Greatest Hits

Rob Walling:
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He has started two unicorns, including WP Engine, of which I was an angel investor. It was my first ever angel investment back in 2011. And Jason has just been a longtime supporter of MicroConf and now TinySeed. He has given several talks at MicroConf, including one that is widely considered to be the best talk ever given at a MicroConf, and I think it’s the best talk ever about bootstrapping startups. And we talk about that in this episode. I actually struggled to title this episode because we talked about so many topics, including mistakes founders make in the early days. We wrap it up with a discussion about AI and where Jason feels like the opportunity would be if he was starting over today. But in the end, we cover some meaty topics and Jason is just so thoughtful and deliberate in his thinking and so clear in his thinking. 

I have infinite respect for him and it was a pleasure to have him on the show today. Jason’s actually going to be speaking at MicroConf US and Portland in just a couple months. Tickets are selling fast and we will sell this event out. MicroConf.com/US if you’re interested. And the promo code you’ll want to use is Rob 50 for $50 off. And with that, let’s dive into our conversation. 

Jason, Cohen, welcome to the show.  

Jason Cohen:
Hey, thanks for having me. It’s always great to talk.  

Rob Walling:
It feels criminal that this is your first appearance on startups to the rest of us.  

Jason Cohen:
I know. I don’t understand. Maybe because I was busy the last 15 years. I  

Rob Walling:
Don’t know. Yeah. What have you been up to, man, growing another unicorn? No, it really … I mean, you and I talk often enough that I just … And you’ve spoken at MicroConf so many times that it just feels like you’re a staple in the ecosystem. And when producer Ron and I were talking, it was like, how has Jason never been on the show? It’s not great.  

Jason Cohen:
Well, I mean, you’re an angel investor in WP Engine, so you’re probably happy that I stayed focused on that instead of doing podcasts.  

Rob Walling:
Heck, yes, man. That bought our house, paid cash for our house. It was great. So a lot of folks will be familiar with you as the founder of WP Engine, as well as SmartBear, which was the software company. And before that, both are unicorns at this point. And you’ve been a longtime blogger at asmartbear.com. Hundreds of essays, if I were to guess. But what did I miss in that intro? How else would you like folks to know who you are and what you do?  

Jason Cohen:
I think that’s good.That’s my best work.  

Rob Walling:
Well, that’s your best work in the rear view mirror. I want to call people’s attention to hidden multipliers at hiddenmultipliers.com. It’s your first book that you have for pre-order right now.  

Jason Cohen:
That’s right. Yeah. So I’m not here to promote it. Although maybe we can do another one where I am there to promote it. I don’t know. But yes, I’ve been writing for 18 years, like you said. But one of the things I felt was I’ve been writing on all these topics, but there’s no central idea. There’s no central framework. It’s just a bunch of random stuff. And so when things would come up in conversation or online or whatever, and I would say, “Oh yeah, I wrote about that over here. I wrote about it. ” It’s so scattered. And people would say things like, “Do you have just stuff about marketing?” And I’m thinking, “Yeah, kind of scattered over a million things.” It’s not very accessible. So the purpose of the book wasn’t just to take every idea and make it organized, but rather I thought, I wonder if I do have any central concepts. 

Do I have a philosophy? I don’t even know. And so for maybe a year, I just thought like, “I don’t know. I don’t know that if I have one.” And so I didn’t want to just write an anthology. But then there was this common thread I found in at least a lot of the things that I think, which is that there’s these small things that make an inordinate difference in companies. And of course, every company’s different and all that, so all those normal things apply. But there’s some things which are systematic and mechanical about how companies work or how people buy things or how human nature is, how teams work, something or even about AB testing and the math behind that, like certain things which are true because they’re built into how it normally works and that’s why these things where a small change can make a big difference. 

That’s why that’s so, I don’t want to say universal, it’s not, but so common because it’s based in some systematic fact about the world or how things work. And then another criteria I found that was interesting is, of course, if you can raise money or apply a lot of new money and teams to something, there’s many possibilities and that’s good. Maybe you should do that. But most of the time we have a team, we have a budget and we need to do things within that team and that budget. So if the feeling is, “Man, I’m not growing as fast as I want or I’m not as profitable as I want or I’m not getting this or that goal that I want. ” Usually the answer is not, “Oh, I got to go raise bunch of money.” Almost always, even if you have raised money, that’s usually not the answer. 

Usually it’s like, but we have people doing stuff, even if it’s one person and surely we could be doing something a little bit better. So this was this extra criteria that I thought was interesting to add on top of this small things make big effects. It’s systematic so it’s usually true. You can pretty much rely on it. And this idea of, I’ve got to do it with my current team and budget. So it has to be doing something differently, but not some kind of big investment or something like this. And I found that there were these things which fell into this category. So that’s how I defined this idea of a hidden multiplier, multiplier being this notion. And then hidden is another funny word. Sometimes these things are hidden just because you didn’t know it. Sometimes you did know it, but it’s on a to- do list with 10 things and you didn’t realize how important it was. 

So it’s hidden in that sense. I once had a great strategist tell me, a lot of times what’s wrong with a strategy is not that we didn’t know something, it’s that we didn’t realize how important that thing was. So these can be like that. Or maybe you did know it, but you didn’t know what to do or you were scared to do something about it. So without an explanation of what do I do, it just sort of hangs out there. And the form I see that in is people will say, “I already knew that. ” And then you look at their actions and you’re like, “Well, you’re not acting like you know that. ” So it’s like effectively you don’t know that, right? And so that’s what I mean by hidden. Somehow or another, you’re not taking advantage of it. So that’s what this book is, is like 10 of these hidden multipliers, one per chapter, just going in great depth, of course, about what is it, motivating it, proving it with examples, and then saying, of course, what to do.  

Rob Walling:
And I was surprised to hear that this is majority new material that you obviously use some concepts and ideas from your blog, but you’ve been hammered on this original work for what, a year now.  

Jason Cohen:
Yeah. I didn’t want it to just be an anthology or mix or rehash of the blog. But obviously there’s some stuff in there that is in the blog because these are … I’ve had certain ideas in the last 18 years, some of them are good. And so that’s only natural. But yeah, I didn’t want it to just be a rehash.  

Rob Walling:
There are a lot of founders out there that are successful and they never, but they aren’t public about their thought process or their mental frameworks. And maybe they don’t have any. Maybe they just figured out in its instinct, maybe they get lucky, whatever. Then there are folks that are successful and they are public about what made them successful. And then there’s two camps there. I’ll see someone do a talk and they’ll say, “This is why I was successful.” And you’re like, “No, it’s not. ” You’re full of shit. Either you’re lying to yourself or you’re lying to me, like you’re delusional. But then there is this small, small camp of folks, and this is all arbitrary designation based on my opinion or your opinion, who have found success and think critically about what they’ve done and try to extract higher level learnings that go beyond just their end of one or two and that tend to … When you hear what they say, Paul Grahams, one of these guys, Joel Spollsky, yourself, when you hear what they say, you’re like, “Yeah, no, that generally tracks. 

That’s a really unique insight that sounds obvious in retrospect, but no one has said it in that way before.” So I totally put you in that bucket and it’s very rare. There are not thousands of these people in the world in the startup space. Maybe there are hundreds. I don’t know if we were to quantify it. So I guess I’m just wondering how you got there. Have you always been a critical thinker analyzing your own behavior and what’s going on around you and trying to framework things or did this kind of evolve for you as you were starting companies or like, “Oh, I’m learning a thing and I should just share that with the world on this blog that you started in what, 2007 or 08?”  

Jason Cohen:
Right. For me, writing is thinking and I have this drive to teach. Both my parents were teachers. I think it’s literally in the DNA. And of course, we all know that if you want to learn something the best, you teach it. On the other hand, can you teach something you’ve never done? A lot of people do. This is just not me. So I think that’s another reason people like it is at least this came from experience. And so what generally happens is I’ll have a thought either because I observe it in some other company, I observe it in our own company, we’ve learned something, something went wrong, something went right, and that’ll give me an idea for a thing like maybe it’s a framework or a concept or a story or something. But in writing it out, I often find, wait, maybe that’s not right or maybe I don’t even agree with myself and I haven’t even published it yet. 

Or maybe I do like it and I’m just even more excited about it because, oh look, I’m finding other examples. I don’t know, I could get more excited. So I mean, I have hundreds of things in draft that I’ll never write because I don’t actually believe it or I haven’t figured it out well enough. I haven’t sorted it out well enough for myself to put it out there. So a lot of these things are, oh, it seemed to be right. We wrote it down, then we tried it at WP EngineSay, especially if it’s a framework. We probably, I mean, I can name them where we did, we tried it and then we iterated on that and we tried it again with a different team and then we iterated. And so the result when it comes out, it’s like, wow, this seems really thought out. It’s like, yeah, that’s because we actually did this and iterated on it and I tried to explain it as best as I could. 

And if you write for a long time, maybe you’re better at writing, hopefully, right? So okay, now I can do that. So yeah, often that’s where that comes from. Having said that, I don’t think the goal, at least not for me, is to convince everybody that I’m right. It’s equally valuable if someone reads an article of mine and says, “This is total crap. I don’t believe this at all. I believe the opposite. No, it’s this. ” That’s perfect because what’s happened is you’ve gained greater clarity on what you do believe, what is your philosophy or your values or how you operate or what’s important or how you … Something important you’ve now gotten greater clarity on because I was a foil that was not what you thought and that led you to what you do think in greater relief and that will make you better, make you stronger and clear in whatever direction you’re going. 

So to me, the goal is that, this kind of like, “Ooh, now I think X or now I’m clear on Y.” That’s the goal, which is not the same thing as agreeing, right? So that’s fun. Obviously there’s like, I don’t know, a constructive and not constructive way for people to say that online, you get both. But I love it when people have the opposite view. Also, we all know that for every piece of advice or observation of business, the opposite is true of some companies are successful and both it and its opposite are true of companies that fail. We know that all four of those are populated with companies, populated with examples. And so once again, there’s no way I’m going to think that that means I’m right all the time. But again, if someone can get clarity, that’s really useful. So how do you do that? 

You have to say something useful, something real, something specific, hopefully in a way that’s relatively well put so that it’s enjoyable to read. And by doing that, hopefully someone will get something out of it.  

Rob Walling:
I’m curious, a lot of this stuff that you write about has to come from firsthand experience because you’ve started four companies, two are unicorns, but you’re also an angel investor and an advisor. Were you kind of a founding member of Capital Factory in Austin? Am I remembering that correctly? So you’ve been exposed to dozens, if not hundreds of startups. Do you feel like more of your knowledge and information that you share comes from your firsthand experience or from the experience with other companies advising on the internet or otherwise?  

Jason Cohen:
I would say when it comes to specific things like this decision framework or this prioritization or this workshop, that’s coming from WP Engine. That’s coming because we tried things and this seemed to be something that worked for us or for some teams. And so that seemed worth sharing. When it comes to more strategic or high level long reaching things, some of that’s experienced my own experience, but a lot of that is like, oh man, I’ve seen this like 20 times, which obviously doesn’t mean I saw it in my own one to four examples. So the 30th time you hear someone pitch something and you go, “Oh my God, that’s coming from a breadth.” So I would say where personal psychological stuff obviously starts from myself, but a lot of that is in talking to other founders where there’s certain kinds of things where 80% of the time that I share, “Oh yeah, I felt like this or I felt like that. 

” And almost all the time the other person’s like, “Oh my God, I thought it was just me or I can’t believe you’re admitting that. ” And that again is some kind of, not universal, but pretty useful, good truth there. That’s coming from talking to other people, right? That’s the only validation that it’s not just me.  

Rob Walling:
So you have what I believe is widely agreed to be the best microConf talk that’s ever been given. And I know I make you blush when I say this, 

But that you mic dropped with this talk back in 20, I don’t remember if it was 13 or 14, but it’s called Designing the Ideal Bootstrap Business. And I was in the room when you gave that talk. And I was holding my head, I was like, “Oh,” as you were giving it, and then you got done and I turned to whoever was next to me and I said, “I don’t think I’ll ever give a talk that good. That’s the best talk I’ve ever seen.” It was huge and I’m serious. And it has lived on and I still believe I was trying to pull it up on YouTube right now, but I believe it might be the most popular talk on our … Yeah, of course it is. On our entire, what used to be the MicroConf channel has now been renamed to Rob Walling, but 510,000 views.  

Jason Cohen:
That’s awesome. Here’s something funny about that, which should be inspiring to you or to the listener and to myself when I’m thinking about things like my own book, which is I thought that that talk was haphazard. It didn’t have a good arc, it didn’t have like a narrative arc. I felt like I did have a good personal emotional close to it, but I didn’t feel like it came for full circle. I felt like it was a shotgun of different ideas rather than like a conceptual framework, a tree with branches. Instead, it was just like stuff everywhere. So I felt when I made it, I am confident that the individual ideas here are useful. So I think this talk will be useful. I just don’t think it’ll be good in … I mean, literary is too strong a word, but good in sort of these other kind of structural ways like a Seth Godin talk is, for example. 

So I was like, “Oh, well, hopefully being useful is good enough, especially for this audience, which I think it is. ” And yet, as you say, people loved it anyway. And so one of the lessons for me about that meta fact about it is I think when it comes to things that are more on the art side of things, going with what you just feel, what you are passionate about and the things you’re excited about, that’s actually good. That’s what people are here for. Probably every single idea in that talk you can read a blog post about somewhere. So that’s not really about everything’s a brand new invention. Although there were certain things in there that I, at least at the time, I hadn’t seen elsewhere, but they probably were elsewhere. I just hadn’t seen it, but it was more the exposition. So when I think about my book, there’s certain things like maybe it’s too long. 

Maybe I go into too much detail about certain things. I don’t write like Hemingway. I use long sentences and semicolons and M dashes. I don’t have tiny little sentences and I don’t write for a fifth grader and all that stuff. So is that bad because quote unquote, that’s what a business book should be, unquote, right? Well, I don’t. And so I think on that artistic side of things, I’m comfortable saying, “Well, I’m going to go with what I am.” And that talk is a good example of that for me.  

Rob Walling:
Yeah. And it’s inspired a lot of folks. I mean, I hear people mentioning it on podcasts and on Twitter to this day. So if folks haven’t watched that, it’s on YouTube and they should go find it. But I kind of want to contrast that or attach that to an essay you wrote called, Excuse me, is there a problem? Because in your talk about designing the ideal bootstrap business, there’s some filters for kind of finding an idea and finding the right type of business for bootstrappers, right? But if someone has a business that checks all those boxes, it’s recurring revenue, it’s a good market, there’s maybe no enterprise sales. If folks are solo, in your essay, excuse me, is there a problem, you show that maybe that’s still not good enough.  

Jason Cohen:
Yeah, it’s not. I mean, there’s so many things that have to go right for any company to work, right? And you’re right, that talk doesn’t cover them all and maybe it’s too hard to. But yeah, what about, it has to be possible to get to the customers. Even if there is a problem to be solved, can you find them and can you find them cheaply enough in the noise that is the internet? And then when you find them, can you convince them to buy you instead of the other 20 alternatives they could buy? What about your own psychology? Are you going to be able to last three years or are you going to crash out? So kind of no one article, I think, maybe a book length thing could do it, I don’t know, but no one article is going to capture the many things that have to go right. 

And so what do you do with that fact that many things have to go right? How should you react to that? So I think first of all, whatever is the weak link or one or two weak links, you really have to decide whether that’s okay and you have such overwhelming strength in some other areas that you can survive anyway or whether you really need to do something about it or it’s even a deal breaker. So let’s say the overwhelming weakness is the market’s very small. There’s only a hundred people that have it. Okay. There are certain overwhelming other things that could still make that okay like, well, it’s only just me, so I only need a couple of customers and those few people pay insane amounts of money. And I’m okay with the fact that if I lose one customer, the company might be over. 

And you can go down the line. And I already know who all hundred are because my co-founder has worked in the industry and literally knows 70 of the hundred people already to call. So there could be this overwhelming other thing that makes it okay. So again, there’s no absolutes in this business, right? But if there is a dramatic negative, there had better be some kind of … The question is, what else is true that makes this okay, that makes this still viable? And if you can’t really answer that, you’re like, “I don’t know, we’ll have good features.” It’s like, okay, then that’s not an answer.That’s what everyone says. So another thing is to tackle that thing first. So let’s suppose you’re like, “Well, I have this great idea for a product that would be really cool, but I’ve never done marketing before, so it’s hard for me to get customers.” Well, the typical thing an engineer does is go work on the product because it’s fun and you know how and it’s kind of why you’re doing this in the first place and all that. 

It’s exactly the wrong thing to do because the limiting factor here is, can you find customers? And if you build the product, you will have made no progress whatsoever on the question, can you go find customers? I know you can build a product, you’re an engineer. I just assume you can build a product. So doing so doesn’t help at all. It doesn’t de- risk the company at all. It doesn’t eliminate one of these at all. So instead you should be going and finding customers. You can then interview them and find out better what to build. And anyway, prove out to yourself that this weakness is not so much a weakness after all, and it won’t be a deal breaker after all because it’s not as bad as it seemed like it was. So there are a couple of things. It’s not the only things, but those are a few things you can do with this fact that it takes many, many things that are all an and. 

So probabilities that get multiplied, and that’s very bad because even if the probabilities are reasonable, like 70%. Yeah, but if you multiply 10 of them, the probability is really low. And by the way, a lot are not 70%. They’re like 10. And so why do a lot of companies … Why do most companies die? That’s why because all these things have to go right. And okay. So again, can you tackle the low things first and de- risk them or see whether that really is a deal breaker or not? Can you overwhelm some with outrageous other things? That’s good. Niching down is another one because it starts making the answer to some of these better. Am I the best product? Well, if the market is enormous, almost for sure not, but if I said, yeah, but for this exact customer, oh, maybe you can make literally the best product as defined by the customer if you’ve niched down enough. 

So that’s part of why you and I and many people say niche down because it allows you to be the best in fact and make some of these numbers and things get better. The market size gets smaller, but some of these other factors get better. That’s good.  

Rob Walling:
Yeah. In terms of niching down, I get asked the question, when should I niche down? How do I know if I should niche down? What are factors that you think about when a founder’s trying to be like, should I be horizontal? Should I pick a niche? Should I pick three verticals to start with and see what’s your framework for that?  

Jason Cohen:
With the caveat that of course it has to depend on what’s going on. I think you should always be focused on as narrow of a ideal customer profile as you can. But I think when people hear that, they think, “Oh, but that means I’m selling only to them and the rest of the market is off limits and that’s too limiting.” And I don’t believe that. In other words, when people say niche down, I think they either think, “I can’t talk to anyone else or I can only sell this market.” And that’s not how I observe it actually works. The way it actually works is you find this niche and you find this ideal customer and you talk only to them. And because you’ve been so specific, you can be so compelling with things like your advertising and your homepage message and what the price is and which features you choose to build because it’s so clear who you’re building for because you’ve narrowed it down so much that you know how to thrill them. 

So the first thing that happens is at least those people when they hit your website, they’ll know. So you can at least sell them.That’s a start because if you’re not that specific, you never get that benefit. That’s not good. But what else happens is most of us are not the ideal customer for any product and yet we buy them. So what’s happening? What’s happening is we see the product, there’s things that we consider to be strengths of weaknesses, which by the way, other people disagree what’s a strength and what’s a weakness. So you can’t even just say a low or high price is a strength or weakness. It depends on the observer. If I’m a consumer and it’s a high price, I probably don’t like it, but if it’s a luxury brand, I only like it if it’s a high price or a business may not want to buy a cheap piece of software because they just assume it won’t do what they need or the company will be gone. 

They’re only happy if it’s cost more. So is a high or low price of weakness. Again, it depends on the observer and that’s just true of almost everything. So what’s actually true is that your ideal customer sees the things that you are as strengths because of who they are and the things that you think are weaknesses they either don’t care about or they even are happy about it like a high price is sometimes like a good thing. So that’s the ideal customer, but everyone else, they’re still going through some sort of pros and cons or trade-off analysis and many of them will still pick your set of trade-offs. And because you are so specific about what you are, the trade-offs are clear. And when the trade-offs are clear, people are more willing to accept the weaknesses. And there’s data on this, which is very interesting. 

For example, products that have negative reviews that are specific about what is negative about the product have higher sales and fewer returns than other products with the same rating like 4.1 stars or whatever. Why? Because you were able to see what the weaknesses were and you can either decide, well, then I’m not buying it, which is fine, but if you do buy it, you already knew what it was. So when it comes and it has this thing you don’t like, you knew that. You already decided it was okay, so you don’t return it. And the fact that you know what it is instead of just like, geez, I don’t know what’s good or bad about this. The fact that you know what it is gives you more confidence to move forward. So that’s just all a long way of saying, wow, if I’m very specific about what I am, then my ideal customer will definitely buy, which is already a reason to do it, but like a hundred times larger market than that, will see that specificity as a reason to buy your set of trade-offs, even though they’re not quote unquote ideal and they buy anyway. 

So that’s a very long way of saying, that’s why I think everyone should niche down in this sense of having this narrow view of who you’re perfect for and staying focused on that because you won’t just sell there. So not niche down in the sense that that’s the only customer you’ll ever accept. That’s not what I mean. It’s the best way to get more customers. Now, of course, over time, you can expand what that is. When WP Engine first started, we were only for like small business, maybe medium sized. A lot of times it was going through freelancers, sometimes direct. And sure, four or five years in, we saw some more appetite from larger companies, but not for their homepages like it was for small and mid-size companies, it was for like campaigns in some country or something like this. It was a different use case for them. 

And it was large enough that we thought, oh, let’s actually spend tens of millions of dollars over a couple of years on sales and marketing and this and this and that to actually enter that with this other message and it was successful. But that was years later and it was an intentional thing and it was because, right? So of course you can expand that as you scale and you can apply more things to it. So you can do that. But even to this day, we have specific types of things that we focus on and we have more of it, but that’s because we have a thousand people and we can do that. We have the capacity to have a few things. So that can be in your future, but that’s why I say yes niche down, but maybe not the way you were thinking where you’re super limited by it.  

Rob Walling:
I mean, you started talking about WP Engine and I want to go back to the early days when you were starting it because you basically built a billion dollar company in what we might call a commodity space of hosting and you’re hosting WordPress, which is an open source thing. So anyone could have spun up exactly what you were doing with WP Engine.  

Jason Cohen:
And they did.  

Rob Walling:
And they did.  

Jason Cohen:
There’s like 20 or plus competitors easily.  

Rob Walling:
Yeah. So how did it work? How did you get ahead? How did you beat out all these other people who had the same idea or who were copycats or whatever? And part of this is that these days, if I were to start a startup right now, if I were to build a SaaS company, you know that you could at least half ass vibe code that in a few weeks, right? If I only spent a few months building it. So it’s this thing of like, well, the tech is not a moat and your tech was not a moat at the time, or at least the underlying hosting and such. So how did you win? How did you do so well with this?  

Jason Cohen:
Yeah. I mean, and as we were just saying earlier, it can be hard to tell. And I think one of the reasons why I’m somewhat credible in how I write is I’m never quite sure, is this really the reason? Did we win in spite of this or because of this or was it just that … And I also don’t know. And in fact, I’ve even written about how I don’t know. So it’s all like on offer as things that seem good, but the listener will have to decide for themselves what fits in their own mind and feels good. But my best idea is the following. The idea of managed hosting, which means it’s 10 times as expensive, but it’s also like multiple faster … The site loads multiple faster, like four times faster. We used to have a shirt. My blog is four times faster than your shirt was our first marketing swag. 

And things like security and service were also like really good compared to the cheap shared hostings, and it still is. So it was pay more, get more. And a shared hosts are just not designed for that. So to this day, they don’t really have that. But a new company could be … I think one of the things that you can do is when other people think it’s dumb or impossible, but it’s actually is possible, that’s usually … It’s not a moat because anyone could do it, but they don’t. So it’s a funny kind of a moat. We think of moats as it’s impossible for someone to do it, but there’s also like they just choose not to for various reasons. It could be ideological, it could be cultural. So the fact that we had great human support is something that like no VC wants you to have that because that’s expensive and it comes out of your gross margin. 

Maybe it means you’re quote unquote not a software company because your gross margin’s less than 70%. So an emphasis on service is something that like a funded company doesn’t want to do ever. In fact, if you look at our funded competitors, none of them have that. So the fact that we did do it, it’s not that they couldn’t have copied us, it’s that they wouldn’t have because it wasn’t in their nature, their culture, et cetera. In competitive analysis, we often think about their business structure or their features or their architecture and that you’re right, but the culture and attitude does matter too. Let’s not forget that companies don’t change that very often. And if they try to change it, they often fail to change it, right? Whether you want to call that a mode or not, I don’t care, but it’s a thing that prevents that kind of competition. 

Another thing is we were really, really good at execution. Now, traditionally, you don’t consider great execution a moat because again, you can’t stop someone else from having great execution. So it’s not really a mode. On the other hand, if you have great execution and most don’t in your field, that’s a reason to win. And there are certain fields where that’s not the case because everyone’s really good But like AI, in hard tech AI, everyone’s pretty good. So it’s not true that, I don’t know, Clog can simply out execute open AI.That’s not how you would think about it. But there are other fields and hosting was one and maybe grocery stores is one where you don’t want to say nobody, but almost nobody has any kind of innovation or will to do that or ability to do that or the culture to do that or whatever you want to say. 

And so if you execute really well, I mean, there just isn’t other people doing that. And so that was one of the things. So when you have, oh, I’m a first time entrepreneur, I want to stay small. I don’t really know what’s going on. And then this is my fourth company and I’m going really fast and I’m hiring really good people. And then when we raised money, which wasn’t for two years, because originally the idea was to bootstrap it again, it was the fourth bootstrap company. But even then we only raised a million dollars. It was not exactly like earth shattering quantities of money. And the next round after that was only two. Again, so eventually we raised a lot when we were a lot bigger, but at first that’s not what was going on. But still a million dollars is a lot more than nothing as every bootstrap will agree immediately. 

And so if we were just better at this and we have great people and even just a million dollars of working capital ahead, and if we put that to good use and we’re not dumb about it, yeah, we can probably simply out execute people. And that can matter in this field where there wasn’t good execution. So another thing we really nailed in 2012 was the pricing. The pricing was already pretty good, but we had some revelations talking to customers and hearing some stories. We had some revelations where we reset the prices, not dramatically, just like certain things in 2012. And that’s when we really took off. That’s like where the growth curve turns, bends and starts shooting up and never stopped shooting up. And so there was like this resonance that you might say with the pricing that was just exactly right. Now you could say it was a coincidence because other things, it could be. 

Again, even I don’t know in retrospect because I can’t rerun it holding other variables constant. So I don’t know. We were also going to word camps and talking to people maybe, and that certainly helped. So I just can’t really know, but we were reacting to what people said about pricing. So I have to think that has at least something to do with it, if not the majority effect. Yeah. I think this combination of things is why we just did really well and surpassed the sort of immediate competitors or even people that came later who couldn’t grow as fast and therefore never got close in terms of the size. And I’m not trying to say that size is what matters. It’s not true. In our case, that’s what happened. Well, at SmartBear, I wasn’t interested in making a unicorn. So I myself don’t always have that goal. 

In this case, that’s what we were doing. So I know I keep saying that, but it’s not like I think that’s the only thing that matters and far from it.  

Rob Walling:
And I want to ask you about brand and when you feel like brand starts coming into play, because some folks, you’ll see them online, you see them on Twitter, whatever. They’re startup founders and they’re like, “Ooh, I want to build a brand from the start and I want to do all the fun design and the this and the that. ” I’ve always taken the tact of, we might say this podcast has a brand or TinySeed or MicroConflict. When you say those things, people have a picture in their mind. But I didn’t go out to build the brand. I wanted to deliver a really interesting product that served the needs of people that then they loved it. And so then the brand comes out of the execution for me. And in the early days of MicroConf, there was no brand because they’re like, “What the fuck is Micro? 

Well, what is this thing?” But by the second or third year, it starts to have a meaning to people, right? So with all that said, I’m curious to hear your take on brand, if you thought about it in the early days, how you built it, and when do you feel like that momentum? Because at a certain point, there’s a conversation, oh, kind of higher end or really good WordPress hosting, what are they? And at a certain point, the list is two or three companies and WP Engine has always been on that list. And to me, that’s a really strong sign of brand. So what are your thoughts on all that?  

Jason Cohen:
I think even when you think about people who have a great brand, like personal brand online or like you just said, isn’t the origin story always that they were obsessed about some topic and they talked about it and they got good at the exposition and that’s where the brand came from. I mean, even like Mr. Beast or I don’t know, whatever your favorite YouTuber is on any topic, did they set out to create a brand that they now have or were they just … Sure they wanted viewers and stuff. They wanted to become known, but weren’t they obsessed with a topic or a thing or teaching physics or teaching? I think that a genuine place is where it comes from. And we see corporations try to build brand all the time and it always fails, right? Anytime they rebrand, everyone hates it. So that wasn’t so good. 

So that doesn’t seem like you can manufacture brand so well. Is brand a moat is an interesting question. I think the default answer is no. And the way you can tell is every company has a brand and it’s not true that every company has a moat. Just because it’s your identity doesn’t make it a moat. How do you tell when brand is really starting to matter either competitively at all or maybe a moat as opposed to just the identity of the thing, like a handle of the thing, is when customers are making buying decisions because of it. It doesn’t have to be the only reason, of course, but it has to be like top three reason. Everyone knows this, but like the classic, no one ever got fired buying IBM. That’s an example where the brand is a moat because the fact that you might buy IBM, even though it’s more expensive, it doesn’t have the features you want, it doesn’t this, it doesn’t that. 

And you bought anyway because of the brand. Okay. See, to me, that means the brand really is at least a competitive edge, if not a moat because even when you’re losing on dimensions, customers also care about, they buy you anyway.That’s what I mean by the brand mattering. So today Apple is like that. And even back in the day, Apple was like that. It was like an identity statement to have a Apple product. So that’s not just a brand, that’s like a statement and therefore it surpasses that. Again, I don’t know if you want to call it mode or not. It’s certainly a thing that you have that others can’t take away in that sense and it’s competitive. In that sense, it’s a moat. We don’t have to try to have a razor accurate definition of mode, I suppose. But if you call it like a semi-permanent competitive edge that others can’t remove, then that level of brand is a mote. 

But the general level of brand is not a moat. Just having a logo doesn’t make it a moat.  

Rob Walling:
WP engine has a brand, a strong brand in the WordPress managed hosting space. And it has since 2012, 2013. How did you do that? Was it execution first, people then loved you?  

Jason Cohen:
Yeah.  

Rob Walling:
That’s what it was.  

Jason Cohen:
Yeah, that’s it.  

Rob Walling:
Just got enough customers and enough people talking about it and they loved it and yeah, okay.  

