  • High-touch funnels work best for companies that charge a minimum of $500 a month and focus on customers who can afford that price point. (Location 1043)
  • A low-touch or no-touch funnel works when you have a wide market and a low-priced product. (Location 1051)
  • Because you’re not spending as much energy qualifying leads, you’ll see lower conversion rates and usually higher churn—but because your low-touch funnel doesn’t require as much hand-holding, your cost to acquire a customer and the cost to sell to that customer are very low. (Location 1062)
  • A low-touch funnel tends to be a volume game. It is highly focused on inbound marketing tactics like SEO, PPC ads, content marketing, and influencer marketing. (Location 1065)
  • Another Cheat Code is something I call a dual funnel, which targets both a wide audience at a low price point and a premium or enterprise audience at a high price point. (Location 1072)
  • You’ll know your funnel isn’t working if your numbers at any phase are below the typical rule-of-thumb ranges. Customers and prospects are spilling out of your funnel somewhere, and you need to fix that leak before you start pouring more money into marketing. (Location 1083)
  • Start by examining the metrics at the bottom of that funnel, then work your way up to see where the problems are. How happy are your customers? How long do they stick around? How many of your trials convert to paid customers? How many website visitors sign up for a trial? How well does each traffic source earn you website visitors? If (Location 1085)
  • Everything at the top of the funnel is a vanity metric when the bottom of your funnel isn’t healthy. (Location 1091)
  • Business-to-Business SaaS Marketing Approaches (Location 1102)
    • Note: .h2

How Do I Know Which Marketing Approaches Fit My Business?

  • The three factors of a marketing approach are speed, cost, and scalability. You need to take all three into account when choosing marketing approaches. (Location 1195)
  • Speed. How long does it take for a marketing approach to start returning results? Weeks? Months? Years? How long can you afford to spend money and time on a marketing approach before you start to see new customers? (Location 1197)
  • Ideally, you should be working on a fast and a slow approach at the same time. (Location 1200)
  • As you scale your product and raise prices, you’ll notice that more marketing approaches become available. (Location 1206)
  • Scalability. Can you scale this approach to reach more people? (Location 1207)
Which Approach Works Best at Your Price Point?
Tips for Running Marketing Experiments
  • Keep a Marketing Changelog. I recommend keeping a marketing changelog, a chronological record of everything you try, even small things like updating marketing copy on your website. (Location 1235)
  • Measure. One mistake I see founders make at this stage is that they don’t measure the effectiveness of each channel. They buy ads but don’t track how much it costs to acquire each new customer based on that ad. They do SEO but don’t attribute where the traffic is coming from. (Location 1238)
  • You’ll want to track your cost (in dollars and time) and the results. Compare the results of each marketing approach with your initial rating in the ICE framework. (Location 1241)
  • there is one thing that tends to work well: doubling down on a successful approach rather than spreading your energy all over the place. (Location 1246)
  • You want to start by testing one approach that works quickly (e.g., cold outreach) and one that works slowly (e.g., Google SEO). (Location 1249)
  • You can also talk to their past employees to get the inside scoop. I’ve reached out to former employees of competitors on LinkedIn to say, “I’ve built a competitor to your former employer, and I’d love to chat about what’s working in our industry when it comes to marketing.” (Location 1261)
  • Another clever approach is the approach Ruben Gamez, founder of SignWell, takes. He told me, “When someone first visits your website, set a cookie with their referral source and another for the landing page. Then save those to your database when they sign up. (Location 1293)
  • “When selling SaaS, think of yourself as an unpaid expert who’s helping the prospect solve their problem using software.” (Location 1304)
  • People are busy, and following up until someone tells you they are no longer interested is the process that good salespeople follow. (Location 1323)
  • If Possible, Take Payment over the Phone (Location 1324)
  • Here are good questions to ask during sales demos: (Location 1327)
  • What Problem Are You Looking to Solve? Your demo is not a product tour; it’s proof you can solve their problem. (Location 1328)
  • How Big Is Your Organization? (Location 1338)
  • They should walk out of the sales demo better able to do their job—regardless of whether your product was a good fit. (Location 1343)
  • Toward the end of a sales demo, it’s good to get a sense of who else needs to weigh in on this decision. Are you talking to the decision maker? Does your prospect need to go back to a group? Is there any collateral you can provide, like a PDF or a guide, that will help them champion your product to their organization? (Location 1347)
  • Demonstrate How Your Tool Solves the Problem (Location 1351)
  • Here’s a hack: At Drip, anytime someone clicked “Book a Demo,” they got a pop-up that asked for their name and value metric (i.e., how many subscribers they had). If they put in a low number, they were redirected to a page with a video demo, a 10-minute screencast of me walking through the product. If they put in a high number, they were directed to our scheduling link to book a time for a more extensive conversation. (Location 1365)