Jason Cohen:
Yeah. And a good way to see that is like, let’s suppose our logo was different. Would our trajectory have been different? I don’t know, but my strong feeling is no. Okay. So that means the physical brand didn’t matter. It’s not like we picked the right color or something, right? We did need a consistent logo and color so that something was indelible in someone’s brain. Something was memorable. Something was a handle, right? So it has to be consistent. So to me, it’s sort of like the old thing about white space and braces in code. The studies show that the specific style of where you put the braces and stuff does not change readability or legibility. But the fact that everyone uses the same does. If different files have different styles, then people have a harder time or a slower time reading the code. So the main thing that’s important about a coding style is that you use one, but what you put in there doesn’t matter at all. 

It’s like pure art, purely like whatever you feel like. And so I feel like a brand is like that. You need consistency so that you have an identity, but the details of that are unlikely to be terribly useful. I mean, linear is a great product. It’s starting to beat Jira in a lot of ways because they’re design decisions and they’re focused on an ICP, by the way, laser focus on that. And it’s the user, not the buyer, which is super interesting. But if it weren’t called linear, it was called something, I mean, what does linear mean anyway? That actually sounds bad. It sounds like a bottleneck or something. So again, it just doesn’t matter. The fact that they’re super opinionated in design and that it’s fast, that’s what matters.  

Rob Walling:
So I want to wrap us up today by asking you a little bit about AI and specifically AI and how it affects founders who are starting new companies today because you’ve been building stuff for 20 years, 20 plus years, but as you look at AI, if you were to start your next company, how would you think about it as an opportunity? Is it a feature? Is it, would you build a wrapper? How would that impact your ideation and your, I guess your thought process and where the opportunities are and where the pitfalls are?  

Jason Cohen:
Yeah, it’s a big topic. First of all, I separate how I use AI operationally to do stuff like write code or right marketing from AI that’s in the product that the customers use, whether directly or indirectly. So first of all, take all that operational stuff. Let’s set that aside because I don’t think that’s what you were asking, but I find that in conversations, sometimes people start confusing that. It just makes it more difficult to deal with an already complicated or complex question, right? So let’s just ignore that. It is true that corporate budgets now are heavily biased toward things that are AI, whatever that means. And it’s a fuzzy thing. The companies themselves are not clear on what that means, so we have to be fuzzy. That tells me that whatever I do does need an AI component somehow because that’s where the budgets are. 

It doesn’t tell me what to build, but the idea of like, well, I just won’t have AI at all. It’ll just be a typical thing. That could be a good idea, by the way. But I would worry that I’ll be fighting a budget battle and an attention battle. And so that doesn’t feel like the easiest path. Okay. So however, the wrong way to think of it is I need an AI product. That may be how the budget is. So that may be down the line, sometimes how you talk about it. But this is another thing I see people doing wrong constantly, which is thinking of AI as if people want AI as the problem they’re solving. So let me put that differently. People have the same problems today as they’ve always had. Marketers want more leads. Sales wants to convert more leads to a sale that stay. 

Customer service wants to have good customer service and get good results from customers. Engineers want to write code that doesn’t have bugs, that’s manageable, product managers want to build. Okay. Everyone wants the same prop that they’ve always wanted. What you don’t say is like, “I need AI in sales.” What you do say is, “If I could 10X my outbound volume with the same conversion rate, that would sure be nice.” So people talk about AI like it’s part of the problem to solve or that people want AI false. AI is part of the solution space. How is it that I can deliver more of what they already wanted because of AI? AI has made something possible that was previously impossible that they already wanted. So as soon as it’s an AI voice thing, I’m like, “I don’t know what that means.” Whereas if you said, for restaurants, we take over their phone tree because we can do the menu, we can do the ordering, we can do hours, but we do it on the first ring and in 40 languages. 

Now, behind there is voice AI. Otherwise, that’s not possible. But the thing you’re solving is your phone. Your phone calls are now automated and awesome. And so I think when you stay focused on the problem that already existed and AI is why you can do something that was never done before or better, that’s the right way to think of it. So I’d be thinking about AI as the solution space, not as people say and they even say in their pitch decks as the problem space. Another thing I would do is I would say, look, AI doesn’t really work. I know it’s like, but when it does, it’s amazing. Oh, I know. When it does is a pretty big qualifier. When I research stuff for the book, I would say at least half the time it’s simply wrong. Even when you do the deep summary, deep research, it sounds good when they say it and then I go read the primary sources and it’s like completely wrong half the time. 

And so what do we do with that? Because people say, “Well, over time will get better.” All right, but you’re building a company now. And people have been saying that for years, and they’re right, but you’re building a company now. So here’s what I do with that information. To me, there’s three kind of categories of AI products right now. One is AI that the incumbents are inserting into existing products. So this is like notion, and you can talk to Notion and sheets and you can talk to sheets. That’s not going very well. It’s not very useful, right? Yeah. Okay, whatever. But of course they’re doing that. What else are they going to do? I would do it too, but okay. The second kind is AI for experts. I’m already a software developer. Here’s AI that helps me write code. I’m already a marketing writer. Here’s AI that helps me write articles or do social media or something. 

I’m already a designer, here’s AI that helps me design. So AI for professionals. Bad news is that you’re selling to only those professionals, not like the whole world or something, and you’re up against the incumbents. Okay, but if as a startup, that’s what you are. The good news is it’s okay that the AI isn’t perfect because it’s an expert. So when the code is wrong, the expert can fix it when the writing’s bad or wrong, the marketer can fix it and so on. So it handles the fact that the AI is not perfect. This is why I like this category. The third category is AI for newbs or AI from muggles, I like to say. I’m not a software engineer. I want to make an app. I’m not a writer. I want to write a book. I’m not a designer. I want a website. Now, that’s good. 

I’m not saying that’s bad. I get it. It’s empowering. It’s good. I’m not against it by any means when we’re talking about what business I would build. And the problem here is you get 70%, 80%, and then you’re stuck and as a newb, you are actually stuck. When I vibe code the SaaS and I don’t know anything about code and I’m like 80%, I can’t build a SaaS company and I don’t. There’s a lot of, “I did this. ” I know, but it’s not a SaaS company. If that’s what you were going for, that didn’t happen. And you can go down the line, like if you’re not this or that, it’s not going to … And you can’t fix it. You can’t take it downline, you can’t because you’re stuck. So the good news is that the market’s bigger because there’s 100 times or a thousand times more people that want a website than people that can build a website. 

So hooray. But here’s the biggest problem is that the fact that AI doesn’t really work is like a massive hindrance, possibly a 100% hindrance. So that’s okay. If that’s what you want to do, take that. If you like that trade-off, go for it. I’m not judging. I’m just saying what I think the trade-offs are. For me personally, I’m always a problem solution sort of a entrepreneur. Everything I’ve done is like, oh, I can make this better, whatever. There’s this corporate thing that needs to be done or could be done. I can make it better. The typical B2B mindset. So that’s what I have. So they’re this center part of AI doesn’t work yet, so let’s give it to people for whom that weakness is not a deal breaker. So if I were doing a company, I would be solving a real problem that already existed. 

Of course, that has budget, probably budget for AI. Okay, fine, I get it. I would use AI to make something possible that was previously impossible, and I would do it for experts so that the fact that AI didn’t work well, what did not mean the product was useless or bad. Another thing is, and this was also true of WP Engine actually. WP engine from the beginning and even now, we say like, “Oh, we make your site fast.” And of course, a fast website is good, search engines rank it higher, people don’t bounce off of it as much. There’s data that shows e-commerce sites that are fast, convert better. Media sites get more hits, which means more money. Perhaps it goes without saying, but I just said it, my fast sites are better and literally make more money for people like e-commerce and media. So okay, that’s good. 

But if your site is 30% faster, is that enough to motivate someone to care, to search, to migrate their site, to not migrate away later? Is that good enough? I don’t know. It’s pretty weak. The reason we said four times faster is we had customer after customer where they had literally data showing that. And anyway, when it’s that much faster, you can just feel it. You can just see like, “Holy crap, what the hell’s going on? ” If that’s the reaction, that’s all you have to know. So when it’s not just quote unquote better or faster, more efficient, cheaper, but five times better, three times cheaper, da, da, da, da, right? Where you could measure it, but you don’t even need to to see like, holy crap when it’s that much. Then something mundane and commodity like hosting and how fast it is, how security is. 

Even a commodity thing, if it’s not 30% but three, five, 10 X, it’s no longer a commodity thing. That’s now a substantially different thing busting you out, differentiating, earning a higher price and et cetera. So I say that in general, that’s part of why we went in the commodity market and WP engines because we had a couple of things like speed and scale and security and service, which were like that. But it’s also, I would bring back to the AI conversation. When the AI helps me write, but in the end of the day, I’m still writing an article a day, just a little bit faster. I don’t know, that’s something, but I’m not terribly compelled. But when I go from writing one article a week to two articles a day and they’re good, okay, that’s like dramatically changing what’s going on. Now do I want? 

I personally don’t want to do that, but like, okay, that’s a product, right? Or I couldn’t respond to this many, I don’t know, posts on Twitter, whatever you’re supposed to do in social media, right? But now with this, you can. Okay. So if it’s in this multiple of saving money, increasing time, having outcomes, now maybe that’s really valuable and I’ll be interested in that. So that’s another thing I would expect from my AI. If AI is supposed to be so revolutionary, how come it’s only increasing my performance by 20%? It’s just not worth the hassle and the wonder about where this is all going. So I would also be looking for something where the AI can really make me 10X. In coding, it’s not. All the studies in real engineering departments is not that AI makes them 10 times better. The only people who claim that are the people selling AI products, the users of it, there might be individuals claiming that on Twitter because it’s something to say, but all the studies show that’s not true. 

What I find in coding though is there are certain places where it absolutely is 10 or 100 X. If I need to use a library I’ve never used before to do something and it’s like, “Oh, just use this and it does. It just works.” I’m like, “Okay, in 10 minutes, you definitely save me a couple of days.” There’s no doubt, right? But there’s other areas like a big code base with a hundred developers where it’s just like, I mean, it’s just wrong so much. It’s just you’re wrestling with it. It’s actually kind of slower than just doing it. So to me, it’s contextual. The question is, when is AI coding a big 10Xer and when is it not? Is actually the question. So I’m saying that again, because that’s also part of my answer of what would I build? I would build something like that where contextually AI really can be like that. 

So something as broad as coding, that’s too broad and it’s not even true that AI in that broad of a context is a 10Xer. So I try to find a product where it really is true that AI today, even with its failings, really is 3Xing something. Hopefully 3Xing more value for the customer, not just saving money. Saving money is a much weaker pitch. Hopefully it’s 3Xing the value and it really does and the weaknesses and the failings are fixed by the customer or we’ve picked a domain where AI really is much better, not like general AI, I guess. So these are the kinds of things I would go through as I would tick through it. Notice I didn’t talk about competition at all and I wouldn’t. My assumption is that every market of any reasonable size will be flooded with AI products. Maybe it already is, but my assumption is if it isn’t already, it’s going to be. 

So, oh well, what am I supposed to do about that? And what moat do I have? Nothing because we all use the same models. We are all making prompts. And as you say, tech is usually not a moat. Okay, if you have very, very, very … We can all pick out special cases where the tech is the moat, but that’s the point.That’s why it’s usually not. So there’s no moats there. Everyone’s doing this stuff. So what am I supposed to do when the market is crowded? We’re all using the same tech more or less. And again, I think, well, then I’ve just got to have such a great vision for my product, my ideal narrow customer, how I build for them, how good it is for that particular customer, because not everyone’s going after that particular customer. So how can I just make an absolutely amazing product for that? 

Trusting in the thing we talked about earlier that other people will also like that and want to join in. And so how can I find things like that that adhere to those other criteria? There’s a lot of Venn circles here, right? But of course there are because we just said all these things have to go right for the company to work. So yeah, that’s right. It’s going to be a vendor argument with lots of circles and a center that might not even be there. It might not even be a center, which is kind of the point. But those are the kinds of things I would look at. Now, again, not trying to imply there’s no other way to build a company, right? Of course, there’ll be successes that don’t do what I just said, like we’ve been saying. But in the spirit of that bootstrap machine where these are the things I would do that I think increase your chance of success or remove some kind of risk or at least lean into some kind of strength you have or go with the grain of what’s going on instead of against the grain and therefore just like hopefully make all these little probabilities be a little bit better than maybe they would have been.That’s what I would do. 

And of course, no matter what I thought as customers actually used it, I would discover I was right about some things and wrong about some things and stuff I didn’t think of. So of course I would have to be following my nose after that, but this is what I would start with and then of course be following my nose as soon as I could intersect it with real customers.  

Rob Walling:
Amazing. It’s a great note to end it on. Thanks for coming on the show. I want to have you back when you release the book. We can talk, probably dig into some of the content of that. Folks want to pre-order it. I pre-ordered my very own copy this morning. It’s at hiddenmultipliers.com. And you and I are going to be hanging out in Portland, Oregon here in just a few months. You’re speaking at MicroConf again. I think it’s been about 10 years since your last MicroConf talk and I’m really looking forward to hearing from you in April.  

Jason Cohen:
Yeah. The talk is about what to do when growth slows.  

Rob Walling:
Yeah. It’s just a topic for many, many people.  

Jason Cohen:
It is. I think nowadays a lot of people are seeing that large and small companies. And of course, a lot of people want to grow anyway, whether it’s slowing or not. So it’s just a useful thing anyway.  

Rob Walling:
It’s going to be good. Yeah. MicroConf.com/us if you’d like to pick up your ticket. It’s April, I think it’s 14th through the 16th in Portland, Oregon. And then if folks want to keep up with you on X, Twitter, you are a smartbear and of course a smartbear.com where all your essays live. So thanks again, man. It’s been great having you.  

Jason Cohen:
It was fun. Thanks.  

Rob Walling:
Thanks again to Jason for joining me on the show today. And I meant it when I said I want to have him back on when his book is live. I think there’s so much more to talk about with him that it both enlightens me and I think educates bootstrappers as a whole. As someone who has, I think he’s bootstrapped three companies and raised buckets of money for the fourth for WP Engine. He really just has a very grounded sense about him and about how he thinks about growing companies. As a reminder, his book is Hidden Multipliers. You can get it at hiddenmultipliers.com. And he will be speaking in just a couple months at MicroConf US in Portland, microConf.com/US if you want to buy a ticket and hang out with Jason and I for a couple days in mid-April. Thanks again for joining me this week and every week. 

This is Rob Walling signing off from episode 817.  

Rob Walling:
If you’re looking to hire world-class talent super fast, you should check out today’s sponsor, G two I. They not only give you access to over 8,000 pre-vetted engineers, they clear away the chaos and clutter when it comes to hiring. There’s no AI generated resumes and no time wasters, just solid candidates with at least five years of proven experience. G two I does the vetting for you with customized live technical interviews so you can actually see how a candidate might work with your team, companies like Meta, Microsoft and Shop Monkey Trust G two I. And so do first time founders who just need to get this higher right the first time. If you need a pre-vetted engineer to join your team, quickly head to G2 i.co/ MicroConf to start your seven day free trial. And when you mention this podcast, you’ll get $1,500 off your first invoice. That’s G2 i.co/ MicroConf. Sales marketing, product and development. Those are the core four elements of building a SaaS company. And if you go on social media or you listen to podcasts or you see founders who are trying to succeed and failing over and over, usually they’re missing one or more of these. 

You are listening to startups. For the Rest Of Us, I’m your host, Rob Walling, and in this episode I answer listener questions covering topics from whether I should find a sales and marketing co-founder dealing with big company customers that make a lot of changes to your deals. This deal is getting worse all the time. What to do with huge traffic of users who aren’t in your ICP and more listener questions before we get rolling on those. If you are thinking that you might sell your SaaS company in the next few years and you expect that your a RR will be between two and 20 million when you go to market, you should reach out to interval@discretioncapital.com. A r From his many appearances, I think he’s up to 10 or 12 appearances on this show and he’s been on Hot Tech Tuesdays. He comes on to explain venture funding and growth equity and he for years has been my go-to person for B2B SaaS M and a and discretion Capital advises B2B SaaS founders who are looking to get incredible, incredible outcomes for their SaaS doing between two and 20 million a RR. They have a great track record of dealing with strategics and private equity in a way that can optimize your outcome. Discretion has been a long time partner of MicroConf and TinySeed and if you’re curious, even if you’re not planning on selling in the next six to 12 months, but you want to reach out, have a conversation about how to optimize the value of your business discretion capital.com. And with that, let’s roll into our first listener question.  

Speaker 2:
Hey Rob, love the podcast. I listen to an episode every day on my evening walks. My question is, should I find a business co-founder? As a technical founder, I built the MVP myself, now comes sales and marketing, which I have no experience in. Should I look for a business co-founder to handle that side of the company or hire an agency or a contractor or even do it myself? This is different to the usual question of whether to find a technical co-founder and comes with a different set of pain points that I would love to hear your thoughts on. Thanks.  

Rob Walling:
So as he said, this is a variation of a question that I get on this show. What do we think? At least every month? I get it. I don’t always answer it, but it’s always, Hey, I’m a developer. Should I find a sales and marketing? I don’t call ’em a business co-founder, by the way. What does a business person do? What do they set up a bank account and file for an LLC? If they don’t have sales and or marketing experience and the ability to execute in this space, they don’t get half the company because the most valuable things in a SaaS business, the most valuable skills I’ve talked about are sales and marketing. Depending on there are some SaaS you can build with those sales, right? So I’m going to group them together, but you can uncouple them. If you build a true self-serve SaaS, then there is no sales. 

So you can remove that and realize it’s just all about marketing, all about driving leads and converting, but sales and marketing and then a product like the ability to decide to follow that gut, to find product-market fit, to decide what gets built, what gets built into the product, what features get built, how they get built, even if you don’t build them yourself, right? That’s product and then development, which is still a crucial skill, but it is lower on the hierarchy. I’ve seen so many companies, SaaS companies succeed with development not being that strong and sales and marketing being extremely strong. Now, longer term they have technical debt, their feature velocity slows down. But it’s amazing what you can go back and solve if you’ve bootstrapped to two, three, $4 million in a RR because your sales and marketing are so strong and technical debt is nothing that I want or that you want as a developer, but it is something that can be fixable. 

So what I want to do instead of just answering this question is I actually want to outline, it’s a new framework ish. It’s probably technically not a framework, but it is maybe a mental model is a better way to put it. And since I do get this question or a variation of it so often this is what helps me build these rules of thumb. And for this one, this question of should I get a co-founder to do X, Y, Z or should I hire it out? Should I outsource it? Should I hire my first employee to do it? I want to reflect on what I call the core four, which are, in my opinion, the most crucial aspects of building, launching and growing a SaaS company. So these are the four skill sets or areas of expertise that in a perfect world you would have all of them on your founding team and they’re very, very difficult to outsource. 

Certainly hiring someone on Upwork is not going to get these done. Best case, you’re going to find someone very expensive who’s very knowledgeable, who can maybe do these. And when I look at all the, I’ve talked about this, how there are dozens of TinySeed companies doing seven or eight figures in a RR and when I go down this list, none of them hired for or outsourced any of these core four before they were doing about one and a half to 2 million a RR when I used to run and build my companies, I never outsourced these core four until I was doing seven figures of a RR. So I think my rule of thumb is probably going to be, hey, in a perfect world, maybe 2 million a RR. Still, I could see as you hit a million, you could think about hiring out some of these, especially that development is one of them. There’s a stage early on where I think if you hire, you can hire competent people and manage them if you yourself are a developer. 

That’s the thing with these Core four is it becomes so much easier to hire for them and then to manage them if you’ve done them yourself. And so there is a difference here. Were you a developer even if you’re not coding anymore, have you hired and managed developers in the past then hiring a developer, not co-founder, but like a founding engineer or an employee number one or someone who is going to write a lot of the core product code that is feasible? It’s feasible to do that, but if you are not a dev and you’ve never managed devs, then no, it’s not that it’s impossible. There are certainly some companies that do it and you might be listening to this and be like, Hey, that’s me. And there are founders like Craig Hewitt who’ve done it. There are a handful of TinySeed companies, it’s not very many that don’t have a developer or co-founder, but the number one struggle that they have inevitably month after month is we have too many bugs. 

New agency wants to rewrite our entire code base. We can’t make progress because we can’t ship features fast enough and it just becomes the number one headwind for them over the long term. And I think if you removed that headwind by them having a founding engineer or a dev co-founder who really owned the code base, it’d be a significantly different business in almost every case that I’ve seen. So what are the core four? Well I’ve already defined them in the last five minutes. Sales, marketing, product and development. Those are the core four elements of a SaaS company and if you go on social media or you listen to podcasts or you see founders who are trying to succeed and failing over and over, usually they’re missing one or more of these. Usually they’re really good at product and maybe development too. Maybe they teach themselves how to code, but they really aren’t that good at sales and marketing. 

And by sales and marketing, I don’t mean posting on Twitter, I don’t mean audience building because that is not a core skillset of building a SaaS company as you’ve heard me rant about. And then there are some folks who are really good at sales and marketing and they start a company without product knowledge and they hire an engineer or an agency to build their product and they can kickstart that product to something based on their audience size or based on their reach or how good they’re at driving SEO traffic. But they inevitably hit a couple things. Number one, they can’t find product-market fit and their churn is extremely high. I’ve talked about the four stages of product-market fit on my YouTube channel. I dunno that I brought it into this podcast yet, but I’ll have to at some point. But all that said, the high churn is a sign of non-existent or weak product-market fit. 

And the big kind of info marketers or the marketers that I’ve seen who’ve tried to lean true SaaS and who don’t know product well, they don’t know what they should build. They don’t really know how to iterate on a product because when you’re an infomarketer, it’s just the headline, right? Hey, what does this thing do to you? This helps make you a million dollars great product inside. Does it really matter what’s in it? People pay you a one time fee and if they never use it, they is like many people ask for a refund versus if you’re building SaaS, you have to be able to take feedback and iterate and know how software works and be able to build something people want and are willing to pay for. And that’s really hard and that is that’s the job of the founder. That’s the product skillset. 

I’ve also seen sales and marketing founders with no development expertise and that’s where you get into the code bases that just you basically grind to a halt after 12, 18, 24 months because of the technical debt. So the core four are the four skill sets that in a perfect world I want to see on every founding team, and this is, it’s not the only way to do it, it’s not a hundred percent, but boy, 90 plus percent, 95%, these are the companies that I see just hitting on all cylinders. Sometimes the core four are spread across three co-founders, sometimes it’s two and every once in a while you get a Ruben Gomez who has all four. You get an Iran Galran who has all four of these who came on and talked about selling gym desk for it was a majority buy for 32.5 million. That’s the headline number, but it’s implied that the valuation was higher than that and he in fact has all four of these and I could go on there. 

There are other folks, but it is a rare combination to have it in one individual. And so the reason I’m saying all of this is with that mental framework in mind, the question is do you have the core four? And if your answer is no, then the question is are you willing to learn the ones that you don’t have? And I’m not saying you have to be 100% certain that you can be a master of all these because let’s be honest, none of us, even those that have tried to do all four of these as a single founder, none of us master them. But can you do them well enough to scrap and get by and build something that people want? And if the answer is yes and you’re willing to try, then I would say you don’t need a co-founder if you feel like you have the ability to potentially do well enough at these to get along because as a founder, you’re usually going to be Jack or Jill of all the trades and a master of none of them, then no, you don’t need a co-founder. 

But the more common answer to this is people say, I don’t want to learn this or it’s going to take me too long, or can’t I just hire for this? Won’t that be faster? No, it won’t be faster and it’s much, much more likely to fail. That’s what I’m saying. That’s what I’ve seen across the thousands and thousands of bootstrapped, mostly bootstrap SaaS companies that I’ve interacted with across the last 20 years of doing this. So if you’re willing to learn and develop and grow into all four of these, then I’d say a no co-founder. Now if you’re not, I see there’s still a couple options. One is you get a co-founder or you, as I said, you hire that you need a founder level person. So let’s just put, if you’re not willing to learn them, then one option is to get a founder level person in that place, whether you give them equity or whether you’re paying a full salary so to speak. 

But there’s also one other option, which is to build your product to basically restrict your idea and probably your growth to make up for this deficiency of only having the core three or the core two. Notice how core two and core three don’t sound nearly as poetic as Core four, implying that perhaps Core four is the right way to think about it. What I’m saying is you can limit your product ideas or your growth if you build a product where you don’t need all of the four. So what are examples of that? Well, I think you always need product expertise. Someone needs to decide what are we? This is founder level. You can’t build something people want by accident. It almost never happens and you need some type of product mind of deciding what gets built, how it gets built in what order, listening to customers getting all this stuff done to build a great product. 

So I don’t think you can get around that one period. You’re going to want to learn that hiring a developer, hiring a project manager at an agency. No, this isn’t it. This product expertise is probably the biggest thing that I see missing on teams that just can’t get it right and can’t find that market fit and can’t iterate to make better and better products for their customers. So let’s say product is some knowledge of what to build in what order I think is critical. So let’s say can you build something that doesn’t need development though? Well, you’re not going to build a full-blown SaaS app with that because everything needs development even these days with no code. If you are going to build Drip or Gym Desk or Sign Well or Al or any of the full-blown SaaS apps, you need development skills. So you have to restrict yourself if you’re going to not need development, and I think you can build simple apps with no code and I think you can vibe code. 

You’ve heard us talk on the show, you can vibe code Simpler apps. If you recall, I had an analogy of having Derek Grimer over to my house and he and I with really no carpentry skills. We could build an outhouse that would be fine and would stand up and not tip over. We could build a shed like a tool shed the moment he and I tried to build a garage or a single family home or a two story home or a commercial building, that’s when it falls over because he and I would basically be vibe building small structures and at a certain point it just tips over and fails. That’s what Vibe Coating does is you can build a little utility, it’ll work great. I’m going to take a PDF, turn it into audio fine go vibe code that I’m sure it’ll be fine. It’s not hard to maintain. 

It’s 10 lines of code, 50 lines of code, whatever, whatever it winds up being, you’re set. So what I’m saying is if you don’t want to have development requirements, if you don’t want to need development skill on your team, then you need to pick something very simple and minimalistic and something that can either be built out with the existing no-code tools or with five coding. The problem is how are you going to know? I could look at it and say, oh, that’s too complicated. You need a developer, but how are you going to know? I dunno, ask a friend, ask a developer as far as I can take it is if you want to try to get around development, you can’t just build what everyone else is building when they are a developer or when they have developers. That I think is a huge fallacy. 

So what about not having sales expertise and not wanting to learn it? Well pick an app that is marketing only that doesn’t need sales, and this is kind of the indie hacker dream, right? It’s the bootstrapper dream of 15, 20 years ago. Self-serve SaaS usually has a lower price point, usually has higher churn. It depends on the space, but you can do that. It’s rarer these days and in fact, unfortunately I guess for those who want to do that, the fastest growing companies and the ones that grow into the seven and eight figures within my investment portfolio of 200, what is it? It’s 224 companies, but it’s about to bump up into the two thirties about to fund the next TinySeed batch, but the ones that are growing the fastest are doing sales inevitably. I mean when we started Drip, I wanted it to be self-serve and then what I realized is people would come in with a million person list and I’m like, I don’t remember what the pricing was, but let’s say it was a thousand dollars, $2,000 a month. 

Well, they did at least want to have one or two conversations and that was worth it because of lifetime value with net negative churn and the lifetime value of one or $2,000 a month for a long, long, long time, it’s just totally worth it. And so if you want to be wildly successful and grow fast, still grow organically, but grow really quickly, you will inevitably want to learn how to do sales. But what I’m saying is you can certainly get off the ground. I don’t think I did any sales calls until we were at 10 or 15, probably 15 or 20,000 MRR with Drip and then I started doing ’em and realized, oh my gosh, I closed so many more deals and we were growing faster. Then I went and hired a customer success person to not only do the sales calls but then to also do customer success and get people onboarded. 

So what’s the last of the core four is marketing. How do you get around not having marketing? Well, I mean I guess you could think about it if you were really good at sales and you’re really good at outbound and you have a good network and your unique advantage is you have a huge network within a space you could do not a ton of marketing. If you’re in that position, then good If you’re not and you’re just going to build cold and build an app in a space you don’t have a bunch of reach in. This is where step one businesses work. This is why they work is not only do I think step one businesses are simpler apps and so they kind of can check the box of need less development to maybe where they could be built with no code or with vibe coding. 

But at marketplaces where if you go to search MicroConf list of 80 app marketplaces, and I don’t know how many we have on the list at this point, but these are the Shopify app stores, the HubSpot, the Heroku, all these add-ons that you can build. It’s not that you don’t need any marketing, but you just need to learn one channel with a step one business. And this is why stair stepping works, and this is why I preach it to folks, especially where it’s your first time or if you don’t have the core four, you should get a co-founder or you should step one, you should stair step. I mean I think the more I think about it and the more I dug into this topic that’s now my answer to this and I’ll likely take what I’ve just said on the podcast the past 20 minutes and put it into my next book because it feels like when you get to a certain point, you make a decision, you’re like, oh, that’s the right decision. 

It slotted in for me, it just clicked for me of like, yeah, if you’re going to ask this question as the question asker did, should I get a sales and marketing? Or if you’re a sales and marketing and you’re looking for a developer, my question is going to be do you have all the core four? And if you don’t, maybe get a co-founder or founder of a person. And if not, if you don’t want to do that, then you need to limit yourself to ideas to where you don’t need the core four. And someone might come in and say, well, isn’t customer support a core four or customer success or I don’t know what is their legal operations? Hr? No, they’re not core to SaaS companies. You’ll figure this out. It’s project management. Customer support is responding to emails and tickets and chat customer success and getting people onboarded. 

These are all disciplines, but they’re all things that founders can do. And if you do them, obviously the better you do them, the better off your reputation and the brand you build. But even if you don’t do them that well, if you really execute on the core four product dev, sales and marketing, you can still build an incredible business with, unfortunately it’s not a path I would take, but with crappy support, with crappy customer success, with crappy internal operations and messy finances and blah blah, blah. Now when you go to raise money or when you go to sell, it’ll all come to come back to haunt you, but you get the idea of what I’m saying. I’m just talking about building the product and getting to a point of having revenue and having significant revenue and growth and product-market fit and feeling like, oh, I’ve built something great. So all that said in answer to the question of I’m a solo technical founder, should I hire someone out? I think I’ve answered it here with the first 20 minutes of this podcast episode. So thanks for that question. Hope it was helpful. Now let’s roll into our next question.  

Speaker 3:
Hi Rob. I have a question about startups doing deals with much larger companies. I’m in talks with a very large company and things are going well, but every now and then they’ll come back to me and say, management can’t do this even though we agreed on it or they want to change that part of the deal. And it seems unfair, like they’re taking two bites of the apple. They know that I’m the ultimate decision maker within my company, and so I’m not going to play this. I have to ask my wife card. I wonder if you have any suggestions for how to deal with this sort of tactic that larger companies play when doing business with smaller companies? Thank you.  

Rob Walling:
Yeah, this is a good question Anon. Thanks for asking. So there’s a couple separate questions here, a couple nuances. One is you’re saying, how do I deal with big customers just changing the deal? And that’s the first question. The second one is, and then they blame it on, it’s the used car thing where it’s like, oh, my manager said, right, they blame it on this other person and that’s how they get around it. I think I’ll start with the second one. You don’t have to tell them upfront that you are the solo co-founder and the solo decision maker. You can be vague about it when you get into these deals and you can play the same game of like, well, no, my co-founder didn’t agree. You can also have even policies like, you know what? Our policy doesn’t allow us to do that. There are things that you can bring to play to also blame, and if you’re in the middle of a deal now obviously that is not going to make sense, but from here on I think it’s something that you might want to do such that you can blame an external factor in the same way that they’re doing. 

Aside from that, the question is their big company, they’re throwing their weight around, they’re changing the deal. Yeah, they do that and big companies can do that and it sucks, and I don’t know of an easy way around that other than to say, no, we just don’t do that. We aren’t allowed to do that, or we can do that, but it’s an extra thousand dollars upfront or it’s an extra five grand a year. That’s our enterprise plan. Now that price goes up, you get to make that choice of it. Feeling unfair is one thing, but it being a bad deal for you is another. And when I worked in construction, one of the project managers would, he told me several times, I always liked this, he said, there are no bad jobs, meaning we would bid jobs, right? We’d estimate our is a $5 million job and sometimes you’re high and sometimes you’re low, sometimes you get it, sometimes you don’t. 

But he said, there are no bad jobs. There are only jobs without enough money in them, meaning even jobs that are complete grind, if you make a load of money, it doesn’t matter and within reason, not a bad idea. And so my big thing is make it worth your while. Know that you are pricing these deals to the point where even as they change the deal over time, you’re still okay with it. So if you’re doing an enterprise with procurement and marking up your Ts and Cs, to me it’s a minimum $35,000 a year contract. That’s USD and I see people doing $250,000 a year contracts. I say people, these are B2B SaaS companies, right in TinySeed some outside of that. And so you just have to make sure there’s enough money in it to make you worthwhile and this is the hassle of it cuts both ways. 

Big deals are great. They put a bunch of MRR on your books and they’re annual and they don’t tend to churn and there’s all that, and big deals suck because of everything you’re laying out because of all the time it takes. So whether you do it from the start and you price it accordingly such that dealing with the headache is worth it or whether you get into it and if they really start jerking you around changing the deal, you just say, we can’t do it, and you’re willing to lose the deal or you say, we can do it and it’s this extra cost, realizing that you’re willing to lose the deal, maybe that’s a way to play it. The big thing, I was giving a founder advice a couple of weeks ago and I said, the biggest thing you don’t want to do is quote them a price that if they say yes, you say, oh shit, and you don’t actually want to do it. 

Make sure there’s enough money in it that if they say yes, you’re relieved and you’re like, wow, this is totally worth it. There are no bad jobs, only jobs without enough money in them. So thanks for that question. I hope it was helpful. My next question is not a question at all, but a word of thanks from anonymous. He says, Hey Rob, just wanted to drop you a message to thank you for your content and podcast, which I’ve listened to for a long time. I started a bootstrap side project in 2018 that became my full-time focus in 2021. I’ve now exited this week for a life-changing sum of money, and this was sent looks like four or five months ago in mid 2025, back to his email, he says it was a slow burn, but a worthwhile one. Thank you. Keep up the good work as I believe the work you do is vitally important. Exit strategy has helped me during this process as well. I’ll be tuning in again next Tuesday. Exit strategy, if you don’t know, is my latest book, exit strategy book.com if you want to check it out. But thank you so much for the email anonymous. It really means a lot to hear from folks like you who’ve been impacted by the pod. And now let’s dive into our final question of the day.  

Speaker 4:
Hey Rob, how’s it going? I’m Marcelo from Brazil. I’m a listener of the podcast for quite some time right now. I love the show, love the content, and yeah, I’m the founder of SaaS platform that’s called Beauty Forge. We’re mostly focused on generating PDF templates using LLM and using no-code builder to generate PDFs at scale. So my main ICP now is mostly SaaS who need to generate lots of different PDF DF templates like okay, n to generates invoice reports and stuff like that. And no-code builders also use all the product, and I usually had 30 to 40 signups every week on my product, but because of my page that I made, which was create your PDF in seconds, query your PDF template in seconds using ai, I began to receive a lot of traffic from the internet and trying to generate one-off documents. So I received 400 new subscribers each week, and so around 2000 subscribers per month, and I tried to build an MVP around it. 

I figured most of the users would be like B two cso, one time payment, no recurrent low tickets, and the product didn’t go through the MVP. So I figured, okay, I should abandon this product, but what do I do with all this audience that I’m getting on my subscribers? Do I diverge them to another product as an affiliate link? Do I take down the page and stop receiving these users altogether because they are actually taking a cost to me because on my onboarding they use a lot of the features to try the product out, but yeah, I don’t think I want to sell to them. So what’s your hint on how to act on that? Thank you.  

Rob Walling:
This feels like a nuanced question, and it’s almost like having a free plan. Should I kill the free plan? I don’t know if you ever fully free plan or not, but you’re getting, I mean, I’ve seen stuff like this before where you kind of have non ICP customers because they only want to do one-off things, but enough of them stick around that it makes it worthwhile. That’s what I would try to do is actually look, if a hundred percent of them, there’s no value to you and it’s not generating any backlinks. I would think with a tool like this, you’d be getting back links. Is there no virality to it? This is kind of like a free plan question. I think that’s why it clicked in my mind of being similar. If this blog post slash tool or this blog post that is bringing in marketing leads truly is no one’s converting and there’s no virality and it’s not bringing any backlinks, so it’s not bringing any SEO juice, so it’s not bringing any of the benefits of a potential free plan and that’s costing you money, then yeah, I’m not sure why I would keep this around, but something in the back of my mind says, I feel like maybe you should be or are getting some backlinks from it. 

I feel like you’re getting some value from it. It’s just a gut feel and I can’t prove that to you, but I would want to get more data about is this worthwhile leaving this up? I hate to turn away from a source of traffic that could potentially, even if it’s a low conversion rate of these folks that actually stick around and become customers, is that worthwhile? Now, if they’re high churn, then no. If it drives your churn up, then that’s not worth the weight on the business. But I feel like I would do a little more investigating and potentially ask someone more experience with this type of thing. If you have an advisor or if you have a founder who’s further along or hire a growth coach or someone who can kind of help you dig into it and see it with a fresh set of eyes, that’s probably what I would think about. 

You can do this yourself too, but of course it’s hard when you’re kind of embedded in the business and you have your preconceived notions of it. While I definitely don’t like the idea of having people coming in and using my SaaS tool one time costing me money, support headaches, it messes with your metrics. Then it’s like, well, we got, like you said, hundreds of signups, but our conversion rate to paid is whatever is 2% and it should be 10 or 15%, but it’s muddied. That’s annoying. And so I think I would do a bit more research, not even research, but dig into the numbers as much as you can to see if there’s any value. And then if not, then yeah, I don’t see, could you put it on affiliate, an affiliation? Sure, you’re going to make tens of dollars a month, maybe hundreds. I’ve tended, in my career, I’ve made huge sums of money from a small number of things, and anytime I had this idea of, oh, I’m just going to like this, do an affiliate thing, they’re set up and linking out, and then I’m tracking the affiliate down, and then in the end I make in the lifetime of the entire deal, thousands of dollars, a few thousand dollars versus if I just took that time and put it into my SaaS. 

The compounding of of the enterprise value of every dollar of MRR, as you’ve heard me talk about on this show before, is worth so much more than that, and I just value the focus. So again, it’s up to you. You’ve been thinking about this probably for months, and I’ve been thinking about it for about four and a half minutes, so take that with a grain of salt, but that is my gut feeling based on the info you gave. So thanks for that question, Marcelo. I hope it was helpful and that wraps us up for today. Thanks as always for joining me. I’m actually running low on listener questions, and so if you have a question for the show, please do go to startup For the Rest Of Us dot com. Click ask a question in the top nav, and you can send audio, video or text, audio and video. Go to the top of the stack as well as any intermediate to later stage question. I’ll still answer beginner questions, but I just think there’s more meat and more interesting variety in the ones that are folks that are, if it’s questions that would be for someone doing at least five or 10 K of MRR up into the seven and eight figures of a RR as a SaaS company, those are the ones that I really want to tackle on the show. So thanks as always for listening. This is Rob Walling signing off from episode 807.  

Rob Walling:
Welcome to a very special episode of Startups For the Rest Of Us. I’m your host, Rob Walling. On this podcast, we believe that startups are not just about growth at all costs. They’re about building a business that creates and supports the life that you want to live, and that retaining control and independence, whether you raise money or not, is such a powerful way to stay in line with your values. You can build an incredible life-changing business, hopefully without burning out and without moving to a major startup hub or begging venture capitalists for money. Since this show started more than 15 years ago, it’s been about helping founders like you build sustainable, profitable, sane companies. And the mission of this show plus my books plus MicroConf TinySeed and everything else that I do is to multiply the world’s population of independent self-sustaining startups. I mentioned at the top that this is a special episode and I’m going to keep that as a spoiler. 

If you stick around to the end, I’ll let you know why I feel that In this episode, I’m going to dive into the 12 Commandments of Startups For the Rest Of Us. Before I do that, I want to let you know that early bird tickets from MicroConf US 2026 are on sale. The event is in Portland, Oregon, April 12th through the 14th. Right now, ticket prices are as low as they ever will be, and we have sold out our last three or four events. Ticket prices will go up on October 22nd or when the first a hundred tickets have sold. If you’re planning to come, should get your ticket. MicroConf dot com slash us use promo code Rob 50 for $50 off. 

So let’s talk about the 12 commandments of startups For the Rest Of Us. I originally started thinking about is there a list of rules of thumb rules, ideas, thoughts that folks can take away as they bootstrap or mostly bootstrap their companies? I considered calling them the X Commandments of bootstrapping or the X Commandments of SaaS, but none of that really captured it because bootstrapping can be building a great little lifestyle business or it can mean being an ambitious founder trying to get to seven figures and to talk about SaaS is too broad because isn’t there venture-backed SaaS and there’s HubSpot and then there’s an Indie Hacker project doing five grand a month. So I noodled on this for a while and I realized, you know what, these X Commandments and I didn’t know how many there would be when I started, are really more of a distillation of things that I’ve said on this podcast, certainly over the past six or seven years since I’ve been solo on it. 

But even before then, you can hear the belief behind why we do the show. And so today I want to go through these 12 ideas, these thoughts, these rules of thumb, these commandments as I’m calling them. And I think over time I will wind up adding to this. This is not a complete list. Even as I created this list for this episode, I thought to myself, what am I leaving out? And I know there are a few things that are certainly being left out. Also, I don’t think anyone wants to listen to a 60 minute episode of me running through these. So without further ado, let’s dive in to my first of 12 commandments. Number one is nuance beats absolutes. And the idea behind each of these is it’s either a way to improve your thinking as a founder or to measure how you think or its advice to help you increase your chance of success as you build that bootstrapped or mostly bootstrapped startup. 

So again, number one is nuance beats absolutes. There’s a temptation online, especially in founder circles, and frankly, there’s a temptation in politics, certainly in the US and I think in most of the world right now, to think in these extremes, to think in absolutes, to use words like always do this, never do that. Venture capital is always bad. Bootstrapping is always the best or the worst. Marketing doesn’t work. Marketing is tricking people. You should never do marketing, you should always do marketing. But in reality, the truth is more complicated. It’s much more helpful to think in nuance than in extremes. It is very, very rare that an answer is extremely black and white. And I say this as someone who is a left brain software engineer who got two engineering degrees, and when I came into the startup game, I wanted to really believe that there were absolute truths that I had to adhere to or if I adhered to these truths and if I followed these steps and these blueprints that people were trying to sell me, that I would have success with an online business. 

But in fact, the truth is more complicated and there are rules of thumb. You hear me say them on this podcast, you hear me jokingly say, don’t do B2C. Now, do I really mean that there are zero B2C companies that have ever survived or that you should never, ever, ever do them? No. What I mean is you are decreasing your chance of success by bootstrapping B2C, a two-sided marketplace, et cetera, et cetera. Well, we’re going to touch on some of my don’ts a little later. So on this podcast, I’m pretty careful not to say always and never, but to often say, eh, 95% of the time, 95 times out of 198 times out of a hundred, I think this is a good rule of thumb and look, this same goes for pricing strategies and feature decisions and hiring. Learning to think with nuance and seeing spectrums instead of binaries can make you a better founder and honestly, a better human. 

The real world is actually shades of gray and the startup space and bootstrapping is no different. So the next time you hear someone say, oh, you should never take funding because it’s just not true, and I’ve disproven that with TinySeed that the funding is actually founder friendly and every founder you hear talk about TinySeed says, wow, funding. It’s not evil. Who would’ve thought even though there has been a narrative with Bootstrappers that I mean really in 20, was it 17? I think it was 2017, maybe 2018 when I started talking about funding and how fund strapping at the time was becoming a thing. I got real pushback at MicroConf of people saying, oh, no funding, it’s bad, it’s bad, and I didn’t believe it then, right? My book Start small, stay small in 2010 has a paragraph that’s like I’m not anti venture capital. I think it’s a great tool. 

It’s like a shovel. You’ve heard me use this an analogy. If you needed dig a whole, then use it, and if you don’t, then don’t. But I’ve just always been against the narrative that funding of any kind is the only way to accomplish these things. Anytime you hear someone talk about product-market fit as I’ve hid it or I haven’t, or do you have it? It’s helpful to think of it with nuance to think of it as a spectrum instead of a binary commandment. Number two is learn how to make hard decisions with incomplete information. You’ve heard this one before. If you’re a long time listener, I couldn’t have a list of advice without touching on a few of the classics. I promise not all of them will be things you’ve heard me say over and over, but the idea behind this thought is that things will never be as clear as you want them to be. 

You’ll almost never have 100% of the data you wish you had. In fact, this is maybe what I’ll say, never. I don’t think I’ve ever had a hundred percent of the data I wish I had when I’m making a decision as a founder in an early stage startup, if you work for a Fortune 500 company and you have a million customers and you can survey them and get statistically significant opinions, maybe you’ll have a hundred percent that I don’t know. I’ve never been in that situation. And founders who wait for certainty wind up paralyzed while your competitors ship. The competitors who are making hard decisions within complete information and moving quickly will outpace you. So being able to make hard calls in the face of incomplete or messy information or mixed signals is a core founder skill that you need to embody for those nerds listening. 

You can think of it like bey and updates. You gather what you can, you make the best decision possible, then you course correct as you learn more because progress beats perfection every time. Learn how to make hard decisions with incomplete information. It is a skill that you will have to practice. You’ll have to hone your founder gut. I talk about how to do this in the mindset chapter at the end of the SaaS playbook, but the high level is be around founders who generally make good decisions, see how they think about them, get their advice. This can be in a mastermind or an advisor or an investor or a co-founder. I have run into people over the years that just made better decisions than I did, and I didn’t understand why founders specifically and I observed them. A lot of these folks I’ve had on this podcast, and when you hear their thought process, it’s enlightening and you can start to learn how they think, not just about the end result, not just the decisions they make, but what goes on in their head. 

And that’s part of why I interview founders, successful founders on this show is so you can hear that that’s partly why I come up with frameworks or I talk about my own internal thought processes so that you can potentially learn from someone who may be a bit ahead of you. The third commandment is to avoid the classic traps. These are the classic mistakes I’ve laid out on this podcast and I’ve put eight of them under this one bullet point. I cheated just a little bit, but if you recall, I had an episode that was seven things you should never Do. It was spurred on by a question from Dan Andrews of the tropical MBA podcast, and then a couple episodes later I added an eighth, and when I say never, you know what I mean? You can break the rules, but it’s learn the rules and get good enough at them that you learn when and how you should break them. 

So very quickly, what are my eight classic mistakes? I’ll probably add to these over time too, but the total number of these have stayed at eight since I recorded those episodes a year or two ago. Number one is don’t bootstrap a two-sided marketplace unless you already have one. Side number two is don’t start a B2C app when you are leaning towards bootstrapping or mostly bootstrapping SaaS. Number three is don’t build a second product just because the first one stopped growing and that one has a bit more nuance. Ruben and I recorded an entire episode about, well, there are exceptions, and there are some TinySeed companies that have convinced me that they should in fact build a second product. So is this correct? 95% of the time? Yeah, probably, but there are some exceptions as with all of these things. Number four is don’t try to define a new category of software from scratch. 

And you just heard an example of someone who did this, Colin from status skater was on just a few episodes ago and they have succeeded at it, but if you listen to him, he says, don’t do it. It was very, very hard and it took them like 11 years to get to the success that they potentially could have achieved much earlier on. The same thing holds with bootstrapping two set of marketplaces. Don’t start a B2C app. Every time I talk about these on X Twitter, on YouTube, on this podcast, a few people comment and say, well, that’s all I know. And then a bunch of people say, yeah, tried it. It was like eating glass. That was actually a quote from someone who’s like, I successfully did this, and I said, oh, was it easy? Would you do it again? And the response was, it was like eating glass. 

So what does that tell you about this list? Without knowing the rules and knowing when you should break them, probably a good idea to think about staying within the lines for now. Number five is don’t translate your app into multiple languages too early. Usually it’s, oh, I’ve stopped growing, so I’m going to translate to Spanish, German, and French, and that’s usually not the reason that you stop growing. Number six is don’t stop at surface level fixes. Dig deeper into root causes. Don’t just say, oh, my churn is high, therefore I’m going to use some churn reduction tactics. Usually the deeper root causes that you haven’t built something people want and churn reduction tactics are just going to mask that. And again, I spent a full episode talking about these in episode 6 85 came out Halloween of 2023 if you want to hear the full discussion. 

Number seven is don’t use a portfolio launch strategy, meaning spraying multiple products at once to see what sticks. Number eight is, don’t take outside funding and then start a bunch of side projects. So this was one commandment with eight traps and my hope is that you’re avoiding these and saving yourself months or years of wasted energy commandment Number four is don’t build without evidence. I phrased this very carefully. I could say never build without validating, but I find that this term validating, he puts in air quotes, makes people think that there is a way to get to 100% confidence that you’ve validated that this idea will be successful and that’s not the case. What validation is, or in this case evidence because I said don’t build without evidence. It’s evidence that says if you build this, it might be something people want and it points you in the direction of solving a problem that people slash businesses are willing to pay for. 

Evidence does not mean you have iron clad proof, but it’s better than nothing. So evidence includes things like customer conversations. It includes things like putting a landing page up and seeing how many emails you can acquire and then talking to those folks. It might include pre-selling, it might not. Folks who say validation don’t work and then spend two or three months nights and weekends or frankly full-time and then launch something to crickets and then post on Reddit, hacker News X Twitter and say, oh, I build something. How do I market it catastrophic and it pains me to see this over and over and over. There’s a reason that I came up with the 2 2200 framework you’ve heard me talk about. It’s exactly for this bullet. It’s two hours of research. Then if you make it past that point, you have some evidence that there’s some demand. 

Then you do 20 hours of a smoke test customer conversations and you let it, is there good evidence? Is there evidence for or against it? And then the 200 hours is building an MVP, whether that’s with no code with AI help or you’re just coding something. Or even with human automation, you have a VA on the backend who is doing the actual work instead of the code. That’s the point of that framework and whether you follow any framework I come up with or someone else’s framework, don’t build without evidence. The successful serial entrepreneurs that I see succeeding over and over, they usually start with a gut feel and then they gather evidence through conversations, landing pages, et cetera, et cetera. You saw Jason Cohen do this with WP Engine. You saw Ruben Gomez do this with Sewell. You saw Derek Reimer doing it with SAVI Cal, you saw me do it with Drip. 

You saw on and on and on probably every TinySeed or frankly every founder that I’ve interviewed on startups For the Rest Of Us, almost without exception either at a minimum had the themselves and I would say, if you have the problem yourself, your customer is zero. Now go out and find out, does anyone else have this problem and is anyone else willing to pay for it? Those are the questions you’re trying to answer, and most of the folks who come on the show did something upfront, not all, but most of them gathered some evidence instead of just purely going on a gut feel, spraying and praying Commandment number five is that marketing beats product. I know it’s a tough sell to talk to a bunch of builders and let them know that your skillset is actually less important in entrepreneurial success than learning how to market and sell. 

This was a very hard pill for me to swallow as a software developer, say 20 years ago, 22 years ago, trying to get out of my day job launching side projects because I’d spent so much time developing this skill writing code since I was eight years old. I thought that was the hard part, but it feels like no matter how many times I say this or any other successful founder says it about, Hey, distribution is more important than the code, right? Marketing and selling is more important than what you build. It seems like there’s always going to be developers posting on social media, okay, I built it now do I market it? Or worse yet, I’m a non-technical founder and I paid an agency $30,000 to build this. Now how do I market it? And that’s really tough. We’ve all seen really shitty products that are making millions, tens of millions, hundreds of millions of dollars. 

When people say, wow, man, have you seen Salesforce? It’s such a catastrophe, man. HubSpot is so tough to use. It’s so complicated. So you’re kind of saying it’s not a great product, right? Maybe it does a lot, but it’s not well architected or the UX or whatever it is that you’re saying in that sentence, and yet it’s a successful product. And why is that? They marketed really well. They sold really well. One could also say they were early. I mean depending on Salesforce or whatever, but even these days, new products that come out of the gate and succeed quickly usually have someone who really knows how to market and sell behind. It is extremely, extremely rare and extremely, extremely lucky for someone to build a legit like seven or eight figure business without marketing or sales acumen. Beyond that, there’s this old quote and I always misattribute it, but it’s from an advertising, one of the Mad Men advertising execs in the fifties and sixties. 

It might be Eugene Schwartz, it might be David Ogilvy, but the quote is, good marketing will make a bad product fail faster. And in terms of SaaS, obviously we see bad products that are actually poorly designed, but I mean more that a bad product is probably something that no one wants. You have a solution to a problem that no one really cares about, and even if you then have good marketing, it’s still not going to save that. I saw that in the early days of Drip. We actually did have a good product. It was very well constructed and a decent marketing acumen, but even those two things, if you don’t find product-market fit, that’s what those words mean, right? Is that you have built something that businesses want and are willing to pay for. If you don’t have it, then even being a good builder and a good marketer, you can then still fail. 

And so that’s why SaaS is so tough is that you need to learn to market and sell and you should know how to build or frankly be able to co-found or hire someone to do these things with. I won’t go into how hard it is to hire folks to write good code and market, but it is definitely a balance and a challenge. Bottom line is if you don’t know how to market beyond social media tweeting about your launch and putting it on product hunt, you’re damn near doomed. You’re going to wind up selling to people who want to follow your entrepreneurial journey. So it’s like other aspiring entrepreneurs who tend to be super price sensitive, high churn, just want to check out new tools, not an ideal customer base to build any type of sustainable business around. To summarize this one, there are just about 20 B2B SaaS marketing approaches. 

I’ve listed ’em in the SaaS playbook, understanding which ones fit, which business models, how to prioritize them, learning how to execute on one of them, two of them, three of them, and then building business that use those skills. It’s an incredible advantage that will pay dividends for years if not decades, on your founder journey. Marketing beats product, learn how to do it commandment number six is to have fewer customers, better customers. There is a myth with venture capital if you’re listening to venture capitalists who want to scale to hundreds of millions or billions in revenue, but there’s also a myth among, I don’t know, it’s the B2C founders who want to charge five bucks, 10 bucks, 20 bucks a month. There’s a myth that you need massive scale to succeed, but the math on SaaS doesn’t really support that. You want to be thinking about building a product that is high priced enough, and this is if you’re doing a step three business, well, you know this third step approach, step one, businesses that only need to scale to two grand, five grand, 10 grand a month. 

Obviously you can be lower priced, but if you really want to build a seven or eight figure SaaS company with net negative churn, you want to think about having higher pricing and you want to think about having a few hundred high value happy customers that you can build into a multimillion dollar business. 10,000 customers sounds sexy, but it is a nightmare for support. It is a nightmare if you don’t have the process or the resources to be ready for it. More customers means more support, it means more churn, and it usually means more stress. I want to be careful here, and I’m not saying you can only build a successful business by charging a hundred, 200, $300 a month and up. That’s just not true even with SaaS, even with bootstrapping, but the idea here is try to think about how to solve a pain point that will keep people sticking around that can potentially lower your customer count rather than increase it and then focus on those customers, your ideal customer profile. 

These are the right customers, rather than just going for volume and getting caught up in that idea of how can I serve as many customers as possible? Of course you always want to do that, but also how can I choose customers who are going to really need and really love this product? And the problem it solves? Commandment number seven is to respect the platform, but fear the platform. Platform risk is tough and you shouldn’t necessarily avoid it. Whole hog, there are I think seven or eight levels of platform risk that I defined on this very show episode 735. So it’s not as if sending email through SendGrid or hosting on AWS is the same amount of platform risk as having a Shopify app where all of your new customers come from Shopify, all of your existing customers are on Shopify, and they can kick you out of the app store or just decide to charge you a 50% cut of your revenue off the top because they decide to. 

Those are different levels of platform risk. So respect the platform. Fear the platform involves educating yourself on which levels of platform risk you have. Do you have customer concentration risk? Do you have new incoming customer risks? Do you have the ability to be shut down? Is that your risk? What’s the switching cost? Is there kind of an equivalent that you could switch to? These are all things that you want to understand about platform risk, and again, I don’t say avoid platform risk. It’s very, very difficult if not almost impossible to totally avoid platform risk. And again, you’ll hear it in that episode 7 35 where I’m talking about hosting your own web server in your closet and your own email server and maintaining all that. That’s the way to avoid platform risk. And even then, aren’t you reliant on your home internet service? You kind of are. 

So the idea here is know what you’re getting into. Much like someone who says, I will never raise funding. Know what you’re getting into. Much like someone who says, I don’t want to work more than 20 hours a week. I never want to hire employees. I don’t want to do marketing or sales. Just know what you’re getting into by saying those things. Know that you are potentially and almost inevitably limiting growth or with platform risk that you are taking on some risk. That’s okay. We are nuanced thinkers on this podcast, so we can say, oh, it is okay to have some platform risk and to realize that if I have all my code on an EC2 instance with Amazon and I have written and maintained all that code, that there is of course some Amazon platform risk, but that risk is not equivalent to if I have built an app in no code on Bubble or Airtable, and this is where having a nuanced view can help you know what you’re getting into. 

When I talk about stair stepping, I don’t mind even heavy levels of platform risk with step one and step two businesses because I know that those are a little more squishy and maybe even a little more disposable because these are not designed to be seven or eight figure companies. They’re designed to be great little lifestyle businesses that can do two grand, five grand, 10, 20 grand a month, and so I’m willing to take a little more risk with them in order to get the upside because there are advantages to being on a platform, but whatever you do with the platform, learn the risks, respect the platform, fear the platform commandment number eight should sound familiar. Build your network, not your audience. An audience gives you reach, but a network gives you leverage so your audience might retweet you, whereas your network might introduce you to your first 10 customers or help you find your first hire, or if you decide to go down this route, you’re first investor, the relationships that you build in your network will outlast any audience, any social platform, your email list algorithm changes. 

There are folks out there who say, if you want to start a SaaS, just build an audience on social media, and that is some of the worst advice that I hear in our space. Don’t get me wrong, an audience is helpful. It really is, but it’s not worth the time that it takes to build it, not for SaaS. If you want to sell info products, if you want to sell courses, if you want to sell memberships, if you want to sell consulting, I do think an audience is extremely helpful, but with SaaS, folks want to use a tool and even with an audience, as Jason Cohen said of, I forget what he’s 20 or 30,000 email subscribers or our SaaS subscribers, he got two customers when he announced WP Engine to his audience, even with my audience of 20 or 30,000 at the time when we launched Drip, we got up to seven or 8,000 MRR and then plateaued hard with high churn and look, seven or 8,000 was good, but that’s as far as your audience takes. 

Nathan Barry saw this when he launched ConvertKit and he got ConvertKit up to about, I think it was like $1,500 of MRR and just couldn’t get past it with the audience. The way that all of us got past it was iterating, focusing, finding product-market fit, and then using our network of people that we have met at events online and that we have built relationships with two wave relationships, not an audience, not, Hey, here’s a tweet by this thing, but can I text you? Can I Slack you? Can I drop you an email and say, Hey, would you be willing to have me on your podcast? Would you be willing to promote me on your social account? Would you be willing to be a customer to switch away from your current provider to use my tool? Would you be willing to vouch for me and refer this tool to other people? 

I’ve done entire episodes on this show and on YouTube of how to build your network. Then that’s the next question. Well, how do I build a network? And I’ve gone through all that. I’m not going to go through it here. If you’re going to build SaaS, build your network, not your audience. Commandment number nine is that overnight success takes a decade. So back in episode 700 of this show talked about playing long ball and playing long ball can work. Most of the overnight successes you see in tech or in our communities, the founders who’ve been grinding and learning and focusing and failing for years and years, often a decade or more, the compounding effect of small wins, and whether that’s MRR growth over time, whether it’s skills that you learn marketing and selling or the credibility you earn, the network you build, these can help you eventually break through. 

They build momentum. If you’re looking for success in six months, you’re probably going to quit. If you give yourself a few years, maybe five, maybe 10, the odds are more in your favor. Folks have asked me how long from the day you launched Drip did it take until you sold it, and it’s two and a half years, so it’s very quick and people often say, wow, overnight success, right? Well, it was three and a half from the time we started building it, and it was six and a half from the time that we started this podcast and started building my network, building my audience. It was five and a half or six and a half since we started MicroConf that helped me build my network and audience. It was 11 years from the time that I made my first revenue online from products with Do net invoice, and it was 13, 14 years from the time that I launched my first websites and online product ideas where I was trying to make things work, and I guess technically I did make a few dollars here and there a hundred dollars a month or something back then, but the idea is that the story sounds like a Cinderella story, like two and a half years. 

That’s all you did. No, it was depending on how you count six and a half or 11 years or 13 or 14. If you give yourself a few months, you’re going to be disappointed. Don’t believe folks who are telling you that you can do this in months, but that doesn’t mean it’s not worth doing Overnight. Success often takes a decade. Commandment number 10 of 12 is to stack small wins. If you try to launch a large complicated SaaS app into a competitive space on day one, when you are a new and aspiring founder, the odds are that you are going to fail. You don’t have the experience, you don’t have the skills, you don’t have the cash, you don’t have the confidence, you don’t have the credibility, you don’t have the network and you probably don’t have the support of, I dunno, if you have a significant other or a spouse launching something small and getting some kind of traction and some wins along the way. 

They build momentum, they build experience, they build confidence, they build some revenue, they build some credibility, a network, they build confidence from your spouse. All of that carries into your next effort and your next effort, and you might recognize this entire premise of small wins as being the basis of the stair step method of entrepreneurship. I’m not saying that the only way to become an entrepreneur is stair step, and I’m not saying the stair step is the only or the best way to stack small wins. Stack small wins to me is this umbrella concept of make a bet, follow it through, try to get some experience and some revenue under your belt. Take that as far as it can go, and then build on that, and maybe that means you acquire another small thing or maybe that means you then start a bigger effort. The idea that building momentum is so important as an entrepreneur, and it’s not just momentum in the early days. 