Team

  • When building your team you should delegate roles, not tasks. (Location 1388)
  • Product. Product is focused on what to build and how it should function. (Location 1391)
  • Your first hire in this area will likely be once you’re above $1 million ARR, with a title like Product Manager. (Location 1391)
  • Remember that “Manager” at the end of a job title implies they manage a process, not people. “Manager” at the beginning of the title implies they manage people. (Location 1392)
  • Design. Design works with product and engineering to help define how new features should look while also weighing in on how they should function from a user’s perspective. (Location 1394)
  • Marketing. Marketing is focused on generating and converting inbound leads. (Location 1397)
  • Sales. Sales brings in qualified leads and closes deals. (Location 1402)
  • This role is divided into a Sales Development Representative (SDR) or Business Development Representative (BDR) who qualifies leads for an Account Executive (AE) to close the deals. (Location 1403)
  • Customer Support. Support answers incoming support emails, chats, and phone calls. (Location 1405)
  • Customer Success. Customer success focuses on getting customers to stick around; their goal is to help people get onboarded and not churn. (Location 1406)
  • Legal. Legal responsibilities are outsourced to an external lawyer, (Location 1411)
  • What Role Should I Fill Next? Being a founder means firing yourself from one job after another to focus on the high-level strategic roles the company needs you to handle. (Location 1415)
  • As a general rule: support is usually an early hire because it’s a repetitive task of lower value than other things a founder is typically focused on. (Location 1428)
  • However, if you’re a founder who’s really good at the technical side of things, my advice is different. I recommend you focus on building skills in sales and marketing and start hiring developers to get yourself out of the nuts and bolts of the code. (Location 1475)
  • There are two reasons for this. (Location 1477)
  • First, developers are gonna develop. If your sole focus is on the product, you will want to solve every business problem by developing. (Location 1478)
  • for bootstrappers, a lack of money isn’t what kills businesses. It’s founder burnout. (Location 1506)

Hiring Managers

  • I separate management into two components: supervision and leadership. (Location 1530)
  • A supervisor is someone who approves vacation time, gives reviews, and decides on salary increases. They basically handle the nuts and bolts. (Location 1530)
  • As you grow and transform from a product into a business, usually in the $20,000 to $40,000 MRR range, it’s time to consider bringing some project-level or owner-level thinkers onto your team. (Location 1543)
  • Task-level thinkers are team members who focus on their current or next task. They might be early in their career or get overwhelmed with more than a few sequential tasks on their plate. (Location 1545)
  • Project-level thinkers look ahead weeks or months and juggle multiple priorities. They often rely on team members to complete work that’s combined into a single deliverable. Project-level thinkers have advanced systems in place to track the myriad moving parts needed to successfully complete a project. (Location 1548)
  • Owner-level thinkers not only manage projects but also think about how to improve internal processes and bring ideas for experiments that can change the trajectory of the company. Owner-level thinkers look ahead months or years and consider strategic shifts that may need to take place to take the company to the next level. (Location 1551)
  • if you plan to sell the company at some point, the less the business relies on you, the better terms you’re likely to receive. (Location 1556)
  • Think of Your Job Description as a Sales Letter. Your job description should convince the person reading it that you have a fantastic company and that they should apply. (Location 1618)
  • Consider structuring profit sharing as a pool rather than a committed percentage to an individual. For example, instead of telling early employees that they’ll get 1%, 2%, or 3% of profits, have all key employees share in a 10% or 15% profit-sharing pool. (Location 1688)
  • Peldi Guilizzoni, founder and CEO of Balsamiq, wrote perhaps the best explanation of profit sharing I’ve seen. To read it fully, go to bit.ly/balsamiq-profit-sharing (Location 1692)

Do I Need a Cofounder?

  • Venture capitalists tend to look unfavorably on single founders, (Location 1703)
  • Are Your Skills Complementary? Too much overlap means you’ll argue over certain areas of the business and neglect others. (Location 1715)
  • How Well Do You Know This Person? (Location 1717)
  • Are You Protected If Things Don’t Go Well? (Location 1719)
  • How Much Value Does a Cofounder Add? The biggest question to ask yourself is: Will joining forces with this person make the company more valuable? (Location 1722)

80/20 SaaS Metrics

  • This section will help you narrow your focus to the core SaaS metrics that matter most (Location 1737)

Which Metrics Should I Track?