It’s all the things I’ve said. Experience, confidence, revenue, credibility, network, and it’s really hard to do that when you bite off something that takes you 12 months to build and launch and you just run out of motivation. I’ve often said that funded startups fail when they run out of money and bootstraps. Startups fail when the founder runs out of motivation, and motivation is so driven by momentum, and momentum is so driven by small wins along the way. And look, I can take this and apply it to building a step three business building a full blown SaaS application. Imagine you launch it and you get to V one, you get a small win, but then you need to learn, you need to iterate, you need to fight those headwinds, and you launch more and more and more features and then you get to V two. That’s a small win. 

You celebrate that you’ve gained some experience, some skills, some confidence, hopefully some revenue, and then you keep doing and you iterate and each step compounds into the next, whether you’re doing separate little apps like the stair step method, whether you’re doing a larger effort, like a full-blown SaaS app. Commandment number 11 is the one I’ve talked about on the show before. Be careful who you listen to. I went off on an entire episode rant here just two, three episodes ago, so I won’t belabor this one, but the idea is that there are so many folks online who are good at building audiences and good at selling courses and good at selling a dream to folks who follow them, but they are really vague about how to do it, and they frankly are pretty vague about what they’ve actually accomplished, and these folks have strong opinions about what it takes to be successful, but have often never had a real success themselves. 

Or maybe they had one that was a small success and hello, I’m an exited founder when they sold something for a few hundred thousand dollars and it’s just different or they’ve done it once and they got lucky and they really don’t know how to do it again. So now they’re selling courses because that’s easier. There are definitely knowledgeable founders out there, many of whom you’ll hear on this show or on the MicroConf stage because we carefully curate those voices. We want people with actual experience, a proven track record and the judgment that comes with it, the good solid founder gut that comes with that, so you’ll always hear me throw out names like Jason Cohen, Ruben Gomez, heat and Shah. I mean the list is pretty long in terms of founders that are knowledgeable and that have accomplished things. The challenge is a lot of those folks aren’t building audiences, and so you do have to find them on podcasts like this one or others. 

The danger is if someone is telling you that all you have to do is eat ice cream to lose weight, you should be skeptical. Be skeptical of that message. Be skeptical of the source and dig in a little further and ask, what has this person actually done? The people who tell you only what you want to hear are usually doing it because they want to sell you something, and that’s the easiest way to do it. It’s not because they want to help you succeed. The 12th and final commandment is the most difficult battles will be in your own head. The biggest threat to your company isn’t going to be competition. It’s going to be you. The potential for burnout, self-doubt, loss of motivation, destroying your relationships, mental health, these things kill more companies I think, than any external force. Again, this comes back to the bootstrapped companies go out of business when the founder runs out of motivation, and it’s easy to do that because it’s such a long journey. 

Protecting your headspace is as critical as any other element of your business. And look, my wife, Dr. Sherry Walling, and I wrote an entire book on this called The Entrepreneur’s Guide to Keeping Your Together. We talk about it at MicroConf. I’ve had Dr. Sherry on this podcast. It’s things like sleep and mental health and boundaries. These are not luxuries. How often do we see a founder come on Twitter and just say, I’m completely burned out. How many tragic founder suicides have we seen in the venture capital community? It’s easy to go into this journey and think I’ll be able to figure it out, and you might, but don’t underestimate how hard the journey’s going to be. Not to mention if you ever go to sell your company. We wrote a whole book about the psychology of that as well called exit strategy, really learning how to manage your own psychology and not be completely decimated by people’s opinions of you, what they say about you online and to not link your mental health to your MRR growth. 

It’s a real skillset, and it’s one that I personally wished I had learned sooner. Almost every founder I’ve talked with in our spaces, every founder I’ve interviewed has talked about having some type of major challenge or obstacle over the years, and for some people it’s something like depression, and for some folks it’s maybe always being overly cautious and some folks it’s high anxiety and stress and that they’re naturally just in a stress day. Some folks, they work too hard and they burn out. They have self-doubt, they have imposter syndrome. There’s all this stuff that can hit you, and knowing as you’re going into this that one of the most difficult battles will be in your head I think can be really helpful. I said at the top of this episode that it’s a special one. If you hadn’t guessed by now, it’s episode 800 and throughout these 800 episodes of this show, no matter the format, the core message hasn’t changed. 

You don’t have to chase vanity metrics. You don’t have to build the next unicorn to win. You can build a company that gives you freedom, purpose, and healthy relationships and a life that you don’t want to escape from. These commandments I’ve given in this episode are not about rules being carved in stone. There are lessons forged from being in the trenches myself, as well as talking to thousands and thousands of founders around the world through this podcast, my books, my blog, MicroConf TinySeed, and on and on, and I think of these as reminders of what actually matters when the work gets hard. However you apply them, I hope they help you keep building on your own terms. Thanks for listening. Whether it’s been for eight or 800 episodes, I show up every week, 52 weeks a year because you listen and because you write ’em with questions and you tell me that the advice and the stories and the strategies and the inspiration that come out of this show matter to you, and that they help you build a better life. And if I can continue to multiply the world’s population of independent self-sustaining startups, one episode at a time, and one founder at a time, I’m living my best life. This is Rob Walling signing off from episode 800.  

Rob Walling:
I never bet the house. I didn’t rack up credit card debt. I didn’t gamble on my mortgage, but as my confidence, my experience and my savings grew. I started making bigger bets with my time, with my money, and with my energy. And when those bets paid off, they created leverage that helped me stair-step my way into the life that I wanted. It’s another episode of Startup For the Rest Of Us. I’m Rob Walling, and in this episode I talk about why I succeeded my 10 best entrepreneurial decisions. This episode is the counter episode, if that’s a term I can coin to last week. It’s a continuation of sorts. In last week’s episode, I talked about my biggest regrets, my biggest mistakes. And as I put that episode together, I realized, and yet I still succeeded. So why is that? And I started thinking, well, it’s because I made these other decisions that even in spite of the regrets and the mistakes, I still made it. 

I still achieved what I wanted to achieve. And of course, I’m still achieving things today. I have new goals, but realistically, most of the goals for my life growing up were to be an entrepreneur and to have enough money that I could work on whatever I wanted to work on when I wanted to work on it. Having achieved that now 10 years ago or so, I enjoyed reflecting on both things I did well and the things I did not do so well. But this episode should be more upbeat than last week’s because it’s about success. It’s about things that I did Right. Before I dive in to these 10 takeaways I want to tell you about MicroConf Connect. It’s our online community for ambitious SaaS founders. If you haven’t checked it out, we have monthly live events. We have an online forum and discussion groups. 

I do a live q and a where you can ask me questions in here, my responses in real time, but once a quarter. And we have hundreds of founders that are in the group, and it is better than any paid community out there. And the reason is because people pay for it. And so there is a minimum bar of the quality of the members of the community. You can add to MicroConf connect.com if you are looking for an online community of support and encouragement and a place to offer insights and help you discuss stuff in a controlled environment. We have a full-time moderator who makes sure everything stays nice and tidy, and the conversations stay amazing. MicroConf connect.com. And with that, let’s dive in to my first best entrepreneurial decision. Number one is I stopped reading and I started shipping. So around thousand one or 2002, maybe 2003, nah, 2002, I think I stopped hiding behind business books and the excuse of learning, and I started writing code and launching products. 

It’s easy to hide behind the excuse of, I just don’t know enough yet. I’m waiting for someone to give me permission. I’m waiting to figure out what the secret is that’s going to guarantee me success. I have that secret. You know what it is? Nothing’s going to guarantee you success. No one can guarantee you success. You have to start shipping at a certain point. For me, I remember it being really scary, shipping things onto the public internet. What if someone got mad? What if someone criticized me? But realistically, I did it anyways, and shipping things publicly helped me push past my analysis paralysis, and it helped me start to build confidence. None of those early projects did much. You can refer back to last episode to hear how I just flailed for years of launching a bunch of stuff to see what sticks, and it was a big waste of time. 

But these were critical first steps to get me over that terror of firsts, the terror of doing something for the first time, launching code onto the public internet, launching a blog post, which I’ll talk about soon, launching a podcast, being on camera, all these things that really terrify you and doing things in public creates opportunity. I say that a lot. Doing things in public can create opportunity for you. And this was my start of doing things in public where I say I stopped reading and started chipping, and that’s not totally accurate. I kept reading. I just reduced the reliance on constantly needing to have the next book and the next book and the next book, and I reduced it dramatically, and I started chipping instead. It was a great first step that without it, I would not have succeeded. Decision number two is I learned from mistakes and I changed course. 

I see founders out there who have the blind spot of they don’t learn from their mistakes or they don’t change course. You can’t just try the same thing over and over and over. I didn’t try the same thing over and over. At first I did because I was like, well, it’ll work eventually. But I started realizing I need to make real adjustments to this. So early on, I had several sites that were ad-based that were like venture backed type startups, but I was bootstrapping. I made B2C software. You wonder why I say don’t do it. I’ve been there. I’ve done the things I tell you not to do. And I realized, well, I can’t just do that again. It didn’t just fail because it was going to fail. It failed because the economics of B2C businesses, especially SaaS, are not good. So I moved from B2C to B2B. 

I had a little super low price products early on, high churn, catastrophic unit economics because you can’t afford to pay anything to acquire customers. So I moved from lower priced to higher priced products. I moved from building everything from scratch to acquiring small apps with some traction. I learned from mistakes that I made and I changed course, and I evolved my strategy based on experience instead of blindly repeating past efforts. So I took the learnings from the last mistake that I made and I fixed it, and I didn’t know if I was going to fix it, but I just changed course and tried it, and that time it worked. So this was definitely one of the good decisions that I made. And this wasn’t just back in the early days. This still happens today as we are launching new marketing efforts or audience building efforts with MicroConf and TinySeed. 

Frankly, anything we do, we often launch it and we are directionally correct, but it is not a hundred percent there. It’s 50% there, and it’s kind of working, and we have to not try the same thing over and over. We have to make real adjustments course correct and learn what we did wrong and make it better. The third decision I made is I worked really hard to build a cushion for myself so that I could take early risks. So while I was working a full-time day job, I started freelancing on the side as a developer, and I slowly raised my rates until at some point I could quit my day job. So by 2005, I was charging around a hundred dollars an hour, maybe 1 25. And this isn’t $2,005. That’s significantly more. I dunno if that’s 1 75 or 200 these days, but I was working remotely before remote work was mainstream, and that allowed me to do it nights and weekends while I had the day job, which really none of the other developers that I was working with, I think there were probably 20 developers at the company, the credit card company when I left, I don’t think any of the other ones were moonlighting that way. 

And I did it so that I could build up that cushion first. I saved 10,000 bucks over the course of several months and nights and weekends. I was tired all the time. It really was kind of all I did was work, but I wanted to build that cushion so that I could afford to at some point, either take time off, quit the day job. Turns out I used it to buy my first software product, but if I hadn’t put in the work and done the savings, I wouldn’t have had that ability. I saved pretty aggressively. So first it was 10 K and then 20 K and eventually had 30 K, which is when I bought tail in 2011. But it gave us Sherry and I, the financial cushion where I could take bigger entrepreneurial risks and have my back a little bit to the wall, but not so much to the wall that we would say lose the house. 

And that cushion was something that in retrospect was a really good decision because it allowed me to take bets that were big enough that they made a difference in our lives if they succeeded. Decision number four is probably a controversial one for me to say, but I’m going to say it and then I’m going to say, this might not be for you. Number four is I started writing about what I was doing. So this is when I started blogging. Originally, I was going to journal for myself. It helped me clarify my thoughts, helped me reflect on decisions, kind of track my progress. It was a form of almost self-guided mentorship where it gave me structure and insights into what otherwise just felt completely chaotic. But I was trying to track progress. But as I watched Joel Spolsky publish essays, Paul Graham publish essays, I thought to myself, doing things in public creates opportunity. 

I don’t think I actually thought that to myself. I didn’t coin that till a decade later, but that’s what I was doing. That instinct was to put my thoughts out into the world. And this might be controversial because don’t I say don’t build an audience. I do. And if you’re going to start a SaaS company, I don’t think you should build an audience. 95 plus percent of the SaaS companies that I’ve invested in had no social media audience, no personal brand audience. When they launch, they still don’t. And they’re still wildly successful. And there’s dozens of seven and eight figure SaaS companies in TinySeed. But why is this on my list then? Well, because for me, my path, while it obviously was to start software companies, then start SaaS, when SaaS became a thing, it then led me to writing books. Being a blogger, podcaster, YouTube, or however you want to describe me, this is my higher calling. 

I really, really enjoy what I’m doing today and what I’m doing today. I don’t want to say it wouldn’t be possible, but it certainly started with this writing that I was doing. It started with the blogging. And so for my personal journey to find what I call living my best life, the best job I’ve ever had, which is being a podcaster, YouTuber, TinySeed writing books, I love it. In order to get here. I believe that this writing and blogging and publishing really kicked that off. Putting my writing online also in the early days, brought me into the orbit of people that I admired. Like Joel Spolsky noticed me, Jason Cohen bought my first book. I was blogging before Jason Cohen and Patrick McKenzie and Pelley from Balsamic. But as they came online and all the bloggers, we all, we knew of each other if we didn’t know each other. 

But I started respecting Jason Cohen’s blog. I think he started blogging maybe oh eight or oh nine. And then when I published Art, small State, small, he bought a copy. Patrick McKenzie started blogging, I think it was oh seven, and I started in oh five. But I was a fan of Patrick. We were kind of doing the same thing. We were kind of doing small software products. I say we were doing small software products, so we had some overlap. And he was in Japan, and I was here, but the first MicroConf 2011, Patrick McKenzie flew over and spoke, and then DY from Balsamic. Same thing. It’s like it put me in this network. If anything, it was like having the audience. I don’t serve me much in the future years of building SaaS specifically. It does serve me well now. But having the network of Jason Cohen, Patrick McKenzie, PEL, and whoever else I rubbed elbows with was more important. 

Build your network, not your audience. Publishing online, it helped me build credibility. I formed good relationships, and it really helped me discover opportunities that I probably couldn’t have predicted. One of those, and kind of a subset of this point is later I wrote a book. I wrote Start Small, stay Small, because I had a bunch of content on the blog. And then I started a membership website in 2009, which is like a precursor to MicroConf actually. And I decided to write the book, start Small, stay small. It was a huge time investment, but the potential upside I thought was significant, right? And it did put me on the map with a lot of people. It got me some speaking gigs. I spoke in the early days, I think it was in 2010 and 2011 alongside Eric Reese as the Lean Startup was coming up. And then years later, Eric was really generous in supporting TinySeed and when we first launched it and helping us meet some LPs and doing some promotion of it. 

And again, all those things. It wasn’t that Eric was in the audience, but it was that he was in my network because of these things that I had done in public. And writing a book, interestingly enough, transformed me from being just another blogger to someone who was seen as more of a leader of the bootstrapper movement. And so for me, for my journey starting to write and publish about what I was doing was definitely a life-changing decision. Decision number five was that I made increasingly larger, but still manageably sized bets. So this is a quote from Dave ett. He is the author and the creator of Sheldon and Drive, which are two of my favorite web comics, and he does Kickstarters and publishes them as books, but he is on a podcast called Comic Lab. You’ve probably heard me refer to him many times over the years. 

And he has this quote of make increasingly larger, but still manageably sized bets. And I had never heard someone put it that way before. But as I look back over my career, I did level up. And when I had a bit of success, I was willing to bet a little bit more and go a little bigger next time. I never bet the house, I didn’t rack up credit card debt. I didn’t gamble on my mortgage. But as my confidence, my experience and my savings grew. I started making bigger bets with my time, with my money, and with my energy. And when those bets paid off, they created leverage that helped me stair-step my way into the life that I wanted. This single decision might be the one that made me the most money in my career. So I bet $11,000 on dotted invoice in oh 5, 0 6, it was a tremendous bet. 

It was money I had just painstakingly worked hard to save nights and weekends. Then I bet 30,000, 35,000 maybe with legal fees on hit tail in 2011, I bet $200,000 building drip. All of those would’ve been brutal had they not worked out. But none would’ve sunk us. We wouldn’t have been bankrupt. And when I made those bets, I put my back to the wall a bit, not at risk of bankruptcy or losing the house. I did put pressure on me to succeed. See, I’m not of the personality that I could burn the boats, that I could quit the day job and watch my runway burn down. I actually don’t think that’s a good decision in most cases, especially if you’re supporting a family, unless you have a significant runway and you’ve already started building something, or you have some type of audience or some type of strong network. 

But for me, making these increasingly larger, but still manageably sized bets over the course of many, many years is really why I am where I am today. Decision number six, this was less of a decision and more of just what I did. And I said earlier that making increasingly larger, but manageably sized bets might be the number one takeaway. I take that back. I think that’s number two. I think this one is number one, I didn’t avoid hard, boring, grindy, scary work. I leaned into it. I never told myself, I’m not going to do this thing, particular marketing approach or write some code or whatever, insert whatever you don’t want to do. I’m not going to do this because I don’t feel like it. I never said that. I knew from really early on that if I was going to be successful with no network, no audience didn’t know any entrepreneurs, didn’t have any money, no investors, no clear path, that if I was going to be successful, it would require a lot of hard unglamorous work. 

And especially as I said, as an outsider with no role models and no wealthy friends. There were all kinds of things that I wasn’t passionate about. SEO kind of seem boring. Running ads kind of seem boring. Learning how to copyright that one seemed interesting. I was a writer fixing bugs, doing support launching products. I wasn’t passionate about fixing other people’s code. Tire code base is not written by me taking it over. You think I wanted to do that? Does any developer? And I didn’t just rewrite it from scratch. I didn’t. I just fixed the bugs and shipped it. It was often tedious, frustrating nights and weekends, hours of grinding. Seriously. I don’t want to overstate it, but I’m not. It was hundreds and hundreds of hours doing that I didn’t want to do, and I did it anyway. I think part of it was out of necessity because I wanted to succeed. 

Part of it was I was an athlete in high school and college, and I did a bunch of stuff that I didn’t want to do. That was really painful because the goal was to be faster than the other people. I was an athlete, a track athlete, and the goal was to run fast and beat my personal best and win. And I knew that I had to put in hard work to do that. And I worked construction after college, and that was hard work, but I needed the money. And so it just never, it did occur to me to question it. And Sherry would ask, and friends would ask, when is this going to pay off? And I was like, I think at some point it will be worth it. It was hard work, it was grinding, but I did it anyway. And I didn’t need every part of the work to be fun. 

I had hobbies for that. I still played the guitar. What I needed though was progress, and I was willing to grind to get it. So honestly, this mindset, as I said, is probably the number one thing and the number one most important reason that I feel like I achieved what I have. Number seven is I deliberately learned about myself so that I could turn my blind spots into weaknesses. So I believe that a blind spot is just a weakness that you don’t know about, and that keeps you from succeeding over and over and over and gets in your way, over and over and over. A weakness that you don’t see as a blind spot. The more you learn about yourself, how you operate, whether from self-reflection, taking personality tests. I mean, I’ve taken a dozen personality tests at this point, the Enneagram and the StrengthsFinder, and there’s a bunch of them, Myers Briggs, as well as feedback from my spouse, from colleagues, mastermind groups, co-founders that helped me turn blind spots into things that I saw. 

I still have several weaknesses, and I have worked on improving those as well. I’m more of a believer in leaning into your strengths. But I put in the work to understand myself such that I could get clarity on my weaknesses, and that allowed me to either power through them to work around them or to hire for them. At this point, I don’t think I have any major blind spots left. Now that may be hubris, but for several years now, probably a decade, I feel like pretty clear on who I am, what I’m great at, and what I’m not. And it’s because I made self-awareness a priority and learned about myself. So one of the things that I’m not sure I would’ve realized in the early days how much it would come into play in my success, but I think it’s had a tremendous impact. Number eight is I figured out what I wanted and I went for it. 

I was pretty focused. I didn’t wander aimlessly or chase trends like a lot of founders were doing and still do. I knew that I wanted to own products. I knew that I wanted to build equity in something, ownership. I wanted to stop working for other people. And it took six or seven years of focus to reach full-time product income. And then I reset my goals, more stability, more freedom, and eventually enough cash and never have to work again. And I believe I hit each of these milestones because I had clarity and referred to number six, I didn’t avoid hard, boring or scary work. I was pretty clear on my goals, and I just relentlessly executed to find them. And if you refer back to last episode, sometimes that relentless execution led to burnout and led to me not feeling super mentally healthy. So there are pros and cons to this, and I wished that I had still figured out what I wanted and went for it, but had a little more of a measured approach as I was pursuing it. 

But definitely kind of knowing what I wanted, and it wasn’t, I knew exactly how I was going to get there. At least I had these goals of like, I want to quit the day job and have product income. All I did was push everything into that bucket and basically say, everything’s going to get me to that. And from 2002 until 2008, that’s what I did. And then I wanted a bit more money in from 2008 to 2012, that’s what I did. And then I wanted to either sell for enough money that I never had to work again or make enough money off of SaaS app that I never had to work again. And that was 2012 to 2016, on and on and on. So I think knowing where you want to head, knowing where you’re going, and then working hard to get there, I think is just such a fundamental piece of that. 

Number nine is I learned when to persist, when to pivot, and when to quit. So early on in the early two thousands, I stuck with bad ideas for way too long, and I would grind for months and months without results. And then over time, I got better at reading earlier signals. So I learned how to pivot without abandoning everything. It’s not just I’m going to launch 20 things to see what works and just abandon, abandon, abandon ’em when it doesn’t work immediately. But I learned how to pivot things, how to take them and adjust, how to experiment with new angles, how to walk away when something wasn’t truly working. But I started getting a better sense of when that was, right. It’s knowing when to keep going, when to adapt, and when to shut things down. It’s a really hard skill in entrepreneurship, and one that I feel like I gained through watching people better at it than I, and through a lot of trial and error. 

But it definitely contributed to me finding the success that I wanted over the years. In fact, one example of that is I was a blogger, hundreds of hours a year. That’s a lot of time, man. I always wonder if that was worth it. But anyways, from 2005 until I think around 2011 is really when I kind of stopped publishing and I realized that blogging was a commodity. People were reading the blog among many others, kind of like a social media feed where no matter how much you try to stand out, you’re just another voice. You flip through TikTok, do you really know who’s there? Or are you just watching that TikTok? Do you know specific individual people? Or are you just kind of flipping through it like it’s content? And blogging started to become that. And so I realized I wanted to start a podcast in 2010, and that’s when I grabbed my friend and fellow blogger, Mike Tabor, and we started this very show. 

So despite having really never put audio live on the internet, not knowing how to podcast, being terrified to do it, buying a headset, microphone, recording over Skype, I don’t even remember. Pamela was the plugin. I mean, this is old school. We did it. We shipped it. And don’t go back and listen to that. It’s really bad. It’s just so funny how you can feel how nervous I am and my voice. It’s like you don’t know how to talk yet. You don’t know how to talk on a microphone. It is slightly different, not projecting, and there’s so much wrong with it. But all that said, we shipped an episode, and then we shipped an episode the week after, and then the week after. And aside from there were a couple months in there where we dropped to twice a month, I think, or every other week. 

It was only for a few months. And then we were like, nah, we’re just going to go every week. But aside from that, I basically shipped 52 episodes a year since 2010. And after a year of the podcast, I think we had about five or 600 listeners, and that was painful. I had 25,000 blog subscribers. And I remember thinking like, oh, this is brutal. But we stuck with it. And frankly, that decision and that ability to pivot, as I said, because remember 0.9, is I learned when to persist, pivot, and when to quit. I kind of pivoted blogging into podcasting, right? Or you could say, I quit blogging and started podcasting. Either way, it definitely reshaped my trajectory as a founder and as someone who ultimately wanted to write books and be on YouTube, and it helped me stand out in a noisy space. And my 10th and final decision that I believe contributed to my success is that I didn’t make impulsive decisions when things got hard. 

There were absolutely times when I wanted to rage quit, whether it was shutting down MicroConf, walking away from the podcast, or honestly leaving startups altogether at one point. There were times when I was burned out, when I was frustrated, when I was over all of it, but I never made those decisions in the heat of the moment. I gave it time. I let emotions settle, especially really fiery emotions like anger, burnout, frustration, being ragged on social media and dragged through the mud and thinking, I just want to escape and leave it all behind. And every single one of those decisions had I acted on impulse, I think I would’ve regretted. But instead, I continued to build on what I had already created from the blog to the book, to the early membership website, to MicroConf, to the podcast, to TinySeed, YouTube channel, everything else. And these days, I’ve learned that when I feel burned out or when I feel low, it’s just not reality, right? 

It’s a temporary state. Waiting six months or two months and reevaluating when I’m in a clear headspace has saved me for making so many irreversible mistakes. It’s definitely an important discipline that I’ve developed to not let temporary emotions throw me for such a loop, which is something they definitely did in my earlier days. So there you have it. Why I succeeded my 10 best entrepreneurial decisions. Some of those are more attributes than decisions or just things I did, but I enjoyed putting this list together. It made me think really deeply, not just about, oh, you could say, well, one of my decisions was starting drip. And it’s like, yeah, obviously, but that’s not helpful. That’s just a moment. It’s a momentary decision. The things I wanted to pull into this episode are around mindset. They’re around deeper thoughts, around longer term thinking, around doing the hard things that get you there. 

These are things that I think any entrepreneur, not just SaaS entrepreneurs, any entrepreneur in any space can and should apply to their own journey. And I think almost without exception, the exception might be like the starting to write about what you’re doing or write a book or whatever. But almost without exception, I think all of these will help you have an easier journey and or help you get there faster. So thanks for hanging out again with me this week on Startups For the Rest Of Us. If you keep coming back and listening, I’ll keep recording. This is Rob Walling signing off from episode 782.

Rob Walling:
A book can help you learn more, can give you the knowledge to be more successful, but you still have to put in the work, develop your skills, and push things forward on your own, and you’re going to have to make a lot of hard decisions with incomplete information and ship, ship. Be right most of the time and get things out the door in order to be successful. At a certain point, you do have to stop reading business books and start shipping. 

Welcome back to another episode of Startups For the Rest Of Us. I’m your host, Rob Walling, and in this very personal episode, I walk through my founder regret list 12 mistakes that I will never make again. I say this is a personal episode because there are several stories that I’m going to share as I walk through this list that I don’t believe I’ve ever shared in public before, and it wasn’t out of any desire to shield these or somehow keep them hidden, just several of them hadn’t given the deep thought required to really dig in to the mistakes that I made. Over the years, over the last 20 plus years of my journey as a founder, I’ve been asked over the years what are the biggest mistakes that I’ve made as a founder, as an investor, as an entrepreneur, probably as a human. That’s a different list I’ll admit, and I always struggled to come up with a list that I felt was meaningful and genuinely things that I regretted, things that I wished I had done differently along the way. 

Sometimes I come up with one or two or three, but I sat down for an extended period of time and really thought this through and I came up with 12 mistakes that I’ll be running through in this episode. Before I dive into those, if you haven’t checked out the SaaS Institute, this is our premium coaching mentorship and mastermind community SaaS institute.com is where you can find the full info, but it’s for founders of SaaS companies doing at least a million in a RR who are looking for private coaching, private masterminding, and looking to find an incredibly ambitious community of other folks who are paying a good chunk of money to be a part of this community. The quality is extremely high, and we just started it a couple months ago, so it’s very small and very hands-on. You’re not joining a group of 50 or a hundred people. 

There are a couple handfuls of folks in the SaaS Institute and we have some amazing coaches including Jordan Gaal, Mark Thomas and Taylor Hendrickson. So if you feel like you could use someone to walk alongside you in your journey as well as be able to do a call or two with me, you should head to SaaS institute.com. In addition, if you’ve ever thought about sponsoring this podcast or any of our MicroConf events, we have in-person events, we have remote slash virtual events, you should email sponsors at MicroConf dot com and we have a rate card both for this podcast, our YouTube channel, and all of our events. We have some availability. Normally we’re booked out a quarter or two, but we do have some availability over the next few months. Sponsors at MicroConf dot com if you’re interested. And with that, let’s dive into my founder Regret List 12 mistakes I’ll never make again. 

I’ll admit I’m not nervous. That’s probably not the right phrase, but I’m a little feeling a little agitated thinking about walking through this list because there are some things in here that I really do regret and revisiting them and reliving them on this podcast is maybe not something I ever thought I would do, and I’ve done my best to keep these in chronological order, at least to the best of my memory. Number one is going to seem obvious in retrospect, I’m going to say it and I’m going to move through it quickly. So number one is believing I had to raise venture capital to start a software company. I know these days if you listen to this show, you’re like, obviously that’s not true. But in the early two thousands, I didn’t know there was another path and I was fully bought into the idea that funding and especially venture funding was a requirement to launch a software business that wasn’t true, and it delayed my path for years and years as I read all the magazines because this was really mostly before tech run, so it was reading the Fast Company and Red Herring, what that one was called. 

That’s an interesting name now that I think about Business 2.0. There were a bunch of.com magazines and it just made it seem like funding was the goal. In fact, funding was the finish line in a lot of these articles. And it’s funny, now that I’m in the know and I talk to founders, and I’m far from an insider for sure with Silicon Valley, no one knows who I am. They didn’t know when I started and they still don’t know who I am. But now that I know how these things work, and I know I’ll say the real stories of a lot of these startups, I realize that funding is far from the goal. And in fact, a lot of folks who take funding do it. They don’t know any better, not because they actually should. So that has become my mission in life, is to multiply the world’s population of independent self-sustaining startups. 

It’s through this podcast, my books, YouTube, MicroConf, TinySeed, and I’m doing that by trying to spread the word that you do not in fact need to raise venture capital, start a software company. But years and years, I wasted probably six or seven years thinking about funding and wondering how I could raise it and reading about how I could raise it and not actually acting, or I’ll say kind of half-ass acting, waiting for someone to give me permission, waiting for someone to anoint me and give me the money such that I could build a startup. And it was a huge mistake I’ll never make again. Mistake number two is launching many products hoping one would succeed Over the course of probably five years, in the early two thousands, I spent literally thousands of developer hours of my own time nights and weekends because I was working a full-time day job. 

Sherry and I were married, she was in grad school during this time, we had our first child, and during this time, I would not go out to happy hours. I mean I did sometimes, but for the most part I would say no and I would stay home and I spent thousands of hours creating products without doing any real validation because that wasn’t a thing. I didn’t even know that existed, didn’t know that you could potentially try to validate things and have conversations with customers, wait, you can do that, put up landing pages, wait, you can do that, right? This wasn’t an approach yet that people did. I didn’t know that it existed, and so I would build these products and launch one after the other hoping that one would magically luckily gain traction. I was basically throwing darts at a dartboard that might as well have been 30 meters away, and almost all those went nowhere. 

It was a huge waste of my time and effort, and it’s certainly something that these days I would do a little more validation. Even if you hear the story of Drip, how I sent out 17 emails and I got 11 yeses. If you hear the story of TinySeed, we didn’t just raise a fund, try to raise a fund and launch. I went to Twitter, went to my email list, said, Hey, we’re going to do this, and waited to see the response. That was a form of validation. I had the luxury at that point of having an audience. But if you go back to 2008 or 2009, I launched a paid membership community and I asked folks in advance of that, I had a survey on my blog, would you pay to be part of a community of bootstrapped founders and gain not only education, but gain some type of community? 

Before I launched my first book, start Small, stay Small, it had a landing page that I put up. This was me developing this approach, and I had heard of this approach from internet marketers, and then it was popularized by the success of the four Hour Workweek, but around 2004 or five six, I started reading several of the, like Dan Kennedys, and I don’t remember who else was in that space, Joe Polish, maybe there’s a bunch of names, and if I said ’em, you may or may not recognize ’em if you’re familiar with that era of internet marketing, but they talked about doing smoke tests. They talked about driving AdWords to landing pages to see how many people opted in. And that was a very interesting concept for me, and that’s why even these days, if I’m going to talk about or launch anything big, I’m going to get a landing page up, and I’m also going to try to have one-on-one conversations. 

I like to do both. Validation is never 100%, it doesn’t work all the time. It can be done poorly, it can be done, you can do validation and still have it not succeed, all these things, but it is so much better, so much better than the approach that we use to use. And I spent years of my nights and weekends, thousands of hours trying to launch a bunch of things hoping I’d get lucky and one would magically gain traction, and it’s a mistake I’ll never make again. Mistake number three is trying to bootstrap ideas that weren’t bootstrap. So at a certain point, I had a young child, my wife and I were living in, well, first it was Los Angeles and then it was New Haven, Connecticut, and then Boston, but I couldn’t move to a center where there was a bunch of venture capital and I ruled out doing Y Combinator. 

It was not the year I was in Boston. By that time, they had relocated to the Bay Area. So I effectively ruled out raising funds, and I realized I didn’t want to raise venture capital, that it wasn’t the choice for me, and I was going to grind it out and I was going to bootstrap. But the problem was is then I didn’t have a model because no one else was doing this again, this is 2004, 5, 6, 7. I mean, realistically, I started building and launching stuff in 2001, but as I really started getting some momentum and getting better at getting things live and even getting some users, there was something I launched, what was it called? It was Flo, it was feed shot.com that actually was making about a hundred, $200 a month and had several hundred users coming to submit their blog to these blog directories. 

It’s an old dated thing now, but it’s not that nothing went live and no one used it. I did use the social media of the day, or it was social news sites. Basically it was like a dig and the other, I don’t even remember what the others were. They’re all defunct now. But I did use those to drive people to check these things out. And what I learned is that all the ideas I came up with really only made sense at a massive scale. They either needed millions and venture funding, or they needed hundreds of thousands or millions of users because I was launching things with ad-based revenue models. I was launching things built for consumers, and I was copying the Silicon Valley model without the resources that they had, which inevitably led to a ton of dead ends. And I launched idea after idea that really didn’t solve a pain point for anyone, but it was, again, it’s like look at all the Silicon Valley, the new startups that come out that you hear about, and I would do a variation of that because I didn’t realize that you just can’t bootstrap that if you’re going to take a small percentage of GMV or you’re going to be ad based or you’re going to need a million users in order to be viable. 

These are just not easily bootstrap. I say in general, they aren’t bootstrap able, but I suppose one in a million, you could get lucky. And if you’re wondering, well, how do I know if an idea is bootstrap able? I could record obviously an entire podcast episode or a book chapter on that, but realistically, these days, I have my guidelines, right? It’s like solve a problem for someone and I recommend you solve a problem for businesses, but you could solve a problem for consumers as well. And that is one way to instantly at least have potential customers that have a desperate pain point that you can solve. That’s where I would start, and I didn’t start with problems with any of my old ideas. It was all about glitz and reach, and I thought to myself, would tech crunch right about that? I used to seriously ask myself that before I launched ideas, and that’s why this mistake of a believing I had to raise a venture to start a startup was not great, but then trying to bootstrap ideas that just weren’t bootstrap able is another thing that I wouldn’t do again. 

Mistake number four was believing that business books would give me the secret to success as an entrepreneur. And it wasn’t just business books, it was believing that one person out there had the answer that would help me succeed. Maybe it was courses, maybe it was info products that were being sold, but business books were certainly a part of this, especially in the early two thousands and the 2010s. Most business books lacked any tactical value. They were either glossy success stories or high level theory or both that were ghost written by someone who wanted their name on a book. So pretty much all the business books I read during this time were useless to someone like me trying to forge an unconventional path. I needed much more tactical approaches. I couldn’t rely on having Kid Rock at my launch party or having Tech Crunch right about my startup. 

I needed to generate actual traffic to a website. So how do you do that? How do you do that? In 2006, there’s no social media. There was SEO, I think AdWords was just coming about. I actually don’t recall. Certainly there’s banner ads, there’s web rings, there were things around, and there were social news sites like Dig Reddit. Again, there were a bunch of others that I don’t remember the names of. And so learning how to use those to market what I was building was a huge step in my career. Problem was there were exactly zero business books that talked about any of that because it was too new. It’s a little better now, but you still have to pick books that focus on what you want to do. So think about the SaaS playbook. There’s a reason that I write books. I’ve told people, have you ever heard the term hate watching, where you start watching a Netflix show and then you kind of hate it, but you keep watching it and you hate watching? 

I kind of hate write books. What I do is I go out looking for a book that has the information that I want, and when I don’t find it, I get mad and I write that book. That was a SaaS playbook. Ruben, founder of Sewell actually really encouraged me to write it, and he said, our space, the ambitious B2B SaaS founders really needs a book that covers not only high level thinking, but that digs in deep into the strategies and the tactics to actually build a SaaS company and not just tell the story, Hey, here’s a SaaS company and here’s all the behind the scenes, and that’s fun too. That’s fun, but that will not give you the secrets to succeeding as an entrepreneur. Zero to Sold by Harvard Call is another good book that you should read, especially if you’re bootstrapping like an indie hacker or lifestyle business. 

It’s great. Versus a book like Shoe Dog or Zero to One, I enjoy those books. I’ve read them both. They’re both entertaining. Neither of those will help you as a bootstrapper. You’ll probably take away almost nothing from them. And again, those books are fun and interesting, and I’ve read them, but they just won’t move you closer. But beyond that, I want to make the point that even with SaaS Playbook or at Traction by Gabriel Weinberg, zero to sold whatever book you’re going to read in our space, believing that that book will give you the answer and the true secret and will guarantee success, that’s a mistake as well. And I think when I was really young, I was naive enough to think that a book would make me successful. A book can help you learn more, can give you the knowledge to be more successful, but you still have to put in the work, develop your skills and push things forward on your own. 

And you’re going to have to make a lot of hard decisions with incomplete information and ship, ship be right most of the time and get things out the door in order to be successful. At a certain point, you do have to stop reading business books and start shipping, and that was something that I definitely struggled with early on in my entrepreneurial journey. Mistake number five was becoming hellbent on being a solopreneur, not just a single founder, but I didn’t want any full-time employees, anyone relying on me. And this came about because I worked at several corporate jobs where I didn’t really like my coworkers. Actually, there were some really cool coworkers that I got along with. They were always the a plus players, the really solid devs, the great managers, the people who cared. It was 60, 70% of the staff that just didn’t give a shit. 

And I was grinding. I was staying late. It was fun because I was writing code to ship and get things into production. I don’t know, I loved it. I wanted to build meaningful things, and I really cared, and I got so burned out on working with people that I just didn’t enjoy working with who kind of didn’t care that I said when I become an entrepreneur. And as I became an entrepreneur and started paying my full-time salary through products, I said, I’m not going to hire anyone ever. I want to do this all on my own. And that mindset worked for me for a time when my ambitions were small, when I wanted to make 120, 150, $200,000 a year, and this was in 2000, let’s say 6, 7, 8 money. So what is it? 40, 50% more than that now. So it’s not a bad living. 

We lived in California, we owned a home, and that mindset worked while my ambition stayed small, but then at a certain point I realized I want to build something meaningful as well. And at that point, it became painfully clear to me that I would want someone to collaborate with that I would want people I could rely on. This is where the idea of task level, project level and owner level thinkers came about, and I had a bunch of task level thinkers. That’s all I had. I didn’t even have project level thinkers in the early days. It was because I couldn’t afford them, but even once I could afford them, I didn’t realize it was a blind spot for me, didn’t realize that I needed to hire project and owner level thinkers or else I became not only a bottleneck, but a project manager and someone who was basically just managing a bunch of task level thinkers. 

And while I’m actually good at doing that, it’s a lot of my background as a developer, and even in construction, I did some project management, but I don’t love it. It’s not what I want to do day to day as an entrepreneur. And it took me years to realize and then to accept that I maybe the first person who did the hire, a bunch of contractors approach. I did this from 2006 until about 2012, and it worked well in the early days, and then there was a lot of turnover. There was no loyalty and there was no cohesion. The contractors didn’t even really know each other, so it was barely a team. And the approach wound up sucking because my entire job was managing contractors, managing projects, assigning things, checking on things, and it’s like it’s not fun. And in the early days, I was grinding because I was like, I want to quit my day job. 

I wound up quitting the day job. Well, by this time, I was actually, it was my first company and I was a consultant. I was a freelancer doing dev work, and then I had other consultants that I was contracting with to help me. So it’s kind of like a micro agency is how I’ve always phrased it. And I was doing that from, I believe it was like oh 5, 0 6 until oh eight. And in oh eight, I got rid of my last client. Basically that contract ended and I had complete product income by mid to late 2008, and I kept doing the solopreneur hire contractor approach after that, and it really wore out. Its welcome if I’m being honest. And it took me too long to see it. And then once I saw it, it took me too long to admit, you know what? I want to do something bigger. 

I don’t want to just be a paper pusher in essence or a project manager. I want to actually get shit done with ambitious people who really want to build something incredible. And that was around the time that this podcast came about, that MicroComp started, that I started Drip and I realized I was going to need to level up my game and just being a solopreneur and trying to be that island off on my own was not going to yield the results and bring me the impact that I wanted to have. Mistake number six was buying into the arrival fallacy. So the arrival fallacy is when you say things like, if I just had a SaaS app on the side that did $2,000 a month, then I’ll be happy. If I just had a product that made enough so I could quit my day job, then I’d be happy. 

If I just had one that did 20 or $30,000 of MRR, then I’ll be happy. And if I just sold a company for millions of dollars, then I’ll be happy. The problem with this is you need to be happy along the way. You are never going to have arrived. It’s a fallacy to believe that, and I know that now. And in fact, by the time I sold Drip in 2016, I knew that, but I had these dramatic ups and downs where I thought, I’ll be happy forever. I mean, even saying it out loud is so naive now, but I hear a lot of people talking about this, and when I say naive, I don’t mean like, oh, you’re dumb. I was there too. It’s easy to believe this, and that’s why I’m talking about this on the podcast. We are ambitious startup founders. We are entrepreneurs. 

We’re always going to seek stuff that is incredibly challenging. We want learning. We want to move things forward. We want to have some type of impact. We want to do interesting things. You’re never going to be happy for very long. This is the curse that we have as entrepreneur. It’s a blessing and a curse. It’s a blessing because it motivates us to do things to ship and to grind and to believe in the growth mindset that we’ll get better and that we’ll figure it out and that we can change our lives and the lives of those around us through entrepreneurship. But it’s a curse because it can mean that you’re never happy. And so the work that I’ve done on myself over the past 15 years, probably definitely more than 10, because it was in between 2010 and 2015 that I really started working on this, and I kind of admitted to myself, you know what? 

Just admit you’re never going to have arrived. How can you be happy along the way? And it wasn’t as simple as logically stating that there was a lot of inner work on my own and with a therapist, and you may not have this, and that’s great, but this was absolutely me chasing a finish line that didn’t exist year in, year out. And every victory I had was inevitably dashed because after 3, 6, 9 months, I became unhappy. I was chasing a finish line that didn’t exist, and I will never do that again. Mistake number seven is going to seem like an interesting left turn after a lot of these higher level or philosophical mistakes. But mistake number seven was not starting an email list sooner. So by the time 2008, nine rolled around, I had been blogging since 2005 and I was putting in several hundred hours a on it, and I would, from my day job as a developer during lunch, instead of going out with the other folks who went out, I packed a lunch and I would drive down the street and I would open up my laptop and I would write blog posts almost every day. 

And then I would do that nights and weekends when I ran out of steam coating stuff or if I was in between coating projects and I was completely disenfranchised and saying, none of this is ever going to work. That was a big thing. This just isn’t going to work. I would tell Sherry, no one’s ever done this, so I just dunno that I can do it. But I blogged a lot. I was writing, and around this time, 2008 or oh nine, I had 25,000 RSS subscribers, but I think I only had an email list of probably maybe a thousand tops. I knew the power of email with my software products and info products and other stuff that I had at the time, but I hadn’t prioritized building that list until about somewhere in that range, like oh nine, maybe 2010. And I feel like I lost quite a bit of time and opportunity because of that. 

Now, in retrospect, maybe what I’m saying is I’m really happy that I did start then because nowadays I don’t know that it matters. I don’t know if my list had been, because my list would not have been 25,000 emails. There’s no chance maybe at most it would’ve been 2,500 or 5,000. And these days, my lists are so much larger than that, that it’d basically be a rounding error. But much like most of these mistakes, I believe it cost me time because not having an email list meant I then had to go build one to launch my next thing. When we launched the podcast, when I launched my book, I didn’t have a big email list, and I had to kind of build those up. So it’s not a, oh, it cost me everything, but it is an, oh, it costs me months and maybe a year or two. 

I don’t know. It’s always hard to guess. But each of these things cost me time on my journey, even though I have obviously experienced quite a bit of success, at least in the way that I’ve defined it. Mistake number eight was taking random internet opinions too seriously. So early on I assumed, again, I say these things and I laugh because it’s like, this is so preposterous, but I assumed that someone with a confident opinion online was qualified to give that advice. Maybe it’s because how I was raised, maybe it’s because of going to school and university and there are always being someone there teaching who knew the stuff, but there were loud voices. And it took me years to realize that these folks, whether they’re on blogs, forums, social media, actually a lot of them knew far less than I did. And frankly, I gave these opinions too much weight. 

I think it sent me off track. And especially when people were negative about something that I was building, I took them way too seriously. So I would get emails about hit tail or emails about my book or emails about Drip once we were building it, and folks would’ve these really strong opinions about ux, like, you should definitely never do this in your user interface. I can’t believe you actually even thought that a button should be square or rectangle or round or just insert whatever shape here. Button should never be round or a top. NAB should never be this way. And it’s like, oh, wow. They must know if they’re this opinionated. This must be a law that we all ascribe to. And it took me way too long to realize a lot of these people don’t know what the fuck they’re talking about. A lot of these people want to hear themselves talk. 

They couch themselves as experts. They just want spout off on an internet form or via email to you or on a blog or social media. These days, it’s social media or via support requests. And so the danger in listening to these folks is, A, they can send you off course, and B, they can really be a detriment to your mental health if they say a lot of negative things and you take them to heart of like, oh, I’m screwing up. I am bad. I am dumb. I don’t know what I’m doing. And these days I know better to brush them off. And I’m glad I learned that at least a decade ago, but it took me at least a decade to learn it, and I wished that I had learned it much sooner. And I want to add a clarification to this. The solution is not to listen to no one. 

It’s to listen to people who you trust to give you honest feedback that comes from a genuine place, but also qualified feedback. So it’s folks in your mastermind if they’re ahead of you or you believe that they’re smart founders who are getting things done, it’s advisors, it’s investors, it’s your network. That’s why these days, I have a pretty tight network of folks that I can go to and say, how am I screwing up? Should I make this decision or this other decision? It’s a really big strategic whatever, and I can talk to people and try to get their input. So I do listen to people. I just don’t listen to randoms on the internet. Mistake number nine was overestimating my abilities after early successes. So after I’d had wins with an e-commerce website, just beach house.com folks, info products, a book, my blog, a SaaS app, downloadable software, another not downloadable software. 

There’s all kinds of stuff. I assumed that anything I started would be a hit. And even though I had done it before, I underestimated how hard it would be to find product-market fit again. And as we launched Drip, I overextended myself financially because I believed that I could find it just right off the bat. I was going to launch right into product-market fit. And the result of this over extension was I had a very hard 2014, and I think a little bit of 2015 too, where I was mentally exhausted. I was emotionally drained, stressed out all the time, and financially I was just wondering where the next five, 10, $20,000 was going to come from, where the next payroll was going to come from. My overconfidence in my ability to just find it magically led to honestly to burnout and strain on my marriage and some other relationships that I had, and definitely a lot of strain on my mental health. 

And it was all because I thought that my execution and my skillset at the time would guarantee success quickly. And that is a lesson that I learned, which was do not overestimate your abilities. Give yourself a little leeway. You are smart, you figured some things out, you have some skills, but you are not infallible just because you’ve had a few successes. Mistake number 10 was ignoring my anxiety and letting it control my outlook on the world and frankly, on my startups and my products. So naturally I run a bit anxious, not catastrophic, but I run a bit anxious. But it’s enough that if unchecked, my inner voice can blow up small issues into mental disasters. So I would let things that in retrospect were not that big of a deal, and I would let them just blow up on me and I’d perseverate on ’em and I would not sleep well, and I would think about them constantly and perseverate during the day and then in the evening, and I just couldn’t get away from them. 

The other thing I did was I rarely asked for help, and I lived in a constant state of stress even though things were actually going quite well, like the story, the story is true. Success was there. It was happening. We were growing two grand of MRR per month and then five grand of MRR per month and then 10 grand of MRR per month. And we hit seven figures and we were doing well, but the success didn’t feel good because I was always bracing for the next crisis. And frankly, I was letting my natural proclivities towards thinking about what could go wrong, which usually is kind of a good mindset or a good skill to have, but I was letting it run rampant. And that mindset of catastrophizing everything, it made the journey miserable, and it took me way too long to recognize and work on it. 

And it wasn’t really until after we sold Drip that I realized and acknowledged and then did the inner work. It took to not feel that way all the time. And I regret living those years in that constant anxiety. People have asked me, do you ever regret selling drip? And I’ve never had a day where I regretted, but I do regret the way that I operated during those years and the way I let my own mental health deteriorate. And this was one of the biggest reasons. Mistake number 11 is an interesting counterpoint to number nine. So nine was overestimating my abilities after early successes. Number 11 was not letting my wins build my confidence. So as the years ticked on and I had more success and more wins and more experience even after all those years of success, and this includes publishing books, building an audience, launching profitable products, growing them, I still struggled with imposter syndrome. 

I doubted myself quite a bit. I questioned at certain points, Hey, was it all just luck? I didn’t give myself enough credit for having built a skillset, a tool belt of skills, and having worked hard and probably getting a little lucky, of course we all do, but I failed to give myself the credit, and I worried that confidence would lead to ego. But the truth is, I could have allowed myself quite a bit more belief in my own abilities, especially as I executed. And over time, I wished that I had let my wins build my confidence because that self-doubt did hold me back at times. It took a toll emotionally and it held me back. I think from moving faster and from making bigger bets, and so much like many of these in the list, it’s not something that caused me to not be successful, but they are things that made the journey take a lot longer than it needed to for me. 

And the 12th and final mistake that I made was clinging to a scarcity mindset. Even after I had built quite a bit of wealth. I grew up solidly working class, a step above being poor, and we were never on food stamps or welfare, but there were certainly times where I was worried as a kid that we were going to be, we were a family of six with one working parent. My dad worked construction and they always made the house payment, but I didn’t know that they were always going to make the house payment. We definitely drank powdered milk. There were some tough times. And so I grew up with a scarcity mindset around money, and it took me way too long to shift my thinking. And even after earning amounts and putting ’em in the bank that I had never imagined I would have, I had a hard time spending rationally or adjusting my reality of financial abundance. 

What’s the harm in that? You might think, well, when you have millions of dollars in the bank, but you’re not willing to pay more than X amount per month in rent when you move to Minneapolis because your company just got acquired. And so you kind of live in a crappier house than you should, or you go to buy a house and you’re really not willing to spend what we could very much afford because you have this old script running, or you don’t want to buy an expensive car, expensive, a 40 or $50,000 car that actually runs really well in the winter, has all wheel drive, has heated seats, has remote start, has a heated steering wheel when it’s 20 or 30 below here in the winter. These are nice to haves, but they are nice to have. And I kept driving a salvage title car that I had paid $9,000 cash for 10, 12 years prior, which was fine. 

I don’t need the luxury. But at a certain point, it becomes miserly to have this money sitting there not giving you things that would help improve your quality of life. And I got in arguments with Sherry about this. I was kind of insufferable when we would go to book a vacation, I would say, oh, the budget’s this, and then wouldn’t want to budge on it, even though realistically there was plenty of room there. So I think any example I bring up, you’re going to think, oh, well, you don’t really need to do that. And you’re right, it’s not about the specifics. Each of us values things differently. Some people really want a fancy car. Some people want to fly first class or private the rest of their lives. Some people want to own really expensive comic books or Beatles gold album, and none of those are wrong. 

None of those are things that you shouldn’t ascribe to. The thing that I did poorly was maintaining this fear, this anxiety, this scarcity mindset around money and continuing not to spend it. Well, when we needed to hire help, because we had several kids who were struggling, and Sherry and I were struggling to do our day jobs and also homeschool a kid, and there’s a whole personal story around this that is, I’ll say, challenging to go into the details of, but I remember thinking, well, we just can’t afford it. And in fact, we could have, but I was clinging to that scarcity mindset even though we did in fact have the money to do it. So as you can tell, these regrets are a lot of them are mindset things, and a lot of them either cost me months or years, or they cost me my mental health. 

And I found that interesting as I walked through this list that mistakes in business bets that I made where it didn’t pan out. Oh, I remember I wrote someone a $2,000 check to buy a website or a product, and they basically scammed me. So would I think that that’s a big mistake? Well, it just wasn’t because I just rolled with it because I had a $2,000 at the time to spend. It was a bummer. But it’s not one of my biggest mistakes I’ll never make again because I was making a calculated risk at the time and it didn’t work out. But these mistakes I’m talking about are the ones that I have vowed that I will try to never make again. These are the ones that truly cost me the most over the last 20 years of being a founder. In my next episode, I’m going to talk about what I got, what I believe are my best entrepreneurial decisions, or really the reasons that I believe that in spite of these mistakes that I made along the way, I think by most measures, and certainly by the way that I personally measure success, I feel like I’ve achieved all the success that I could ever want. 

And everything from here on out is the whipped cream and the cherry on top of the sundae. I think the real reason that I have found this success is because of the list of 12 entrepreneurial decisions, so to speak, that I’m going to be talking about in next week’s episode. So tune in then to hear the upside and the positive. This episode, it feels a little bit like a downer, but I am really happy to have recorded this because I hope for me, this is an episode I will refer people to in the future of what are your biggest mistakes? What are the things you wish you’d done differently? And I think this is now the definitive version. So thanks for joining me today as I walk down memory lane and the pain and some of the decisions that obviously I regret. That’s the whole point of the episode, but I appreciate you being here to hear it. This is Rob Walling signing off from episode 781.

Rob Walling:
Welcome to this episode of Startups For the Rest Of Us. I’m your host, Rob Walling, and in this episode I sit down with fan favorite Ruben Gamez. He’s the founder of Sewell and an Oracle of SaaS bootstrapping, and he and I talk through a couple of myths or misunderstandings that we see infiltrating the Bootstrapper community. Do I use that clickbait word infiltrating? Realistically, these are things that we hear enough that we realize folks are buying into ideas that could be harmful to their business or their career. One of them the thought that I will never sell my company. I am happy to just run it forever. There is a conversation around being built differently because you don’t like to market, and so you’re just going to not market and expect your business to be successful, as well as some other topics that we dive into. 

It’s a great show. It’s conversational back and forth, and Ruben and I are speaking from our experiences growing our own software companies as well as the SaaS founders that we’ve been surrounded by for 15 to 20 years at this point. Before we dive into our conversation, if you are interested in indexing across hundreds of B2B SaaS companies and you’re an accredited investor, we are raising TinySeed Fund three. There’s only a bit more room in this fund, and so if you’ve been on the fence and you’re interested in investing in early stage B2B SaaS ambitious founders that go through our world class accelerator called TinySeed, you should head to TinySeed dot com slash invest. You can read it more about our thesis there. Our minimum for the remaining portion of this fund is lower than it has been in the past, and we are seeing great results from Fund one, which has been around for about six years. So our thesis is holding so far and we would love for you to be part of it, tiny c.com/invest. And with that, let’s dive into this amazing conversation with Ruben Gomez. Ruben Reuben, ga, welcome back to the show. Hey, good to be here for your 432nd appearance on startups For the Rest Of Us. Dude, I’ve lost count. I just don’t even know.  

Ruben Gamez:
Yeah, I don’t know. Five-ish or something. Somewhere around there.  

Rob Walling:
No, I think five within the last 18 months.  

Ruben Gamez:
No,  

Rob Walling:
Not either. I’m always trolling you with that stuff. Anyways, great to have you back on the show. You’re the founder of Sewell, as many people know, and you are also founder of Bid Sketch and you’ve been doing SaaS for 16 years, I think, man, I think since oh nine. You’re like one of the bootstrap SaaS OGs and you’re also where I steal all of my good ideas.  

Ruben Gamez:
Cool. 15. I always say 15 years, but yeah, I guess it’s 16 now, huh? I  

Rob Walling:
Think it is. It’s time  

Ruben Gamez:
To oh 9 0 8, something like that. Yeah, yeah,  

Rob Walling:
It might be oh eight. Yeah. And this episode I think has come about because you and I often text about things that we see online here on podcasts see on X Twitter, and sometimes it’s like, wow, this is a great idea, Jason Cohen’s tweet on X, Y, Z, so on point. And other times we see a tweet and we’re like, wow, this is catastrophically bad, misguided so bad that we need to rant about it. And then this episode came about because there were a couple of things that are not just I think bad advice or bad ideas, but we’ve seen them kind of spreading or we hear folks saying them a lot, right? 

And so at a certain point I said, this would make a great podcast episode and we just plunked things. So I don’t know if these are quite three myths or maybe just three sentiments that we’ve heard founders say that were like, question mark, this makes no sense. So we wanted to call it out. The first one is kind of a combination. I think there are think quite a few bootstrappers and whether they’re indie hackers or they’re more the ambitious bootstrappers who want to get to a million, 5 million, 10 million a RR. There are folks who believe they will never sell. And I know I always say everyone sells and people nod their head. I mean that when I say it, everyone sells. I mean, they really do. All the examples I always throw out of like, Hey, I never thought MailChimp would sell. I never thought, I didn’t think Baremetrics would sell. 

It was just, I dunno why I never thought that. I was like, Josh is just going to run it forever. I didn’t know I was going to sell Drip. Whatever everyone sells eventually except for Basecamp, that’s probably the one that may never sell. But I guess to throw it to you, what is the danger of a bootstrap founder starting a company and let’s say this is not a little indie hacker project. This is not something, ooh, it’s a step one, step two, business, 5K, 10 K, it’s going to plateau great. I’m never going to sell that. It’s like, fine, whatever. That doesn’t matter. But what if you’re growing when you’re at a half a million or a million or 2 million a RR and you’re growing well, 20 to a hundred percent a year and it’s going well, and you’re like, well, I’m just never going to sell. I like being bootstrapped. I don’t know what I would do next. All the objections. What’s the issue that you see with that?  

Ruben Gamez:
I think there comes a point where growth slows, it either slows so much that it basically is a plateau or it just is a legit plateau, and at that point, founders go for a very long time trying to change it. They don’t feel just that contrast between when they’re growing and that feels great, super easy when things are feeling really good, growth is going well to just be like, oh yeah, we’re just kicking back. I can see this going for, of course I can see it going forever when something is growing. Amazing. Yeah, yeah, life is good. Then it slows down and that feeling just sucks. They don’t like that feeling. They work on it and then we’ve seen this so many times, then they can’t change the growth, they can’t improve that. So then they want out, they start a new thing and they figure they’re going to sell and then they find out that they can’t sell the business for very much. A lot of founders don’t understand that growth multiples on exits have a huge impact. It’s everything. There’s such a big difference between selling when things are good and when you’re like, okay, I tried everything. It’s been flat for a couple of years, I just can’t, it just kind of sucks. I want out. It’s like, okay, well now you’re going to be very disappointed with what you’re going to get. So I think that’s one of the bigger dangers in my opinion.  

Rob Walling:
And to put some ranges to that, and I was throwing these out on Twitter the other day because someone said that they were trying to get a four to five X revenue multiple an A RR multiple on their SaaS, and they didn’t get that, so they weren’t going to sell. And I chimed in just saying, Hey, that is not a default. We throw out ranges. Well, on this show maybe we say four to seven or four to six, five to seven a or multiple, but that is if you are doing, let’s say 2 million bucks a year and you’re growing at 40, 50 or more percent per year, if you do not have that, let’s say you’re flat, let’s see at 2 million and you’ve grown less than 10% say in the last year, which is effectively as flat odds are, you’re going to get a one to two XARR multiple. 

If you get an a RR multiple, they might look, people might say, well, I’m buying on profit, and then we’re talking again that four to six, five to seven, but it’s profit and most of us don’t run our businesses. It depends, right? If you’re growing fast, you don’t run it to for profit. So that’s the difference is we’re talking, let’s just throw a couple numbers at, let’s say you’re doing 2 million and you get five x six x, you get 10 12,000,001 to two x is like 2 million bucks about the revenue you’ll do this year, and two x is obviously 4 million. That is, we get these numbers in our head when they’re growing and I don’t know, I remember being calculating my net worth in my head as the MRR would tick up. Ooh, that’s 5K of MRR this month that we went up. So that’s times 12 is 60 K of a RR. 

And let’s say we sold for five x, that’s $300,000 in net worth or in business enterprise value that we’ve created. But what that leaves out is that’s only if we keep growing five KA month every month or whatever percentages, and that’s we don’t want to be curmudgeons and people who are like, you should sell. Now, I guess that’s the next question is we want to be for people to be aware of the reality of it, but they might say, so then, so should I just sell the moment I hit a million or 2 million? Should I sell then? Is that what we’re saying?  

Ruben Gamez:
I think you just have to stay ahead of it and be mindful. So if you’re going to go for five more years, 10 more years, if that’s what you see, then just be aware that businesses don’t just grow forever in the way that they’re growing, especially at the earlier stages and that plateaus are always coming. And you can calculate that. It’s just math, right? Because the more you grow, even if your churn stays the same, which typically it does, like you have 2% churn, 3%, 5%, whatever it is, that means you have more customers, more revenue coming in and you’re churning basically you need more new fresh revenue and customers to make up for the additional churn as you grow. And that makes it harder and harder to stay at the same growth rate. We’re not even talking about increasing it, just staying growing 50% or that’s hard. The more you make the harder it is.  