  • Your two most important metrics are MRR and month-over-month growth rate. (Location 1744)
  • far you’ve traveled and how fast you’re going. Every SaaS founder should look at these numbers on at least a weekly basis. (Location 1744)
  • But MRR and growth rate are lagging indicators. (Location 1746)
  • How healthy your business is When your revenue is going to plateau (Location 1750)
LOW: Cost to Acquire a Customer (CAC)
  • CAC is all the costs associated with landing new customers (e.g., marketing, advertising, sales) divided by the number of customers you acquired during that period. (Location 1760)
  • It’s a lot simpler to calculate CAC if you’re running ads. (Location 1765)
  • But if you’re not in that position, valuing your time at a certain rate (Location 1766)
  • How do you know if your CAC is too high? By calculating how long it’ll take to pay back the costs of acquiring each customer. (Location 1768)
  • With venture capital, the rule of thumb is that you should spend no more than one-third of your customer’s LTV or no more than one ACV. (Location 1774)
  • Most successful bootstrappers I know are in the two- to six-month payback period (Location 1776)
LOW: Sales Effort
  • Sales effort is a measure of the length of your sales cycle and includes the number of touch points required to make the sale. (Location 1781)
LOW: Churn
  • As a general rule, for most bootstrapped B2B SaaS businesses: Gross churn > 10% = Catastrophic Gross churn 8–10% = Not Good Gross churn 6–7% = Meh Gross churn 4–5% = Fine Gross churn 2–3% = Good Gross churn < 2% = Great (Location 1803)
  • Churn is such a critical metric because it helps you calculate when revenue will plateau. (Location 1811)
  • If you acquire $5,000 in new MRR each month and have a churn rate of 10%, that’s 5,000/0.10 = $50,000. If you don’t change something in your business, you will plateau at $50,000 in MRR. (Location 1816)
HIGH: Annual Contract Value (ACV)
  • ACV is the amount a SaaS customer will pay if they stick around for a year, whether you offer a yearly plan or calculate it based on 12 months of your monthly subscription cost. (Location 1823)
HIGH: Expansion Revenue
  • expansion revenue is when customers pay you more as they get more value from your product. (Location 1837)
  • When your expansion revenue is high enough, you can actually get to the point where your revenue is growing even when you’re not adding any new customers. (Location 1840)
HIGH: Referrals
  • The last critical SaaS metric is referrals, or how many new customers were referred by your existing ones. (Location 1843)
  • The best way I’ve seen for determining how many referrals you’re receiving is to ask how a customer heard about you at their point of sign-up. (Location 1847)
  • When you see that trials are converting well and customers are happy with your product, set up an automated email that goes out (Location 1850)
  • around the 60- or 90-day mark. Say something like, “So much of our business is based on referrals. If you’re enjoying our product, could you please pass the word along?” (Location 1851)

SaaS Cheat Code: Virality

  • When we talk about a SaaS product having virality, it means that every user you add has a viral coefficient greater than zero. You can count on each new customer bringing at least a fraction of a new customer within a particular time frame. (Location 1856)
  • Strong Viral Loop. When the value of your app is in how it connects people, you have a strong viral loop. (Location 1859)
  • Weak Viral Loops. Making your brand visible on customer-facing interfaces is another form of virality. (Location 1869)
  • it’s extremely difficult to retrofit virality into your product. If you want to build a viral product, start from the beginning and actively pursue the business ideas that lend themselves to strong viral loops. (Location 1881)

How Much Should I Worry about Churn?

  • Churn is the death of SaaS. I’ve seen multimillion-dollar acquisitions fall apart because of high churn. (Location 1892)
  • When you see a company with high churn, it’s a sign something’s not working. (Location 1895)
  • Until you have product-market fit, you should worry much more about why people are churning than the actual churn number. (Location 1898)
  • Once you have decent product-market fit, your churn rate becomes highly relevant because it’s how you know when you’re going to plateau, (Location 1902)
  • Generally speaking, the lower your product’s price point, the higher your churn. Some of the TinySeed companies that cater to hobbyists or very small businesses have churn in the 5% range, and while I’d love to see churn lower than that, it’s okay because they are in massive markets and have a very low cost to acquire new customers. (Location 1905)
Segmenting Churn
  • I like to segment by three things: pricing tiers, marketing channels, and time. (Location 1915)
  • I would recommend Aaron’s approach or using a tool like SegMetrics (built to solve this problem) or Mixpanel to allow you to segment your churn by marketing channel. (Location 1946)
  • The standard approaches are to send onboarding emails to orient them to your product (see Val Geisler’s Dinner Party Strategy) (Location 1959)

Mindset

Where Should I Focus My Time?

  • Effectiveness is when you do only the two tasks that actually drive your business forward. (Location 2070)
  • Risky areas require founder-level thinking. Certainties only require the ability to execute them and can be handed off to task- or project-level thinkers. (Location 2086)
  • As revenue grows, you should begin hiring so you can delegate your certainties. (Location 2088)
  • should focus your energy on areas of risk because risks move your business forward, and they require a level of problem-solving that is hard, if not impossible, to hire for at this stage of your business. (Location 2089)
  • In your personal life, money saves you hours. In your business, money saves you years. (Location 2108)
  • When people ask what my biggest regret has been as a founder, it’s that I stressed too much about things that were going to work out. I made roadblocks out of speed bumps. (Location 2193)
  • There are three clear benefits of being a part of a mastermind: (Location 2209)
  • Three of my favorite entrepreneurial communities are Indie Hackers, the Dynamite Circle, and of course, MicroConf. (Location 2225)
  • My advice: find a mentor or two. But no more. This keeps your information consumption at a reasonable level while allowing input from outside sources. (Location 2244)

How Can I Avoid Burnout?

  • But if you’re stuck doing things the company needs that you’re good at (but don’t like), that leads to burnout. (Location 2270)
  • The two biggest things that have helped me in my journey as a founder are masterminds and founder retreats. (Location 2305)
  • If you’re considering a retreat, several years ago Sherry wrote an ebook called The Zen Founder Guide to Founder Retreats that explains exactly what questions to ask yourself, the four steps to ensuring you have a successful retreat, the list of tools she recommends bringing along, and how to translate your insights into action for the next year. (Location 2328)