Rob Walling:
Absolutely. Yeah. And I did a talk on plateaus that you reviewed for me and helped me improve it from the time I did it in Europe last year until I did it here in New Orleans a couple months ago. And we are going to be pulling that video and putting it on our YouTube channel. The folks want to see it right now. They can go to microcomp.com and you can buy the videos. But I think in two, three months we’re going to have just that video up on YouTube. And one of the things I talk about in that talk was the math for calculating your plateau, which is the new MRR in a given month divided by your churn rate. So if you’re adding $10,000 of MRR each month relatively consistently, look, I know it’s not to the penny, give or take on average over the past, whatever, it’s 10 K and you have a 2% churn rate, then you divide 10,000 by 0.02 and you will plateau at 500,000 of MRR. That’s not too bad. That’s 6 million bucks. Most people aren’t adding 10 K-M-R-R-A month, and most people don’t have a 2% churn rate. That’s the challenge In the talk I gave the example of adding 5K MRR and having a three or 4% turn rate, and in which case you’ll plateau much earlier than that.  

Ruben Gamez:
Yeah. I think part of it is staying ahead knowing when that happens. And what I mean by when I say staying ahead of it is that means that you have to do new things or more of what you’re doing. If there’s a lot to be done there to grow more, you have to stay ahead of it. Both of our friends, Robert Graham, who runs, he’s the CEO of a YC company doing many, many millions of dollars. I like how he put it pretty recently when we were talking about this, he said something like the prize that you get, and it can start to feel this way, the prize that you get for pulling a rabbit out of your hat, and that’s kind of finding new growth, is that you get to pull another rabbit out of the hat,  

Rob Walling:
Which is hard.  

Ruben Gamez:
Yes, it’s  

Rob Walling:
Not, which is hard. Yeah. That’s the thing. If you have an existing marketing approach or two that are working or five like we did with Drip, none of which were these big stellar things, but each one was 10, 15% of our new trials, we had all this integrations and whatever else was going on, each of those will plateau naturally. Some of them will kind of stop working at a certain point. And then you have to think about how big is my market? How much market share can I actually get? So adding new marketing approaches as we finding that first marketing approach is hard enough, adding new ones is just like that. Or like Robert said, rabbit out of a hat. So their headwinds there. And I think what you keep saying, and you’ve said this on the podcast in the past, is getting ahead of it. How do you get ahead of it? How do you think about, well, I’ve calculated that I’m going to, let’s say I’m at a million a RR right now, given what we’re doing right now, I’m going to plateau at about 1.5, 1.6, and that is six or eight months out, so I have some time to think about it. How do you Ruben think about this with your own businesses? Because I know you’ve gone through the process with Sowell.  

Ruben Gamez:
So for me, I am always trying to experiment a little bit of our time and budget on other stuff and maybe some of that hits and shows promise, but a lot of times it just doesn’t. So it really requires a ton of energy and time to find a new channel. Just like when you did it the first time, it requires a ton of activation engine. And in fact, sometimes it’s harder than finding that first channel because the first channel that you find is probably the easier thing, the more obvious thing. And now you have to do something new. So for me, it’s really just similar process of experimenting, thinking through where there is enough. And a lot of it is just kind of being systematic and using math, and it’s not like this complicated thing to where I’m using spreadsheets or anything like that. You’re really just thinking through, I’m doing a little bit of research of how does this market work? Every market works a certain way. Where are the opportunities still in this market? Competitors that are bigger, what’s working for them, what haven’t we done? And then prioritizing those based off of some rough estimates of what we think we can do there.  

Rob Walling:
And I think the key takeaway, if someone’s listening to this, it’s not to be scared all the time and be like, oh my God, I’m going to plateau. I should sell now. I should panic. And that’s not what we’re saying. We are saying be aware that you will naturally plateau if you do not bring more to the game. I don’t know that I can think of a single SaaS app in our ecosystem that is in between let’s say one and 20 million a RR that has just continued to grow and grow and grow and grow based on something they did in the early days. It always requires some type of additional, as you said, activation energy, some zero to one energy of bringing in a new marketing approach or a new expansion or a new product, or there’s something there. And so if you’re listening to this, I mean, I remember thinking about this with Trip and one of the reasons that we sold was I was like, how far can we take this before we plateau? 

I don’t know. I mean, I could do some math on it. And I saw that and then I was like, how are we going to get past that? Plateau is coming. It wasn’t months away, but it was definitely out there. And I didn’t have a strong sense of how to do that, and I didn’t know if I had the activation energy to continue doing that. I was a little burned out and I was getting a little tired of the email space with blacklists, there are certain things that just pull on you and you’re like, how? And I kept asking myself, if I’m going to get the activation energy to bus past that, cool, I’m invested in this for another two to three years, probably should raise some funding. Frankly, at the time we were cash strapped and that was hampering growth in hiring and stuff. Or I could consider taking these offers that are coming in. And for me and Derek, Eric, that was, I’ve never regretted it, so I’ll just say it was the right decision for us. It’s not that everyone has to do that, but I made a calculated decision to take money off the table instead of putting at risk or multiple, because we did get a nice a RR multiple, and if we ran it over the top, which I say more folks do than probably should, 

That would’ve been tough. It would’ve been tough.  

Ruben Gamez:
So this is something that I’ve seen when talking over this topic, people reply, which is I’ll just run it as a profitable business for X number of years. So why didn’t you do that? What was your thinking for exiting Drip instead of just running it for a few more years and just taking the cash out of it,  

Rob Walling:
Right? Get to two, 3 million, whatever. And yeah, no, that’s a great question. So there’s a couple of things. Number one is it is so demoralizing running a flat business or running a slow growing business, it gets so boring. I know several founders, I know a lot of founders that are running or have run flat businesses and it’s so boring. Super. Yeah, it’s rough. It is. As founders, we are naturally designed to see some number go up into the right. How do you get your energy? You don’t get your energy punching a clock and showing up to keep something flat. You have to see, usually it’s MRR. If you’re running a SaaS, that’s the number we could say, well, maybe it’s your YouTube channel followers for your SaaS or your email subscription. No, you don’t care. The scorecard is MRR. So that was a big one of I would just would get bored. And I don’t know that most founders think about that.  

Ruben Gamez:
No, I like the nine to five phrase that you used there because for some reason people have a really easy time thinking about how difficult it would be to just do a nine to five just zone out and just run through the motions day in, day out. But for some reason they have a tough time equating that to, that’s exactly what happens in a flat business.  

Rob Walling:
Yep. You’re responding to support tickets, you’re shipping features, you’re making product decisions, you’re still doing the marketing, you’re doing all the sales calls, you’re doing it all. And it’s kind of for, it’s to tread water. And again, if it’s two or three or four or 5 million, it doesn’t matter. It doesn’t matter. It’s boring. And this is one of the reasons Basecamp, I don’t know if they’re growing or flat or we don’t know. We know they’re super profitable, but there is a reason that they rewrite their entire code base every four or five years because they think DHH gets bored and then they launch other products because they get bored  

Ruben Gamez:
Email products.  

Rob Walling:
Totally. And look power to them. They can do whatever they want, but realize that their business, again, Jason Fried confirmed this on stage at MicroConf, Basecamp throws off tens of millions of dollars a year in net profit. And for all intents, it’s basically Jason Fried and DHH. Those dudes are raking an 8 million, I’m sorry, 8 million, eight figures a year of net profit. So on the outside we all say, well, they’re just living the dream. They’re living the dream. And it’s like, yeah, that is cool, but they are bored with the core product.  

Ruben Gamez:
Even them pulling in all that cash, they’re still looking for other stuff.  

Rob Walling:
So that was one big thing that I think founders should be aware of is flat businesses are not only boring, they’re demoralizing too. Both of those things. The other thing was I looked at the numbers and I thought, no matter how profitable I make this, let’s say I get to 3 million and I’m making, what do we think? I could make a million dollars a year, sure, make a million dollars a year, but if I can sell this thing now for 10 million and I get long-term cap gains on it instead of income tax and I draw 10 years and at 3 million a year, if I’m growing and I am not selling that thing for 10 million at 3 million a year, I’m going to get 15, 20, 20 5 million. Basically you’re going to get a lot of cash upfront in a way that accelerates all that earnings and then allows you to do your next thing or to do whatever you want frankly for the rest of your life rather than, because this is the other thing we hear right, is why would I sell it for two x or three x? Why would I sell it for such a low multiple? I should just run it and pull out the profit. We often hear that, why wouldn’t you do that?  

Ruben Gamez:
Even if it’s three x, which is a lower multiple for business, that means it’s not growing that fast usually, or there’s some risk or whatever. I think people are thinking that they’re going to run it for three years and they get that cash in three years. It’s not three years not even close because we’re talking about profit, whatever’s left over in the business that if you make it super profitable, that probably means you’re the one grinding doing most of the work during that time. So it’s a tougher amount of time, tougher number of years. And then besides that, whatever the profit, even if it’s really high, you’re taxed more on it usually. So it just takes longer. Plus as you go along, it’s harder and harder to keep up with the growth we just talked about. All these things come together into it being a longer period of time than people think and it being a harder sort of slog during that time and just they’re having significant risk versus getting the cash up front, freeing you up to work and do on whatever you want to do next.  

Rob Walling:
And I’ve known a few founders who have said, Hey, I’m going to get this business. It’s growing fast and I think I can get it to 3 million a RR in that range, let’s say two to four. But some specific folks have said, Hey, I want to get to 3 million and then I want to sell and I want to sell for this really good multiple and I want to be growing like crazy. And I remember being like, why not keep running it? Why don’t you keep running, running it? And he said, because at that point I have generational wealth and why would I keep pushing it? And he said, and I see some headwinds. And he had done the analysis and did he know for sure, of course not hard decisions, incomplete information, but he walked away with a really nice eight figure payday. And so if the business five Xs or 10 Xs in the next couple years, do you regret it? I don’t. Drip has more than 10 XD since we sold it. In fact it 10 XD within probably two years, maybe three. And there were a bunch of factors at play there. There’s a bunch of venture capitally invested in it. I mean, we grew the team from 10 to 125 by the time I left. There’s a lot of things, but did I ever think to myself, man, I really wish I hadn’t sold and I still owned it. Not once. Yeah, not once,  

Ruben Gamez:
Right.  

Rob Walling:
Alright, let’s move on to the second topic. It kind of ties in, but it’s crazy how often I’m seeing this quote or this sentiment that people are built differently, we’re wired differently. And it specifically applies to, it’s usually an excuse of you and I are like, do the hard things, do what it takes to succeed. And that usually means launching something, focusing on it, figuring out marketing approaches, whatever the approach that we talk about on this podcast. But there are other schools of thought that it’s like, well, that doesn’t fit with my personality. I don’t know how to do outbound sales or how to do X, Y, Z marketing or sales approach. I don’t know how to do that. Or it’s outside my comfort zone. I’ve seen all these phrases, so I’m not going to do that. I’m going to do what I know. I know content marketing, so I’m going to do that. And specifically with an example like that, it’s like shouldn’t the first question be where are my customers and what’s going to be the most successful rather than my comfort zone? So that’s a little thing there, but this idea that we’re built different and there are just certain people who I don’t know, they’re just wired to build 27 apps or you sent me a tweet the other day, someone’s going to build, said they build 60 apps, 60,  

Ruben Gamez:
60  

Rob Walling:
Apps that each going to make $500 a month. They want 30 K of above the recurring revenue. And I was like, oh my lord, good luck. The logistics of just managing the domains in the payment accounts alone. But if you and I chimed in on that, they’d probably say, well, I’m just bill different and I’m not going to put all my eggs in one basket or whatever. So tell me, am I summarizing it well, and what are your thoughts on this? What am I missing on this topic of being built different?  

Ruben Gamez:
Yeah. I usually just see it as an excuse for people to sort of do things that they’re comfortable with and not the uncomfortable stuff is really mostly what I see it come down to because where’s the growth in that? Right? This is a very static sort of self-identity type of thing. So even things that they say that they’re good at, how did you get good at those things? What if before you got good at those, you just stuck with what you knew and didn’t, right? And you’re like, oh, well, I’m just going to stick with the things that I know and I’m good at. You would never have gotten good at those other things, the things that you, you’re great at now. So we’re always learning new things, always having to figure stuff out and things get difficult and it’s not always easy, but that’s how you get good at stuff or that’s how you learn. That’s how you grow as a person. You find what things you enjoy, what things you’d rather have other people do for you or whatever. However you want to manage all that. It’s like without experimenting, it really is just this mindset that’s the opposite of a sort of experimentation sort of mindset. It’s tough to grow that way.  

Rob Walling:
Yeah, it is. The fixed versus growth mindset is a piece of it. Although that usually is I believe that I can change versus I’m willing to do things that are uncomfortable that make me change. But I’ve equated this to folks and I’ve stopped chiming in on this on X Twitter because I just get tired of saying the same thing over and over. But I’ve equated it to saying, because I would say, Hey, don’t launch 20 things and see what sticks. You’ve heard me rant about them on the podcast that I won’t say again why I believe that, but I’ll chime in with my reasoning of like, Hey, here’s why I think that’s a bad idea. And someone will say, well, I’m just built differently, but this fits my personality. And I chimed in one time and I said, it fits my personality not working out and eating right to lose weight. What fits my personality is eating ice cream. I love eating ice cream. It’s my favorite dessert actually. And so that fits my personality. The fallacy is like, but that doesn’t have anything to do. My personality or my desire doesn’t have anything to do with what gets results.  

Ruben Gamez:
Playing video games is really fun for me. And easy comes easy. It does come easy. It just comes easy to you. It does. I’m built for it, but that’s not going to help me get customers. It really comes down to where the people that I think are going make up our ideal customer, where can I find them and what type of marketing activities will best work to get distribution and get customers for a product? And I could say I like doing podcasts, I like talking, so I’m going to do podcasts to get customers, but that’s probably for most SaaS, that is not an effective channel. That’s usually not good. And I don’t want to say that it doesn’t matter at all what you’re good at because you can look at a market and a customer type and say, well, these two or three things seem to be effective in this market or seem like there would be good ways to reach these customers. And if one of those works best with the things I like, then of course I’m going to prioritize that. So use your strengths and connections and everything else. Doesn’t mean you don’t look at that, but first you work backwards from where do I get customers? And then if there’s some overlap with the things that you’re good at, then great use that.  

Rob Walling:
That’s where it is. And if I was really good at building a personal brand and building audiences and going on podcasts, I wouldn’t start a SaaS. I would start an info product and course business. That’s what you do. And guess what? That’s actually what I do. I don’t run a SaaS anymore because I enjoy what I do. Audience building and putting out podcasts, I like that better. And so I was under no illusion after building a few SaaS companies that I wanted to keep grinding on, that type of stuff. I just didn’t enjoy it as much as writing books and being in a personal brand influencer, whatever it is, someone wants to call me, I enjoy that more. It’s just more fun for me, maybe because I’m wired differently. But here’s the thing, but I was willing to grind and do whatever it took to grow the businesses back in the day. Right? I was willing to,  

Ruben Gamez:
Yeah, I remember, yes. Remember when we were doing Facebook ads? You were doing like hit tail, remember?  

Rob Walling:
Oh my God,  

Ruben Gamez:
The grind.  

Rob Walling:
Yes, I do. I remember.  

Ruben Gamez:
Yeah, man.  

Rob Walling:
Yes. It’s crazy. Multiple days a week in that ad thing, getting images generated.  

Ruben Gamez:
It’s not the most exciting or most fun thing, but no did the work  

Rob Walling:
Exactly. And I did it because I wanted to be a successful entrepreneur. I think that folks who are builders, product people, developers, makers, I don’t think you’re an entrepreneur until you take on the full role, a full scope of running a business. And look, if you have a cajillion dollars in funding, can you hire someone to do sales? I’m like, maybe. But if you don’t and you’re bootstrapping, you have to do it all. And I think if you have kind of a hobby project that maybe you get lucky and takes off if you’re not someone who’s willing to really look at what are the marketing and sales approaches that it takes to grow this thing, and someone asked you, I won’t say their name on X Twitter, but they said to you, they said, earthling works. I’m genuinely intrigued. Do you think you’re wired differently to have the desire or patience to? And they said for that, but basically they were saying, because you were suggesting some marketing approaches, you should do this, this, that, and this. Do what it takes, not what you want to do. So this person was saying, do you think you’re wired differently, Ruben, or that you’re just more disciplined? What do you say to that?  

Ruben Gamez:
I don’t know. I feel like for a lot of this stuff, I don’t think in those terms. I feel like people spend too much time thinking about whether something’s difficult, whether they can do it, whether I spend more time just trying to figure, it’s not really a thing, a way that I’m built or anything like this. It’s just where I put my focus and attention. If my focus and attention is on how difficult something is, how big of an obstacle I see, then yeah, it’s going to feel really hard and that doesn’t feel good. How am I going to bring out the energy in me and get started? If that’s the case, I’m just looking at, okay, what’s the first thing? What’s the first step? What’s the next thing that I need to do? And that’s where I put my time and attention focus on. So it’s almost like just not overthinking it, not spending a lot of time in my head about it.  

Rob Walling:
If I really simplify it, I think that you value success more than you value your constant carefree enjoyment of every minute growing your business. You value success more than wanting to have fun eight hours a day, five, six days a week, whatever it is that you’re working on. And I think some other people think, I mean maybe this is a controversial take, maybe they think, no, this should be fun all the time. I shouldn’t do anything I don’t want to do. Sorry, I laugh because how many things have you done in your professional career as an entrepreneur that you don’t want to do? I’ve done so many things and I believe that is one of the reasons why I’m successful. There’s just no chance that I would be who I am or have the success I’ve had without the willingness to do that.  

Ruben Gamez:
Yes, but there is a fun to a lot of these things, even the grindings to some of it, right? I don’t know. Can you go without finding some enjoyment to this? It’s kind of like, or framing it in a way. I think a lot of it really just comes down to framing and sure, I have some stuff that I have to do with the state of Delaware today. I’m doing that stuff yet I’m not thinking about like, oh, this is super fun, or Oh, this is terrible, whatever. I know it’s not something that I would choose to do or enjoy, but it doesn’t mean business is or that it sucks or that my day sucks. I still really enjoy what I’m doing and this is just part of what I need to do to move forward and make progress. That’s it.  

Rob Walling:
You have to enjoy some of it. You have to enjoy maybe the majority who knows what percentage it is, but you have to enjoy a significant amount or you’ll burn out. You will. So you have to find that balance. But I am under no illusion and I don’t know, do I know a single entrepreneur who didn’t do anything grindy that they didn’t want to do and got success and they got really, really lucky that one time. So if you want to bet your entrepreneurial success on getting lucky that way, you’re the one in a thousand. I mean, of course it happens. It’s just very, very, very rare. It’s way more rare than people, I guess it’s a little bit of the lottery ticket mentality of like, Hey, you can become a hundred million sent a millionaire without working if you get really, really lucky.  

Ruben Gamez:
Yeah, no, it’s a lot like that. I was literally thinking about this with a lot of that goes around with especially the 60 apps type mentality, right? It’s like going to the convenience store and getting a bunch of lottery tickets and scratching them off and hoping that one of them is a big winner  

Rob Walling:
And I like things that are repeatable and that I think give me a higher chance of success than a lottery ticket over many years. The last topic I kind of want to transition this to, but we’ve already started talking a little bit about it, is it’s kind of around getting really lucky. It’s all just luck. No one knows what they’re doing and it ties in with people having excuses of why their app didn’t work, why their business doesn’t work. And frankly, this got sparked into my mind. It’s something we see frequently people talking about, but the excuse to be specifically is I’ve now seen several founders start effectively the same business, the same SaaS serving the same market with same ideas, and one of them was incredibly successful and sold for tens of millions of dollars, completely bootstrapped and walked away with generational wealth and other folks plateau at 10 KA month and we’ve seen this multiple times. 

You and I, again, we’re not going to name names, but we see this in it’s multiple apps across different markets, across things that we see where it’s like someone’s doing two 3 million in a market and someone else is doing five KA month and that five KA month is like, yeah, this market’s just too hard. SaaS stuff doesn’t work anymore. SEO doesn’t work. AdWords don’t work all the market. It’s different in 2025. It’s a list of excuses frankly. And you and I were texting back and forth as we often do, and we were saying, isn’t it stark that these two products starting at relatively the same timeframe, had such different outcomes and people don’t look at that often because they want to blame things and to quote, you said people love excuses. What do you think? I mean aside from that just being very poignant and I was like, yeah, I just screenshotted that and put it in this outline. I was like, we have to talk about this. Expand on your thinking there.  

Ruben Gamez:
It actually happens often where you have the same apps being launched at the same time and even if it’s a completely new category, how often do we see that? All the time. And a lot of times you’ll see most of the people just have really just the amount of success that they have is just very small. They shut down the apps and they never really get anywhere. And there are people who make it work, not just that. But then we also see people who make one thing work after another. Like Jason Cohen, right? He did four, has done four startups in the millions of dollars. The latest won billions, and if it’s all luck, he must be super, the luckiest person ever, right?  

Rob Walling:
Really lucky. Yes. David Cancel has had five exits for cash heat, and Shaw has had, I don’t know, four successful SaaS companies. We could name a lot of people. It’s not luck.  

Ruben Gamez:
No,  

Rob Walling:
It’s not luck. There’s some luck involved in all of it, but it’s  

Ruben Gamez:
Right, not as much as, yeah, I think it makes people, some people feel better about when they don’t have success with what they’re doing because then if it’s luck, it’s not their fault. And I think this is their framing. It doesn’t necessarily mean that it is their fault unless they’re off playing video games or doing something else or avoiding the things that work, a lot of the stuff that we talked about to make progress. But it makes it so that they don’t have to assume responsibility for any of it, and they don’t have to feel bad.  

Rob Walling:
They don’t have to assume responsibility and they don’t have to do anything they don’t want to do because if it’s luck, I should just build it and throw it out there and I shouldn’t grind and I shouldn’t do. Referring back to the past 25 minutes of this show of like, no, you probably have to grind because luck is usually a very small component of the success.  

Ruben Gamez:
Sure, there’s always some element of luck, but even that you can increase, right? You can create more luck by creating more opportunities, more of the right type of opportunities. And it’s not just like any activity. It’s the right type of activity that will help create some additional luck. But if you are building a product and you never show it to anyone, you never talk to anybody in related industry, you’re just going to have less luck than someone who’s out there promoting the product, talking about it, showing it to the right people and doing a lot of work around customers and potential partners. And that person is going to have not just better results just straight up direct from the activities that they’re doing, but also they’re just going to have more luck that’s going to help them along.  

Rob Walling:
Yeah, there’s a quote, I think it’s attributed to Thomas Jefferson. I don’t know if he said it or not, but it’s like the harder I work, the luckier I get. Luck is when preparation meets opportunity. It’s always something there. And even I say on this podcast, doing things in public creates opportunity or creates luck to be honest. Doing things in public publishing, blog posts and launching SaaS, and as you’re saying, you can’t just do any random thing. This is maybe where that my sentence kind of breaks down is you can’t, because I guess someone could then say, well, I launched my SaaS and my doing things in public is posting to Twitter. And it’s like, well, that alright, maybe that doesn’t work. But if you want to see examples, if folks want to hear examples of people who stories of them kind of grinding and doing stuff. 

Number one, you do a lot of marketing that is not social media. In fact, you don’t do any social media marketing for Sewell, right? It’s all these other channels and we can probably dive into ’em someday, but I interviewed Kevin Wag, staff of Spector, I believe it was the home improvement or no, it was SaaS for home inspectors, I’m sorry. And how he and his brother bootstrapped and sold half the company for at a 90 million valuation. Listening to that episode, I was struck actually, it was such a good story and there was so much of the, we just did what it took. We didn’t care, and I don’t mean working 90 hour weeks. Some people will be like, oh, so you just got to grind. You just got to be a Silicon Valley bear. I say, no, no, no, no, no. That’s not what I mean. I mean working on things that are hard or maybe you don’t want to do. Or he did get up at 6:00 AM on a Sunday to do a demo to close a deal, and they did a bunch of Facebook group stuff, which is not the funnest thing,  

Ruben Gamez:
And consistently over a period of time I heard that it’s great if you listen to that and you hear about all of the stuff that he did for as long as he did. Then it’s like, oh, okay. I can see it sort of come together. And it also is probably offput to some people who think about the amount of work required to get to that point.  

Rob Walling:
It’s a lot. That was episode 776 if folks want to check it out, two episodes before that was a Noah Tucker who runs Social Snowball that io, the title of that episode was how a non-technical founder bootstrapped to millions in revenue. His story was very similar. He’s a single non-technical founder. He now runs a team of 24. It’s completely bootstrapped and is wildly successful. And everything you heard him talk about was doing what it took, not what he wanted to do, and he does enjoy it day to day. This is the thing I want to drive home. Again, it’s not that these guys hated their life the whole time. This is not it. This is not delayed gratification, grinding for years to get there, man. I know these guys now they could do it again. Either of ’em could do it again because they don’t rely on luck. 

Luck is just a small piece of the puzzle. Just like you had bid sketch, which you still run Sewell, and if you were like, I’m going to start another SaaS, right? Well, first I’d tell you, you know what? Maybe exit Sewell first so you’re not running three companies. That would be my first. That’s not going to happen, but, but if a few years from now, if you were to be like, I’m going to start another one, it’s like, well, that’s going to be great and it’s going to succeed or have a high likelihood of success because you’ve learned so much and haven’t relied on luck.  

Ruben Gamez:
Yeah, there are no guarantees of course, but there are some people that do the work and if they’re starting something new, it would not be a problem for me to put my money on them. And yeah, I wouldn’t expect guarantee that that’s going to work, but chances are pretty damn good.  

Rob Walling:
Rubin, thanks so much for joining me once again on Startups. For the Rest Of Us, if folks want to use the best electronic signature app on the internet, it’s at sewell.com and if they want to follow you on X Twitter, you are at Earthling Works. Thanks again for coming on.  

Ruben Gamez:
Thanks for the invite.  

Rob Walling:
Thanks again to Ruben for coming on the show. And after we hit stop on the record button, we came up with two or three more myths right at the end, and so I put it into a new outline and maybe I can convince Reuben to come back on the show here in a month or two, and we can keep this type of format going. If you enjoyed the conversation of this episode in particular, because it’s a little different than a lot of startups For the Rest Of Us, right? It’s a conversation between two grizzled, jaded SaaS founders talking through thoughts and ideas that we agree with and don’t agree with. And if you felt this was interesting, you can at mention us on X Twitter. I’m at Rob Walling and Ruben is at Earthling Works. Thank you for listening this week and every week. This is Rob Walling signing off from episode 780.

Rob Walling:
Welcome back to another episode of Startups For, the Rest, Of Us. I’m your host, Rob Walling. In this episode, I’m going to talk about the eight levels of platform risk as well as the three factors that contribute to platform risk. And I’m not just going to talk about the traditional, I have a Shopify app, or heaven forbid, your WordPress web host this week, but I’m going to look at platform risk from a sense of any type of reliance on an external platform. So if you use SendGrid to send email, how does that factor in? If you use AWS for your hosting or you use an open source package like WordPress, and honestly, this is a framework I came up with a few months ago and I jotted it down in a Trello board. I keep for a podcast episode topics, and I was just going to pull it out at some point, probably put it in a book, I’m sure talk about it on the podcast. 

And then the WordPress WP Engine kerfuffle flared up by now, that’s a couple weeks old, but it did remind me that I had this and had never really done a full refinement on it. And so this podcast episode is a way for me to kind of bring that out and talk through my thoughts of platform risk as I see it, especially it’s probably any startup, but realistically, there’s a little bit of a B2B SaaS bent to it, right? Because that’s the 191 investments I’ve made. And so I’ve seen different forms of platform risk blindside companies in different ways, and that is the basis for today’s episode. Before I dive into that, tickets for MicroConf New Orleans are on sale. You can go to MicroConf dot com slash us if you’d like to grab your ticket. The event is being held next March of 2025. Speakers are yet to be announced, and of course, I will be there in New Orleans. And if you want to get together with about 250 of your favorite bootstrapped founder friends, head to MicroConf dot com slash us. The tickets right now are the least expensive they will ever be, and they will go up in price, I don’t know, in a few weeks or a month or whatever. In addition, we are going to sell out. We sold out our Europe event, I believe we sold out at Atlanta last April. So if you want to get a ticket, there is no reason to wait. microcomp.com/us. 

Let’s dive into platform risk. So I’m going to start with these three factors that contribute or define platform risk. And each of these you might think of on a scale, whether it’s one to 10 or one to a hundred, there can be a small amount of risk for a specific factor or a large amount. So the first one I think of is a replacement. So if you are on a platform, whether that is using SendGrid to send email, whether it is hosting on AWS, whether you built a no-code app in Airtable or Bubble, whether you are a Heroku app or Shopify app, is a replacement available for this platform? And how hard is it to switch? And is the pricing approximately the same? So there are more questions than that, but those are kind of the high level, so it’s replacement. So we might think of, well, what is an easy replacement where it’s available? 

It’s not that hard to switch and it’s a commodity, so the pricing is the same. Well, that is something like I would say SendGrid postmark, mandrel mail gun. The switching cost is real. It is a thing, but it’s connecting to a new PI. And it depends on how deeply you’re integrated, obviously, but that switching cost is not catastrophic. And pricing in that space of sending email or even SMS, I think of Twilio and the cajillion, SMS APIs out there are a lot of replacements available, so that’s going to be a much easier spot. But what if you are built on Shopify’s API and you’re in the Shopify app store? Is a replacement available? How hard is it to switch? And is it priced the same? Well, the pricing doesn’t necessarily make sense in that context, but is a replacement available? How hard is it to switch? 

It’s kind of like, no, there really isn’t a replacement. And switching is basically impossible, right? Because if you were just a Shopify app and you’re like, well, they kicked me out of the app store, or they took my API access away, it’s like, well, we can go build a BigCommerce, a Magento, a WooCommerce version, but it’s not the same. It’s not a replacement, and that’s not really switching costs, that’s just building spinning up a whole new product. So the hard to switch is just astronomical. So when we think about replacement from one to 10 or one to a hundred, that takes you from easy to hard, at least in my mind. So the first factor was replacement, second one is customer concentration. And the question here is, are the majority of your customers on this platform, meaning that if you were kicked out or the API access were shut off, or somehow the platform suddenly said, you’re on Twitter’s API, and they say, we need you to pay us $12,000 a month. 

Now to maintain it are 80%, 90%, even 70, 60% of your customers on this platform in a way that essentially will decimate a huge amount of your revenue. Now, what’s interesting is this is separate from the third factor, which is I’m saying lead flow or customer flow. That’s on an ongoing basis receiving new customers, say from an app store listing or a marketplace listing. And that’s different, it’s related, but it’s different than customer concentration because in theory, I could go build a Twitter client, I could be getting zero lead flow from Twitter, but a hundred percent of my customers could be concentrated on Twitter or on Facebook’s API. Again, if I’m an app that postponed, for example, that helps you post to Reddit, Instagram, Facebook, Twitter, and all those Grant, he’s a TinySeed founder, started Postpone and it was just for Reddit. And so when we funded him, we said, your customer concentration is basically a hundred percent Reddit. 

We think you should diversify into other platforms. And he was already on board with that. So now he has a little more diversity across the different platforms. Now, great example with Postpone. Does postpone receive any lead flow from being in a Reddit app marketplace? No. So you can have concentration and you can have the risk of that concentration without the lead flow, and you can have the lead flow. I guess in theory, you could have, let’s say I was on four platforms. I was like Shopify, BigCommerce, WooCommerce, and Magento, and I had 90% of my customers on Shopify and only 10% across the other three. But let’s say the other three were sending me a lot of leads, I just branched into ’em, and usually this is not the case. Usually actually branching into other platforms is a lot harder than you think. We’ve seen Tiny, I’ve seen TinySeed companies and non TinySeed companies try to do it and it can work, but in the majority of cases I’ve seen it hasn’t worked. 

So the example there though was to say you could have lead flow in those three smaller non Shopify apps, but not very much customer concentration kind of still early. So these three of is there a replacement, customer concentration and lead flow are the three factors that I think of when I try to rank order these levels of platform risk. So now that I’ve defined these three factors, the contributing factors of platform risk, I want to walk through the eight levels of platform risk, and I will talk through the contributing factors and how they relate to each of them. Interesting data point. As of a week or two ago, I had seven levels of platform risk, and the WordPress WP Engine kerfuffle basically begged the question of, well, let’s say you are built on WordPress, what’s the platform risk of that? And there’s different things. WP Engine uses WordPress and they’re a web host, but what if you had a B2B SaaS company that was built on WordPress as the core, so it was kind of a no-code thing hacked together with plugins. 

That’s almost a related, but a different question. And so I added that as another layer. The answer of course is always, well, it depends on a lot on the specifics of how you rank these. All of these are valid levels. It’s just comparing being built on WordPress versus being hosted on AWS. I have ordered those in a certain way, and I think in different situations they could be swapped a little bit, but to me, this list is directionally correct and it takes those three factors and applies it to a bunch of different scenarios that I’ll give examples of. So moving from least amount of platform risk, what I consider the least amount up to the most amount of platform risk, basically where you have the most exposure and the most risk of your business being killed. And so I’m going to go one through eight again, where one is the lowest, eight is the highest, the most dangerous level one is almost no platform risk. 

It is where you own your own server in a cage with redundant power, you run your own SMTP servers to send emails. The platform risk here is any development language you use, right? Plus your internet service. I mean, basically you are not reliant on a host, you’re not reliant on anything to send email. You’re not built in no code. I guess your oh, and your risk there is where are you getting leads from and do you have customer concentration and where are you’re getting leads from? And in this case, I’m assuming there’s just almost none, right? You have this great variety of leads coming from all over the place, and there’s no customer concentration in terms of them being reliant on an external API. So this ones, it’s so unrealistic, I just kind of want to skip by it. None of us are going to do that, right? 

The second level of platform risk, I think of it as you being reliant on a platform that is a relative commodity and it’s easy to switch away from. Again, relatively easy. I know we could make an argument, I’m going to say SendGrid and Twilio, an SMS provider, email provider, those are commoditized and they are relatively easy to switch. There’s no lead flow, there’s no customer concentration. It truly is just a replacement decision. And one might say, well, SendGrid integration will take you months to migrate away from. Usually that’s not the case. Usually it’s a couple of weeks. I believe we did this with Drip because we went from, we had three or four different email providers that we were using that were APIs that sent emails, and it would take us a matter of weeks to switch, and we were sending hundreds of millions of emails a month. 

So again, this is why it’s probably the most realistic one that a lot of us are exposed to, and this is where it always bothers me. I’ll be on X Twitter and someone will say, oh, man, you build on Airtable or Bubble and there’s platform risk. And some smart outlet comes in and says, oh, yeah, well, you host on AWS and that’s a platform, and you send emails through SendGrid, and so that’s also a platform, and you have risk too. And it’s like, but they’re not the same. And that’s the point of this list is to have them in order of increasing risk or exposure. And I think being reliant on a commodity, whether it’s hosting or whether it is an API of some sort, I think at the same level as imagine if you have a VPS or you have a Docker container and you’re on commodity hosting somewhere, and you can basically just pull that and spin it up in, I don’t know, half a day, a day, two days, whatever. 

It’s that relatively low switch in cost and it is commoditized. I think that fits in this category as well. So the third level of platform risk, which is just a little riskier than the one I just is when you’re using these large cloud providers, Amazon Web Services, Google Cloud, Azure, this is where you still don’t have customer concentration or lead flow, that’s irrelevant. Obviously those are more dangerous. And so those are in the higher levels of platform risk, but moving away from A-W-S-G-C-P, Azure, whoever else, it’s not just spinning up a Docker thing and moving the VPS or whatever. I think the switching costs is significantly more than moving away from an API, like a SendGrid or an SMS because this is the infrastructure where your entire app is, and you start to get reliant on a lot of services. And so this one also has a varying degree. 

It’s a slider of like, well, if I’m only using an EC2 instance and everything’s there, then maybe low-ish switching costs. But by the time I have auto scaling and I have six different types of servers, I have the front end and the API and I have a database and I have Redis servers and I have sidekick workers, and I am using Amazon’s not proprietary, but they’re more like the Redshift thing, and I’m using a bunch of stuff in Amazon. Switching away from that at that point becomes very, very painful and migrating to another platform. You just, again, that’s why it’s the third level I think a platform is. Now, if it’s such a pain to switch, why do I think the risk is relatively low? Because at least to date, A-W-S-G-C-P and Azure are not, they’re not in the business of being aggressive. They have no motivation to, their business model is selling you stuff for a certain amount of money, and so they want you to be happy. 

They keep rolling out new stuff, they keep dropping prices. It’s the opposite of, I’ll get to it in a second, but the no-code providers where they keep raising prices and where any of those could go out of business any day, and they’re not profitable. For most part, I think most of the no-code providers have raised a bunch of money and are still not profitable. And that’s where Judgment McCall like A-W-S-G-C-P and Azure, I don’t think are going to be aggressive and make people want to migrate off, unlike other startups that are still in that early, say, monetization or growth phase. So that was the third level, which was medium to higher switching costs. There are replacements available, again, A-W-S-G-C-P, Azure and others, but there’s no lead flow or customer concentration. 

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The fourth level of platform risk is the one that I added for the WordPress kerfuffle. And here’s an interesting thing. I have an open source software like WordPress, and so that’s kind of vague as the fourth level. Here’s the thing, there’s no customer concentration, there’s no lead flow. The question is, is there a replacement? Is it easy to switch and is it priced the same? Well, open source software doesn’t have to be free as in price, free as in beer, but most of it is, I think the majority of it is. So price is probably less relevant. The question is how hard is it to switch and is a replacement available? And the further question that begs is, well, how deeply are you integrated? If we look at WP Engine, that is obviously reliant on WordPress. Couldn’t WP Engine just fork the WordPress code? I believe it’s GPL, right? 

They fork it now, I guess then there’s a whole plugin ecosystem. I don’t know what happened with there. So that’s an, I don’t know. It feels like there’s risk there, but they have options. If you were a SaaS company and you had built your entire SaaS or your, I guess no low-code SaaS or your entire productized service, say around WordPress, and suddenly WordPress changed their licensing or they, I don’t know, broke all the plugins that you use and they just broke your business, what would be the replacement for that? Well, you’d have to go and build it somewhere else, right? You’d have to go build it in no code, have code written, do it manually. I don’t think a replacement in this case, it’s the job to be done. I know Ghost is similar to WordPress, but the job to be done of what you’ve built in WordPress, I don’t know that it translates so well to just another CMS. 

And so this one’s interesting in that longer term, I have this at four right now, meaning it’s higher risk than say your A-W-S-G-C-P or cloud provider. This would’ve been probably down around two or three before the WP Engine, WordPress kerfuffle, and this is how weird these things are, is that given that WordPress has shown that they are going to be aggressive, not making themselves out to be a friendly platform right now. And so I think that is why for sure I kicked them up in terms of the actual risk, the big question is if you had a business built on WordPress, how hard would it really be to switch? And if oh, in a week or two we could build it in bubble, then this really should probably be down more around SendGrid. The number two right SendGrid SMS providers are where it’s a commodity and it’s easy to switch. 

That’s more of how I would feel about it. But if your business is a 2 billion business that completely relies on the plugin ecosystem and you’re at the mercy of WordPress than I do think that there is a significant level of platform risk. So level five is high switching cost, but there are replacements and there’s no lead flow or customer concentration. The best examples I can think of here are no code. It’s building on Airtable Bubble. I was putting Stripe in there. I don’t know that Stripe fits or doesn’t. I guess switching from stripe’s kind of a pain. And I guess it depends on are you in their subscription ecosystem as to whether it’s like a medium or a high switch in cost. But in any case, this is where in order to switch, you kind of have to rebuild everything from scratch, right? There is no export your code from any no-code platform I’ve heard of. 

And if you could, how do you import it into a different platform where it’s all just proprietary tech, right? And this again, is where the argument that some no coders make or just some people make is like everything has platform risk. And it’s like, yeah, but they’re not all the same. It gets worse if you’re a Shopify app, there’s a super aggressive platform that’s worse than all the ones that mentioned so far, and we’ll get to that one in a minute. And so the idea here is that if you’ve built a million dollar business and it’s a bubble app, how long would it take you to completely rebuild that in another platform if bubble 10 x their pricing if bubble went out of business, if Bubble had two weeks of outages and one might say, well, couldn’t AWS 10 X their pricing? Yeah, highly, highly unlikely. 

I just don’t see it. That’s not been the pattern. But what about AWS going out of business? Highly, highly unlikely. And that’s why I put ’em down at the two level and is AWS going to have a two week outage? Again, highly, highly unlikely. A small no-code startup is more likely to have any of those black swan ish events happen. And that’s why I have them at number five. Coming in at number six, I have all your leads coming from a single marketing channel such as Google. So basically it’s 100% lead flow risk. Now, I’m not including app stores in this like app marketplaces I will get to those are seven and eight, but in this case, I’m thinking of being solely reliant on a single flow of leads. And I think is that a platform risk? I do think there is risk there. There is no replacement usually, right? 

There’s no direct replacement. If you rank in Google and you get amazing organic search trying to replace that with something else, switching costs is irrelevant. You can’t do it, right? Customer concentration is irrelevant because they’re not reliant on Google once they come through SEO, but your lead flow and your plateauing feasibly, it could kill the business. And here’s what’s interesting is you’ll notice in these eight levels, the lower end ones are all kind of technology and it’s the business factors, it’s the growth and new customers and customer concentration that I’ve put at the six, seven, and eight spot. Those are the ones that are so hard to replace. And I’ve seen several businesses killed. You talk about Google changing their algorithm every what, 3, 6, 9 months and entire affiliate businesses that were doing millions of dollars basically go to zero overnight. So the reason I have this as number six is that if bubble 10 x their pricing or had a big outage, you could rebuild that. 

And if you’re hosted on AWS or using SendGrid or using WordPress, you can rebuild it. The risks are there, but they’re lower than if you lose Google where there is no replacement and you lose all your organic rankings, it can be existential to the business. The seventh level of platform risk, I’ve put a friendly app ecosystem. So an example of this is Heroku, like Heroku apps in general, thrive. Heroku has not, at least to date, and this could change, but they have not screwed their developers unlike number eight level of platform risk or aggressive platforms. But Heroku is one example. I’m sure there are many, many others. In fact, we have a list of I think 80 SaaS marketplaces and it’s microcomp.com/latest/ SaaS dash marketplaces. We link it up in the show notes, but there’s Salesforce app exchange, Zoho Marketplace, HubSpot app, marketplace, Pipedrive, less Knowing, CRM, Microsoft App Source, slack app directory, on and on and on. 

There are 80 of ’em. I won’t read them here. And look, here’s the thing, can I name all of the ones that are friendly and all the ones that are aggressive? No, I don’t know enough about them. I would guess that big companies like Salesforce and now Slack because it’s owned by Salesforce are kind of a pain in the ass. And if they’re not yet that they will become that. And I would guess that smaller companies and those that have not yet been acquired by a bigger player, a public company or private equity are going to be likely more friendly. But those are just guidelines. If you think about this, it’s theoretical in a way of like, well, a friendly platform is friendly until it’s not, and that’s really what platform risk is. When we think about the aggressive platforms that I’ll name in level eight, they all were friendly at one point. 

And so that really is the scary part of being built on in that marketplace and why being in a marketplace holds the seventh and eighth spot in terms of platform risk. And the eighth and final level of platform risk is of course an aggressive platform. This is where there is no replacement. You basically have a hundred percent customer concentration. You have a hundred percent of your lead flow from this platform, and the platform is not developer friendly. So this is Shopify, Twitter, Facebook, I’m sure there are more that I could pontificate about. I’m naming these because they have completely decimated companies that we’ve heard about or that I’ve invested in. You hear Jordan Gaal talk about Shopify coming after Cart Hook, and that’s not the first nor the last time that Shopify will do that. We heard Twitter jerk around anyone using their API once Elon Musk bought it, and I think they did this. 

Didn’t they do this about eight or 10 years ago with Twitter clients? I actually don’t remember, but they did something big back then. Facebook, do you remember? I think it was Zynga, right? It was doing tens of millions of dollars on the Facebook app marketplace, and Facebook just pulled the rug out from under room because they don’t give a shit about their developers. I mean, they’ve been pretty obvious about that. They care about Facebook and no one else. And so there are other aggressive platforms. Again, I do not have an exhaustive list. I just don’t have experience with all of the 80 platforms that we’ve listed at that MicroConf link I said earlier. And so this is where there’s just an existential risk if that you have a Shopify app that’s doing millions of dollars a year and they come and knocking, you’re getting all your leads from them, your customers are concentrated on their platform, and there just literally is no replacement. 

There’s nowhere to switch. Again, we can say, oh, we could go to BigCommerce, WooCommerce, and these other things, but it’s not the same. That’s starting a brand new business. And that risk that we’ve seen play out many times, and that’s why these app marketplaces are number eight in my list of eight levels of platform risk. Hope you enjoyed this episode. I think the list is directionally correct, and I could see either there being another one added if someone were to email in question that started For the Rest Of Us dot com, or you hit me up on X Twitter at Rob Walling, I think there might be another one that I’ve maybe not thinking about, or I could see them gently reordering. There is a little bit of an, it depends, right? I said it’s like if you’re built completely under WordPress and completely in it, it depends on is your switching costs low, medium, or high to rebuild it somewhere else? 

That could move that one up or down by one, but it’s not going to move it to three slots. It’s not going to suddenly become as bad as having a Shopify app where they are just known to be really aggressive with it. So that’s what I mean when I say I think the factors are in line, and I think the list is pretty tight. And again, directional correctness such that next time someone on X Twitter says everyone has platform risk, you can chime in with, well, there’s different levels of it, and here are eight of them. This podcast episode, they’ll obviously be listed out in the show notes, and I’m certainly going to be referring back to this in the future, probably included in a book or course at some point. I do think it’s helpful for us all to have a paradigm in a framework around it. So thanks so much for listening this week and every week. It’s great to have you here. This is Rob Walling signing off from episode 735.

Rob Walling:
Welcome back to another episode of Startups For, the Rest, Of Us. I’m your host, Rob Walling, and in this episode I talk through lessons that I’ve learned investing in more than 170 companies, specifically through my startup accelerator TinySeed. And if you’re a B2B SaaS founder who’s looking for the right amount of money, mentorship, community advice for me and our amazing mentors, you can head to TinySeed dot com slash apply. Applications are open right now for about the next two weeks, and I’d love to see you apply. Now between TinySeed and mine and Sherry’s personal investments, we are over 190 companies, but I wanted to limit the percentages, the numbers, the takeaways to only those where TinySeed has written a check in the past. I guess the first check was written about five years ago, and so that gives us a pretty tight timeframe and a more cohesive decision-making approach because we’ve been much more deliberate about the types of businesses that we fund. 

So today’s episode is stemmed from a question I got in a private slack group by man where someone said, you’re basically five years, we’re six years from the announcement of TinySeed almost, but we are just over five years from the first check being written. And he asked, are there any patterns or takeaways that you’re noticing across these 170 plus companies? And that’s what I’m going to share today. Now, I want to make a note. I have almost two dozen of these takeaways and that’s too long for a podcast episode. It would run well over an hour. So what I did is I split off six of them and I put them in a YouTube video on the microcom channel, and it has a name similar to this. It probably just came out a couple days ago, and it’s six things that I’ve learned investing in more than 170 companies over five years, something like that. So if you head to microcomp.com/youtube, it should be one of the last couple videos published, or you can look in the show notes of this podcast and click through directly to that video. If you want to get the other takeaways that I didn’t include in this podcast. 

I am going to list these in no particular order. They just came to me in this order as I was trying to think of what are the patterns that we’ve seen. First one is the survivability of B2B SaaS and maybe specifically within our portfolio because obviously we are pretty picky, pretty cosy about the companies we let in, but broader than that B2B SaaS in general, once you get a little bit of traction, it doesn’t fail very often. So more than 170 investments, approximately 2% of those have been written off, have shut down, not sold, and basically moved on to their next act. So very, very small, what I’d call a failure rate, much, much smaller than you would see in a traditional more risky venture fund. Now, I want to couch this. It’s still early. We funded, I don’t know, approximately 45 companies in the past 12 months. 

And so obviously the failure rate of those would be much lower because they haven’t had time to fail. So I don’t want to act like for eternity for the next 10 20 years, there’s going to be a 2% failure rate, but we did start writing checks five years ago, and even among those companies, a failure rate is still extremely low. The other number that I found interesting, and I just confirmed these in our as of this morning, is that 4% of TinySeed companies have exited, meaning sold for enough cash that TinySeed at least got our money back. And in some cases, as you’ve heard with Iran GRE’s exit on this podcast, we received many, many times our money back, but 4% have exited, 2% have been written off. So there’s still a lot of companies in play, and as I said before, it’s still early. 

I mean, we are in the first inning in terms of B2B SaaS taking five years when a traditional startup might take two years because the long slow SaaS ramp of death just takes a long time for things to unfold. Now, my second takeaway is just how valuable SaaS is. You’ve heard me say this on this show where I talk about if you’re over say 2 million in annual recurring revenue and you’re still growing at 40, 50% a year, whatever it is, you can sell at a four to seven x multiple. And so this is all loose numbers. Please don’t I get quoted on Twitter saying this stuff, but I’m just trying to give you a general idea, but let’s say a five x multiple. So if I add 1000 MRR to my company this month, that is 12 KARR multiply that times a five x multiple if I were to sell it, and I’m adding $60,000 in theory to my net worth every single month that I had one K of MRR. 

So now think about adding 5K of MRR, which many, many tiny C companies are doing 5K times 12 is 60 times five is $300,000 to the value of that company. So I’ve been talking about how valuable SaaS is for many, many years. There’s a reason that I began focusing on SaaS, what 12 was it? 12, 13 years ago? And part of it’s the recurring revenue, part of it’s the cheat codes, the net negative churn, but a big part of it is it’s just really, really valuable and that value can be seen in the profits you take out or it can be seen in the exits. So in our coined this term that I really like, it’s called the TinySeed millionaire rate. And what it is is of all the companies that are no longer in operation, so this includes those that have sold and those that have been written off that have shut down of all of those. 

So I told you before, it’s 4% exits, 2% written off. So 6% of those companies, 43% of the founders are now millionaires. Let that sink in for a minute. I’m not saying 43% of the exited companies made the founders millionaires. I’m saying 43% of all companies that are no longer autonomously operating, meaning they’ve either sold or they’ve shut down, 43% of those founders are now millionaires. Now, that doesn’t mean TinySeed one in all of those exits because imagine if we invest at for round numbers, let’s say TinySeed invest at a million dollar valuation or 1.2, whatever it is, and someone sells their company for $2 million and they’re a single founder, they are now a millionaire and TinySeed received whatever it is, not quite two x back on our money. That’s not a home run for us as an investment fund investing in bootstrapped SaaS, we do have to return a lot more than two X to our investors or a bit more than two x. 

And given that some companies will fail, we obviously need higher returns, but that doesn’t discount the fact that the TinySeed millionaire rate is 43%. If you’ve known me for any length of time, you know me as someone who is truly out to help raise the tide, help raise all boats, obviously with TinySeed, with MicroConf, it’s a for-profit entity. Everything I do makes money, but I’m genuinely here to help people and it brings me no end to joy to know that that many individuals join TinySeed received are mentorship, our advice, our investment, and are now millionaires and they can move on to their next act. I’m sure someone in the audit is saying, oh, a million bucks isn’t what it used to. And it’s like, I get it. They can’t live for the rest of their life on that. But I would say that if this is your first startup or if you don’t already have a million dollars in your bank account, that a million dollars is absolutely life changing money. 

It’s not never have to work again, money, but it does change your life. It changes the way that you can think about the financial safety of yourself and your family. And every time I think about this number, I smile ear to ear, I’m just so happy the TinySeed is having this impact. People ask me, why do you still do what you do? You could write off into the sunset or you could just write books or you could just record podcasts. This is why, this is exactly why I still record 52 episodes of this a year, 26 YouTube videos, why I’m kind of on track to ship a book every 18 to 24 months because I love doing things that have an impact on people. And to me, while the end goal of everything is not wealth, it’s not all about money. This is changing people’s lives and I’m here for it. 

The third learning is something I mentioned on this podcast. It was a prediction for this year, and it’s that vertical and orthogonal SaaS appear to have fewer headwinds than horizontal SaaS. You know what horizontal is? It’s like competing against MailChimp where it’s every SMB, every business in the entire country can use it. Versus vertical is where you build MailChimp for realtors, for example, and orthogonal is if you were to build a piece of software that focuses on a specific role or title at a company. So applicant tracking systems, for example, target HR directors, so that’s orthogonal, vertical and have their own because they’re niche, right? The idea is that when we think of niche, we think of vertical only. And so I’ve started using this term orthogonal to describe this other way to niche in to slice it. And what we’re seeing is in general, horizontal companies are competing with big venture funded incumbents, really successful folks where there’s a lot of money in the space and it’s hard to differentiate, and you don’t really know who your ideal customer profile is. 

You kind of have an idea, but you don’t know exactly where to find them. There’s no in-person event you can afford to go to. There’s no ad targeting say on Facebook or Instagram where you’re targeting by demographics and psychographics that will work for horizontal. I shouldn’t say there isn’t any, but it’s very, very hard to do. Versus if you know exactly who your customer is, whether it’s this type of business or this role at a company, it is easier to do cold outreach and ads and just all the marketing approaches become easier. And you don’t have to be the best marketer in the world, you just have to be the best marketer in your niche. And that’s the difference that we see. And so I’m not going to go through exact numbers here. Obviously we don’t give out our performance numbers in public, but in general, the trend is that we do see vertical and orthogonal SaaS companies not only growing faster, they tend to have lower churn. 

Honestly, if they’re doing well in these spaces, there are net negative churn and it’s still early, but it does seem like the exit multiples are higher because there is more appetite from acquirers, from strategics and private equity to go after these niche plays, presumably because they also know their numbers, they know how hard it is to market, and they know what negative churn can do for a business. And so with all that in mind, the metrics are better, blah, blah, blah. So it’s still early. And here’s the thing. I know someone on the internet is going to come and post, but that’s not true across all 10,000 SaaS companies. Look, my one counter example is going to try to disprove up. I’m not trying to state a physical law like gravity in this podcast. What I’m doing is I’m looking at trends across things that we are seeing. These are not statements of fact. I’m not saying that every horizontal product TinySeed has is not growing, is nothing like that. It is trends, it’s numbers, it’s bell curves. So yes, you can do your post and say, I’m a horizontal, and look, I have net negative turn. Great. I ran a relatively horizontal play called Drip, and that had net negative turn too. So that was a great business. So I’m not saying don’t start horizontal either. I’m just telling you vertical and orthogonal. There’s some real advantages to doing that. 

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He really exceeded my expectations. Chaz said he definitely used lemon.io again when he’s looking for a senior level engineer to learn more and get a 15% discount on your first four weeks of working with a developer head to lemon.io/startups. That’s lemon.io/startups. Takeaway number four is we’ve done some, it’s really back of the napkin surveys, show of hands where I’ve said, okay, the original thesis of TinySeed was some people will want to grow quickly, be ambitious and sell for some number. They have in mind 10, 15, 20 million or more as we’ve seen, versus run a company for years, decades and take out profits. What we didn’t know is what the breakdown would be. Is it 50 50 to more people want to take up profits? With my show of hands surveys that I’ve done in several TinySeed Zooms, it appears that it’s about 15%, maybe 20 that want to grow a company for the longterm and take out profits. 

So it is the, call it the super majority that do want to have that big exit. And I think there are reasons for this, right? We are choosing for more ambitious founders. Like if you want to be a lifestyle bootstrapper and truly run a 10, 20, $30,000 a month company and pull it all out, that’s great, but the numbers don’t work for TinySeed to invest in you. And so I do think a much bigger chunk of those folks, whether you call, I call ’em lifestyle, you could call ’em indie hackers, although I think that is actually a different definition, but you get the idea those folks really do want a lifestyle business, and that’s great. I’ve had some of those, but the idea of joining TinySeed and taking funding and then wanting to do that is obviously a super minority of folks. I do think there’s some selection bias in that for sure. 

And I also think that when people hear me do this analysis where I went through the whole one K goes to 12 KARR times five is 60 grand, and someone puts a check in front of you that you’re like, I don’t really want to sell. And they’re like, cool, here’s your relatively early stage business and here’s $3 million. Suddenly things really shift. Things really shift. I remember the first time I saw a seven figure number written down in an email for a potential acquirer to acquire one of my companies, and I was like, this is it. If I say yes to this, I am set for a very, very long time, and this will be absolutely life changing. I remember almost being in a weird, it’s not euphoric state, but it’s hair stands up on the back of your neck and kind of lose time and even kind of can hear ringing in your ear. 

It was that. I was like, whoa. I was so shocked how in theory I had been thinking, oh yeah, if we sell this company someday, of course it’ll sell for a lot. But the moment that I saw that number, it changed everything. I was like, that’s real. That could really be cash in my bank account. And I think that as folks think about that, especially if you are either a first time founder or a founder who’s never had a big exit who has $50,000 in their bank account and a couple hundred grand a retirement account, and you realize that, yeah, maybe I could see this for the long term. Maybe I could grow this company for 10 years, but if I sell now, I’m set for life and I can work on whatever I want forever. The calculus really changes. So whatever way you choose, if you’re listening to this, maybe you’re thinking about, I want to be able to retire for three to six months, as most entrepreneurs do before they get back in the game, or you want to run it for the longterm, that’s okay. 

I’m just calling out some patterns that I’m seeing with our companies. The fifth takeaway is I looked at only our seven and eight figure a RR companies. So if companies doing millions or north of 10 million in annual recurring revenue, and I found that the founder count for these types of companies are very close to being in line with all the founders across the ecosystem from the state of independent SaaS reports. So in this example, 53% of seven and eight figure TinySeed companies are single founders, 33% are two founders, 14% have three or more founders. And just to compare again, the successful TinySeed companies, 53% are single founders and in the broader state of independence, SaaS, MicroConf, startups, the rest of us ecosystem, 51% are solar founders. So 53 versus 51 with two founders, it’s 33 versus 34, and with three or more founders, it’s 14 versus about 15 and a half. 

So the route, why do I bring this up then? Well, I don’t think founder count, at least in this analysis, has that much of a difference on success. I know that growth numbers in the state of independent SaaS show that for some reason there’s an anomaly with three founder companies. I’m still curious to figure out why that is, but I find it fun to often compare to the broader ecosystem with this much smaller and tighter dataset that we have. My sixth learning, really it’s just a thing to share, is that we have had to turn down many deals where we have made offers or we’re about to make offers, but their cap tables were ruined. So an example of this is founder left and took their equity and whether they own a third or half the company, they didn’t have vesting in place. And now the company is kind of unfundable. 

If you come to us and we’re typically the first money into a company and the founders own less than 70%, that’s not a good sign. And sometimes we are the second money in. So there are exceptions to that, but certainly you want the founders to own 80%, 70 to 80% and up. And so we’ve seen companies where again, there’s one or two founders left and they own like 50% of the equity and they can’t raise funding in the future. They’re basically working to put money in someone else’s pocket. It’s just a really bad scene. The other thing we’ve seen is that there are some really sharky investors out there that give extremely low valuations, or they have these exploding terms where if you raise before paying them back, then suddenly they own three times the equity that their original document said. And these investment terms can make the company uninvestible unfortunate, but we’ve especially seen it in Europe where an angel will invest at, I dunno, I’m trying to think of an example. 

There was $50,000 check for 25% of the company, so they invested a $200,000 valuation and that it’s just rough. So now you have this investor who’s not doing anything, not providing a value add, and it’s on the cusp for us of like, Ooh, would we be willing to do that? But realistically, I’m just giving you examples of ways that it’s easy to torture cap table. Be careful. We are less picky, I would say, than bigger venture funds if they see that, they just walk away. So with your ownership percentages, which is what I’m referring to with cap table, you just want to be careful with that. I’ve been shocked at the number that we have seen, and it’s common enough that we ask for the cap table after the first round. If we do a verbal interview and then you go to the second round, we just say, give us a spreadsheet with your cap table. 

And probably half the cases, I have a question about it, who is this person? What did they contribute? If someone owns 10%, 12% of your company, I’m always like, how did this happen? It also shows a judgment thing. If someone’s like, oh, they helped us a few years back and they did some design work and gave us some advice, and so they got 12% of your company. Like that to me shows a questionable judgment is maybe a strong, maybe a lack of knowledge of the space of how things work, but it’s at least something that we have to dig into to be sure that you don’t make that mistake in the future. A next thing that we’ve seen is subsequent fundraising. So when you join TinySeed, you do not commit to raising additional funds. You just keep the option to do so if, if it makes sense for you. 

And within the first few years, it was about a third of our companies went on to raise additional funding after the 2022 crash where funding valuations hit 10 year lows and money is just not as easily accessible. I think it’s probably closer to about a quarter, like 25% of TinySeed companies, and this is not, you have to discount the prior year that we’ve invested. Like the most recent year, probably zero to a handful of those companies have even thought about fundraising because they still have the TinySeed money, they’re in the batch year. But we look at anybody who’s a year or 18 months prior to now, what percentage and ballpark. I would say it’s around that one In four mark, we had a company apply with six co-founders. That was an interesting one. They had a lot of products were very scattered and we weren’t able to fund them. 

Can you imagine? I mean, none of them owned more than 16% of the company and making decisions would be very, very challenging. So that was a red flag of frankly, decision making. When we got into that, then we saw a company apply with zero founders. There was actually one founder of course working on it, but they owned 25% of this early stage company. So I am kind of like, are they really a founder when they are basically working for someone else? To me, that feels like a nice equity grant to an employee. He called himself a founder, but in essence, this is one of those cap tables that we could not fund because a founder working for 25% equity, it just doesn’t make sense. Alright, to wrap things up, the most common topics that I advise on the people pull me into one-on-one conversations during my office hours are the following four things. 

Number one, raising prices or fixing, changing, correcting pricing. It’s not always about raising sometimes the value metrics off. Sometimes they just don’t feel right about the pricing, so we talk through it. The second is, I’m at a plateau or I’m about to hit a plateau. How do I break through it? And those are the conversations that have fueled this mythical doc that I’ve put together, which is just a bulleted list of all the plateau reasons that I know of with B2B SaaS that someday I’ll figure out a way to package it up in a way that’s actually helpful. But plateaus are a common thing. Someone wrote into this podcast I believe, and said, I heard the most bootstrap SaaS companies plateau at 20 or 30 K. Why is that? And the answer is, that’s not true. It’s not that most do. I see SaaS companies plateauing early because they don’t have product-market fit. 

I see them plateauing at 20 or 30 K because they only have one marketing approach and the top of funnel is her churn is too high, and I see them plateauing it a million a RR because their churn is too high or they’ve tapped out the market or there’s all these reasons and then they can plateau at 3 million because competitors, blah, blah, blah. So lots of different reasons for plateauing and it is a very common topic of conversation. The third one unfortunately, is co-founder disputes where one co-founder is living, wants to leave, thinks the other should leave, is asking for advice about a buyout or should they just walk away? Should they give some equity back? It gets really complicated. It is like a divorce because folks have worked together, have been friends, have built and started something that is valuable, sometimes not valuable enough. 

If it was worth $20 million, then maybe you sell it and split the money. But if it’s worth half a million or a million and you’ve spent years working on it, do you really want to liquidate that to the what’s going to be the lowest bidder because you’re not going to get a great price for it and distribute a few hundred thousand dollars to each person that they get taxed on. It is tough. So I don’t mediate co-founder disputes per se. I’m not a mediator. We do have folks that we recommend our founders talk to if they need that, but I definitely am someone that people talk to about advice. Hey, here’s going on. How should I think about it? What are my options? That’s usually the big one is what are my or our options in this case? And of course, now I have a whole laundry list of options when these things come up. 

And the fourth one that folks get my advice on is raising funding or selling a company. And usually it’s not like, how do I raise funding? How should I think about this? Should I raise funding or sell the company? There are questions then about what are next steps and how should I think about it? What are typical valuations? All of that. But as you can see, I get brought in at big strategic points. Now, I also get brought in, I got brought in for some great just nitpicky questions the other day of per seat licensing advice on how to optimize a marketing channel, what marketing, let’s brainstorm marketing channels to go after next. But if I’m grouping them, it really is those four that I mentioned. As a reminder, I have six more learnings that I did not mention in this episode that I mentioned over on the YouTube channel. 

You can click the link in the show notes or go to MicroConf dot com slash YouTube and look for a video of approximately the same title as this episode. And another reminder, if you are a SaaS founder and you want the right amount of funding advice, mentorship community TinySeed dot com slash apply. Applications are open now, and if you are an accredited investor and you’re interested in investing in companies like this, the tiny C millionaire rate is 43% on companies no longer in operation. So obviously we’re having some success. Head over to tiny c.com/invest can fill out a form. There it goes, straight to my good friend, Einar Vollset, whom you’ve heard on this podcast before. Thanks so much for joining me for this week’s episode. It’s great to have you this week and every week. This is Rob Walling signing off from episode 729.

Rob Walling:
It’s Startup To The Rest Of Us. I’m Rob Walling, and this week I talk to Eran Galperin, the founder of Gymdesk, about how he bootstrapped and frankly mostly bootstrapped Gymdesk to a more than $32.5 million exit. It really is an incredible story of Eran launching this product on the side and working for years, nights, and weekends until it clicked. And this is a good example of if he had launched it and expected it to just work in a month or three months and was launching 10 things, Gymdesk would not be where it is today. It was the sheer focus and the relentless execution and showing up night after night, weekend after weekend until he could quit his day job that got Gymdesk to such an incredible life-changing generational wealth-generating opportunity. 

I sometimes have TinySeed founders on this show, not because they are TinySeed founders, but because they have really interesting stories and most TinySeed founders are also part of the Startup To The Rest Of Us and the MicroConf community and Eran is no exception. I do ask Eran why he applied to TinySeed in this episode and you’ll hear his answer if you feel like TinySeed could be a fit for you as a bootstrapped SaaS founder, head to TinySeed.com/apply. We are opening applications for our fall batch within the next week, and that will run for about two weeks. If you hear this after September of 2024, you can always go to TinySeed.com/apply to get on our email list and learn about our next open enrollment. In addition, if you are an accredited investor and you’re interested in investing in companies like Gymdesk, ambitious B2B, bootstrapped SaaS founders, head to TinySeed.com/invest. And with that, let’s dive into my conversation with Eran. 

Hey, Eran Galperin, welcome to the show.  

Eran Galperin:
Hey Rob, how’s it going?  

Rob Walling:
It’s good, man. It’s been a long time coming. I’m glad to have you on here. So folks have probably noticed from the title of this episode that you had a $32.5 million strategic growth investment from Five Elms Capital. And I want to start the show by asking you what did it feel like that moment where you’ve refreshed your bank balance and you saw more zeros than you probably ever imagined that you would have?  

Eran Galperin:
It’s surprisingly a large feeling of relief. It was the end of a very grueling, even though not long, maybe in competitive terms, but for me, long process of three months where basically every day I doubted that this would actually end up well. And many times as sort of a psychological trick, I would kind of let myself feel, “So what if it falls apart? It’s all good.” When the money hit the bank account. Actually it happened very fast. We closed the deal on a Friday, 30 minutes before the wire cut off time and the funds were in the bank account the same day. I did not expect that before the weekend and I’m just like, “I guess it’s over. I guess it’s done. I can have a real night’s sleep today and maybe the entire weekend.” And I literally slept 14 hours a day for the entire weekend. That mainly just a massive feeling of relief. All this weight just washed down.  

Rob Walling:
That’s incredible. And had you been planning in your head of, “Once I have this money, I’m going to do XYZ with it.” Or did it just come in and you thought to yourself, “Well, this is it, I’m set for life at this point”?  

Eran Galperin:
It’s kind of a mix of both. So I didn’t really have an idea for things to buy, but I already had in my head financial plan of how I’m going to deploy this. I’m a proponent of the FIRE methodology, if you heard of it. Financial independence retire early and it’s basically revolves around investing in fund indexes that return a very stable amount every year and with this amount of money, I’m basically set for life if I follow this approach. So I knew I was going to do that. I ended up upgrading my car to basically the same model but newer and higher trim because I really liked that car. And now we’re in the process of, we bought a piece of land here in Tokyo where I live and we’re building a house on it. So that’s super exciting. Not something that I actually planned, but a month after the sale was completed, it’s like, “You know what? We should start looking into it.” And we’re now in the process. Those are the major things.  

Rob Walling:
What kind of car do you have?  

Eran Galperin:
So now I have an Audi RS3 for people who are into that kind of stuff.  

Rob Walling:
Nice.  

Eran Galperin:
It’s a nice car. It’s still compact, which fits with the very narrow streets of Tokyo, but it’s just a slight upgrade from the previous car, which was an S3. Basically exactly the same car on the inside, but a small upgrade that I felt like was well-deserved.  

Rob Walling:
Yeah, no doubt. And for folks listening, when I say you received a 32.5 million strategic growth investment for your company, Gymdesk, and we’ll get into what Gymdesk is and what it does in a minute, what does that term mean? Because a lot of folks might be thinking, “Oh, a growth investment, that means you raised money that went into the company.”  

Eran Galperin:
So our investor is a private equity firm and they did a majority acquisition of the company. They bought a majority stake of the company. I am left with a minority stake in it, and some of the funds are going to be used to grow the company. The majority of it is for them to acquire the controlling stake of the company. This is what the amount that is on the public statement is for.  

Rob Walling:
And so that means it goes to you and other shareholders and full disclosure, you’re a TinySeed company and so TinySeed obviously received some money as well, but that’s not why you’re on the show. You’re on this program because your story is pretty remarkable in terms of how you executed, how fast you grew and how you went about the sale process. 

So I want to roll us back a few years. Before I do that, I want to let folks know Gymdesk. Gymdesk.com, your H1 is gym management software that frees up your time and helps you grow simplified billing, enrollment, member management and marketing features that help you grow your gym or martial arts school. 

So take me back before you started Gymdesk and I know the inside baseball, Martial Arts on Rails was actually what Gymdesk was called, which is such a cool name for developers. I’m like, “Well of course I know exactly why he named it that.” But such not a cool name for non-developers, right? Because clunky, it’s long. People are like, “What do you mean on rails?” Did you get a lot of that? Is that why? Because you rebranded the company in ’21 or ’22 I think.  

Eran Galperin:
Most of our customers just referred to us as MA on Rails or just MAOR or some reason. I hated that acronym, but a lot of them used it and I just ran with it. So yeah, at the time I just winded down a previous company, a VC-backed company called BinPress that raised a seed round and just didn’t grow enough to raise another round and I was kind of burnt out on the VC model. It’s like I felt that company had potential, but because it didn’t fit the VC timeline, it had to shut down. 

So I wanted to go in a different direction. Me and my co-founder kind of split paths. He moved to the dark side and became a VC partner, and I started a bootstrap company back then that was called Martial Arts on Rails. I wanted to combine my hobby of many years, which was training in Brazilian jiu-jitsu, nine years at the time with my professional skills in software development. 

I did a lot of market research initially, I kind of tried avoiding going into the vertical we ended up going in, which is business management software because there’s some very entrenched players in this space. Now I know that that’s actually an advantage. They do a lot of the customer education for us. There’s obviously a lot of potential revenue to be had because they’re so big, but back then it looked very intimidating. 

Eventually I did decide to go that route just because everybody I talked to in this space said the current incumbents were just so awful. So I don’t want to name any names, but anybody in this space knows exactly who they are and I felt with my experience in user experience and software development, I could bring something better to the market. We launched in 2016 and me being a technical founder in every stop previously I was the CTO, some kind of engineering leader. I quickly realized that I had zero idea on how to acquire customers. And so began this kind of slow trial from zero to a livable wage over the course of three and a half years during which I got a full-time job as initially a software engineer and eventually a CTO of a e-commerce company in L.A. And only in 2019 I started working full-time on the business.  

Rob Walling:
Got it. So you were three years in, three years and nights and weekends on Martial Arts on Rails, which became Gymdesk. So that’s interesting. So it’s not the overnight success that people might paint it out to be, right?  

Eran Galperin:
It actually, it didn’t feel quick to me the last couple of years went in a blur when we were growing pretty fast every year, but the first five were a slog for sure.  

Rob Walling:
This is something I talk a lot about online or on this podcast is folks who don’t stick with an idea long enough and they launch one thing and then one thing and then one thing, “Nothing’s taking off so I’m just going to…” You were three and a half years in before you even had a full-time income, and then there was kind of a, I’d call it like a bootstrap or hockey stick moment where we saw this because you applied to TinySeed, I believe in 2021. You were cranking up, I think you were. Do you remember you were 30, 40K MRR by then?  

Eran Galperin:
Yeah, I was around 35K and by the time the program started already 40 and I remember having chats with some of the founders and the meetup we had in Arizona and they’re like, “You’re at 40K, why did you join TinySeed?” 

And I had a different calculation than them in my mind because I had the same kind of dilemma when I was thinking about applying. It’s like, “We’re doing pretty well. What can I get from TinySeed that I can’t get by myself?” And the framework that I use is if TinySeed helps increase the value of the company by more than the equity that they take, which was 10%, then it’s worth it. And it ended up being way worth it. So I think in that regard, it doesn’t matter that we were at 35 because we came in for maybe different reasons than some of the other companies in the batch.  

Rob Walling:
There are different reasons why some folks come in because they’re super early stage and they really do want guidance help finding product market fit. You didn’t need that. You already had it pretty strong. Some folks come in like I could really use the 120 to 250K investment. You didn’t really. Now I know it was a little bit helpful, but that’s not why you were doing it. Why did you decide, and really I think the question is what did you ultimately get out of TinySeed that makes you say it was worth it?  

Eran Galperin:
A lot of it, well, it started with me following your content on Startups For The Rest Of Us. I’ve talked to many investors and I can tell when somebody actually knows what they’re talking about. They’re not just repeating stuff they read on somebody else’s blog, listened to on a podcast, which is the case with a lot of the investors that I see. And I was coming in to get that kind of advice one-on-one. 

This is my first company that I’m building bootstrap first company that I got to a certain scale that I haven’t been able to at previous companies and I’m going into a lot of uncharted territory. I remember that we had pricing realignment engagement together. Me and you sat together and talked it over. That was a very scary process for me. We had a lot of long-term customers and I’m about to really ramp up the pricing on them and it helps so much that I can do it with somebody that already ran this playbook, also seen it fail at other companies, even your own after acquisition, I guess. That really helped me do this confidently and it went super well and actually kickstarted the next upward strand in our revenue growth and there were multiple such instances. This is the main reason that I joined TinySeed.  

Rob Walling:
I think that makes a lot of sense. Community and mentorship are the two things most people name most often and it sounds like the mentorship and advice was a big piece for you. 

You entered an extremely competitive space. There’s one 900 pound gorilla who as you said, no one likes, but there are dozens. I mean I’ll say every TinySeed batch we get one or two applicants at least that make it into calls that do something similar to this. Why did you succeed?  

Eran Galperin:
I think I can tell pretty accurately why we succeeded and it’s because we went against what everybody else in the market is doing. So we have the 900 pound gorilla like you mentioned, and a lot of the similar competitors kind of copied their playbook. They have a product and I think this is coming in a lot of B2B verticals that is very outdated and difficult to use. I guess the thinking is that business software doesn’t need to be accessible or easy to use and they just have a very strong sales motion and a lot of our other competitors are pretty much the same. I mean their products started at different points in time, so you can kind of tell, “Oh, this one is from ’08, this one is from 2011.” But they never bothered updating it afterwards. 

When I started Gymdesk without any sales knowledge, the only thing I can do was just talk to customers and make the product better. I myself went through a transformation with this company where I used to be that technical person that engineering lead that it would come to with customer complaints and it’s like, “Yeah, they’re using it wrong. They’re not very smart.” I would say mean things like that. And with this product I kind of realized it’s actually the opposite. The dumber, the feedback looks like the more opportunity there is to make the product better, and I really took that to heart and through this endless feedback loop made a product that just makes everything so much easier than our competitors. We might have a similar feature set, but the way those features and flows are implemented is completely different. And this is where I feel we really made our first kind of differentiation in the market. 

The other side of it is with the customer service. So anybody who works with me knows how responsive I am to emails, and it was the same with customers in the going when I was the only one talking to them. And when I started hiring for customer service, I made sure that we stayed with that mentality. Somebody sends a report that something is not working, we have to get back to them as early as possible and resolve it as quickly as possible. Not just issues, but also small feature requests where it seems like it’s a no-brainer. We would roll those out sometimes same day. You can find reviews of us on Capterra and other websites where the guy’s like, “Yeah, I messaged customer service, I talked to the CEO, and on the same day I get a new feature that solves our use case.” And you can’t beat that kind of experience. So this is how we kind of build our brand in this space.  

Rob Walling:
Got it. So you’ve referenced product that you built your product differently. It’s not just great product, but it is actually zigging when others were zagging, sales motion, they were really heavily on sales and you were more allowed self-serve I’m assuming, but.  

Eran Galperin:
I’m 100% optimized for self-serve, so it’s maybe a bit ridiculous, but in the early days, I actually refused doing demos. I just hate getting on video calls with people I don’t know. And people would email in, “I want the demo.” It’s like, “Yeah, we don’t do that. I’ll be happy to answer your questions over email, which is the medium I’m comfortable with.” But for years we just didn’t do any demos. We do do demos now. We have a full team, they help with onboarding, but because we didn’t have any demos and none of that motion at all, I really had to make the product shine in those aspects. So every time people would say, “Oh, I can’t do this in onboarding.” It’s like, “Okay, let me go back to the product and fix it like that instead of getting on a call and explaining to you how to do it.”  

Rob Walling:
And then support, as you’re saying, was exceptional. There’s one other thing you didn’t touch on that I watched firsthand. I watched you execute exceptionally well, like top 10%, top 5% of founders that I work with, and you are a technical founder who in 2016 launched Martial Arts on Rails and you didn’t know how to market. By the time I knew you in 2021, you knew enough about how to market that you were driving consistent, consistent, consistent growth. I say that word three times because it was just every month there were no plateaus. And then it just got better. I mean, the growth got faster. You eventually hired a head of growth and I mean you coming from development to marketing, a lot of people, as much as I say it on this podcast of all the successful TinySeed companies, all the TinySeed companies doing seven figures, pretty much inevitably one of the founders runs marketing from the start. 

Now you can eventually hire someone to do it, blah, blah, blah, but trying to outsource marketing when you’re 10K MRR, you and I both know that’s probably not a good idea. So my question is there’s a long way of asking how did you figure this out? How did you get good at driving tons of leads because everything else you said, building a great product, great support, self-serve people do that, and then they flounder and they plateau at 10K because they don’t know how to drive traffic. So I don’t know how to drive traffic or leads. How did you figure this out?  

Eran Galperin:
Yeah, I mean that’s definitely the part of building this company that took me the longest to figure out. I do have some background in writing, so I’ve written a lot over the years, mostly technical writing, but eventually moved into, I wrote about startups going through accelerators, stuff like that. So I had that in my back pocket. Also, some experience with technical SEO, so I thought for sure with SEO I could drive some leads to the product. Turns out that was also naive. It took me quite a while to figure out the SEO for this company, but now I have such a good handle on it that I advise other SaaS companies on this particular topic. 

I just had a call with one of the TinySeed companies where I analyzed their entire SEO structure and gave them actionable items. This is one of the things, it’s not like this with every marketing channel. Maybe it is, I haven’t figured it out yet, but specifically with organic traffic, you can approach it almost like an engineering challenge and really figure out a plan to attack it. And we built a really structured repeatable process there to expand and also retain the land that we acquire in SEO because to keep your rankings, it’s very difficult in a competitive market. 

It took me, I want to say five years to really figure that out. In 2021, when we hired the first full-time employee that was a content marketing editor, I knew this is our strongest channel and this is our best writer and I want to just keep investing in this channel. And it paid off. We still drive most of our leads through SEO. I think it’s over 60, 70% of our leads come through that channel, and they’re all extremely qualified leads. It’s a channel with a lot of buying intent. So yeah, it’s definitely something I had to work on. But just persistence with everything else, trying and failing, trying and failing and figuring it out, that’s how we did it.  

Rob Walling:
And to give folks an idea from ’21 to ’22 you doubled, from ’22 to ’23 you doubled, from ’23 to ’24 is not over, but you’re on pace to double. So it is like a really interesting growth curve. I like to call this because you started in 2016, it’s eight years to overnight success because all the people on X-Twitter want to know, how many people do you and I know that would stick with something for five years kind of grinding it out to figure it out?  

Eran Galperin:
I follow some people on Twitter that literally what they do is they build a tiny SaaS product and they give it a couple of months and then they sell it for peanuts on microacquire.com, I think it just acquire.com now. And just move on to the next. And they keep hoping that one of those will blow up, but that’s not how it works. If you’re going to only stay with it for a few months, it’s never going to happen.  

Rob Walling:
I want to dive into the acquisition because you received a lot of inbound interest. You told me offline, you said you initially ignored it. So it was what, 2021, you start receiving private equity firms that are reaching out, and this is a very common thing. People hit mid six figures, get into the seven figures, and it just happens. So how are you thinking about and dealing with all that inbound interest?  

Eran Galperin:
When it started initially, first of all, the language that they use in a lot of this inbound, it is very vague. I didn’t think it was about buying the company. I thought it was venture investment basically. They talk about growth equity, like we said at the beginning. At that time, I didn’t know exactly what that meant. It’s like, “Oh, are you interested in growth investment into your company?” I’m like, “No, I’m bootstrapped. Not interested in that.” 

Eventually one of them actually used direct language and I’m like, “Okay, interesting. I think we’re too small, but let’s talk and see where it’s at.” And we were too small at that time, but I started to get a sense of how things might go. And between 2021 and 2023, I must have taken close to 40 calls with different private investors, search funds, all sorts of different constellations. And I really got a pretty good lay of the land as to what a potential outcome might look like and at what revenue numbers it would make sense to sell. And I started having this kind of mental funnel in my head. It’s like, “Okay, if we hit those benchmarks, maybe it’s time to start thinking about running a process.”  

Rob Walling:
Got it. Why not run the company forever and take out profits?  

Eran Galperin:
That’s definitely an option. And some people do this, but I started to feel some burnout even in 2021. I ran the company with a bootstrapper’s mindset, always hiring maybe a couple of steps later than I really should have because I’m optimizing for profits. It’s really hard to disconnect the revenue going into the company from your own finances. At the end of the day, anything that’s left over in the company is your revenue personally, and I was doing a lot, just maybe doing too much was feeling burnout. And at some point it’s like, “You know what? I would be happy to take a step back and let somebody else run the company.” 

There’s also when you’re at a smaller scale and you self-select for the customers, everybody’s nice and it’s a pleasure to work with, but as you hit a certain scale, the small percentage of people that, I can’t think of a better word, just nasty people and you have to deal with them. And it gets to the point those people are above the level of even a full-time customer service person to handle, it leaves a dent in you. It always feels like they’re going to ruin your company’s reputation. We had people like trash us and all the social media channels for the pettiest stuff. I have stories that just make my blood boil when I think about it and I just don’t want to deal with it. Does this emotional connection as a founder, CEO, that maybe a professional CEO would not have because they didn’t build the company, they don’t feel it in their bones and somebody is just saying nasty things about them online and I just wanted to kind of remove myself a little bit from that.  

Rob Walling:
Yeah, I experienced the same thing. We don’t talk about that very much, but that stuff takes a toll on you. I don’t know if you got threatened, but I got threatened multiple times with where I’m like, “Do you mean that? This is becoming a safety issue.” It’s a law of large numbers. It’s like at a few hundred customers you kind of know everybody, at 1000 users, customers, it becomes a lot. And then we eventually had a free plan, so we had 30, 40,000 users at a certain point. It’s like you’re going to get some mentally unstable, demanding, narcissistic folks. And yeah, I can see it. Everyone sells. Like I say this, everyone sells eventually. I never thought MailChimp would sell and they eventually sold. I mean really, I had all these examples and they’ve all sold except for I think Basecamp is probably the one that I think about. 

So then I guess the question then is you start feeling like, all right, I’m burning out. This business is obviously worth a lot of money, but how did you know when it was time to sell? Because you could have sold it at a million ARR or two. It’s like do you just arbitrarily pick a point? What was it like for you?  

Eran Galperin:
So because we received so much inbound interest, I did really have a lot of insight into where an optimal result might happen, and it did seem to really funnel around a few million in ARR. That’s where a lot of the bigger players that can actually pay the big multiples start getting interested. At the lower ARR there’s definitely interest, but people would try for bargain. The multiples are lower, the terms are not as good, and I saw a very direct line to that number. With our growth numbers I was running this kind of projection P&L where if we continue at the same pace that we’ve been growing and add a little bit to it every few months, and it ended up being almost to the dollar accurate all the way up to 3 million. So as long as I was continuing with the trend that I built there, I’m like, “You know what? I’m good. I don’t need to sell now.” 

Unless I see crazy warning signs. And by the way, those crazy customers, those were the warning signs, like, “Is this it? Is this where I’m taking a tumble down death row for the company?” That did make me wonder, maybe it’s time to sell now before I really run into that customers that tries to ruin our business. But as long as we kept on that trend I could see the path. It didn’t seem too long. So if it was like five years into the future, I would not be able to do it. But it was about two years into the future I was like, “I think I can hold on for that and have a life-changing outcome there.”  

Rob Walling:
And let’s talk through the sales process because you’re one of the few people that I can talk to about how painful this is. And here’s the hard part is if you go on social media, if I say on this podcast, “Oh, it was so stressful. It was really stressful. No, trust me, it’s really stressful.” People say, “I’m sure it wasn’t that stressful. And also you walked away with money that you never had to work again. So really just deal with it.” But it drives people, it can drive people to the edge, to the brink, to the point of not sleeping to the point of I started having, hallucinations is not the right word, that would take it too far, but I started making shit up in my head that just wasn’t true. And at a certain point, Sherry, my wife was like, “Hey, do you know that that’s not, you’re in a weird place. You’re really fighting with people in a way that’s not healthy for you.” 

So for you, you worked with Discretion Capital folks on the podcast. No, A&R runs that and helps as a sell side advisory for SaaS doing multi-millions. And what was the process like for you? You can talk maybe a little bit about the mechanics of it, of how it actually panned out, but also personally, emotionally, what that all felt like.  

Eran Galperin:
Yeah, the process was much more stressful that I anticipated, and it’s mostly psychological in its core. First of all, it’s a very technical process. That’s another thing that I didn’t anticipate everybody reads about due diligence. It seems like a very straightforward thing. You just provide the documents for the company, you let them look at your code base, la-da-dee-la-da and you’re done. And it’s so great, but it’s actually so technical and complicated. There were times during due diligence and it’s mostly around stuff like taxes and company structure that the other side’s legal team would just disappear for three, four days a week looking into something. And I’m like, “Is this a big problem? Is this a small problem? Is this taking down the deal?” I just have no idea. And this kind of ambiguity where you have no idea if things are going well or not for weeks at a time, it really gets to you eventually. 

And it’s a lot very minute things written in some contract from few years ago, and it’s like, “Is this a problem? It looks so minor. Is this really a problem?” And they’re like, “We don’t know. We’re going to need more time to find out.” It’s like, “Sounds bad.” But you just stick with it and eventually you get through due diligence and then you have the purchase agreement aspect. I thought once we’re done with due diligence, we’re done. We just need to sign the contracts and get on with our lives. But hell no. That was just half of the process. It was crazy.  

Rob Walling:
You keep spring [inaudible 00:29:21]. Yeah, you just don’t know.  

Eran Galperin:
Yeah, you just don’t know those things. Luckily I had Einar to provide some emotional support. He told me that basically his role once the process starts is to be therapist for the founders. And it pretty much ended that way. Every time I would go to him, it’s like, “How big is this issue?” And it’s like, “Don’t worry. It happens in every sale process.” Like, “Okay, if Einar says it happens every time, it’s fine.”  

Rob Walling:
It’ll be okay.  

Eran Galperin:
So he would calm me down and this would happen a lot. Him and my lawyer, I want to give credit to Kaiser, just did an amazing job, especially during the purchase agreements. Every word in those agreements can have such a long-term effect on your life and you’re like, “I don’t even know what any of this means.” So having a really good lawyer that is patient and kind enough to explain it in a way that you can understand is so important. 

And still, we would get hung up on things where us and the buyer had some sort of disagreement on, and is this solvable? I don’t know. And again, days would go by, weeks would go by from my end, this is the only thing going on in my life other than running the business, but they’re dealing with multiple deals at the same time. So I don’t know if they’re just ghosting me or actually busy. Is this a tactic that they’re using to get me to come to their side? It’s super stressful. I usually consider myself a very even-keeled person, and I was taken aback by how stressed I got near the end of the deal. Even though we had all this inbound interest, I felt like if this deal falls apart and we go back to market, we will be able to get a really good outcome regardless. 

But I just didn’t, once you get too deep into it, you hate so much to go back to the beginning, do the due diligence again, like, “Oh my god, to go for that will be a nightmare.” So yeah, near the end of the process, I literally got insomnia. I would lie down in my bed, refreshing, looking for emails from the lawyer that I felt like, “Okay, I have to get out of bed, respond to this now, otherwise I’m going to stop this deal for the weekend because it’s a Friday.” And it’s got to the point where once I turn the phone off and I’m trying to go to sleep, I just can’t fall asleep. So it’s like, “Okay, it’s eight A.M. I’m just getting up. I didn’t sleep today. I’ll just keep going.” And, “Oh, what do you know? Another email came in from the lawyer. So good thing I didn’t go to sleep.” And it just stayed like that for the last couple of weeks of the process.  

Rob Walling:
Yeah, it’s brutal. It’s brutal on your mental health and on your physical health. Not sleeping is rough too. Then that, just everything else is distorted. You can’t get through that, but you made it to the finish line. We started with this conversation, hearing you refreshing that bank balance and seeing all the zeros, huge sense of relief. You’re still a CEO of Gymdesk, but what are you doing now as you look ahead over the next six months, five years? What’s on your mind and what are you doing with regards to Gymdesk and with other projects?  

Eran Galperin:
Yeah, so as I mentioned, one of the goals, or rather one of the reasons for selling the company was due to burnout. And when I was talking the terms with the buyer, I mentioned that I would like to step down as CEO after the company is sold and probably over the course of maybe a year or two, eventually walk away from the company or at least have the ability to do that. So currently I’m still the CEO. We closed the deal two and a half months ago. We’re in the process of recruiting a professional CEO to come in and take over for me. 

I literally had an interview just before this call, an hour long interview, by the way, it’s been a fascinating process interviewing for the CEO position. I’m talking to really incredible people and I’m super excited to potentially work with those people. With me taking a small role in the company, mainly focusing on product. That’s where I feel I can make the most impact at the company. I’ve been doing well in the other aspects, but those are definitely not my strong suits. So going back to focusing on product and over time, reducing my involvement in the company. I still hold some minority stake in the company, so I want it to do well, but maybe more on a consultancy basis eventually. 

The main thing for me right now, and I already started doing that, is I’m looking to help mentor other B2B SaaS founders from that zero to one and a potential sale process, and also do some angel investing in that same realm. So I’m talking to a few founders already. Those conversations actually are incredibly invigorating for me.  

Rob Walling:
You get to see the other side.  

Eran Galperin:
Yeah, I’m just incredibly happy to talk about those topics. It’s like I have somebody who also understands what I’m talking about and having those conversations kind of like what we’re doing right now.  

Rob Walling:
Yeah, this is the best job I’ve ever had, what I do both on this podcast, but running my heart on a TinySeed, I get to do that every day. And you see the appeal of it. It keeps you in the game, it keeps your head sharp, but you don’t necessarily have to do the grind that you did for so many years where everything’s hanging by a thread. If someone just heard you talk about, “Hey, I am mentoring and potentially angel investing, they wanted to reach out to you, what would be the easiest way for them to reach you?  

Eran Galperin:
So I have my personal website, it’s EranGalperin.com if you just Google my name, you’ll find it. You can contact me through there. Also, I’m on Twitter and LinkedIn, easy to find. Feel free to reach out if you want to talk. I’m super excited to talk to founders about B2B SaaS. It’s kind of my thing right now.  

Rob Walling:
Yeah, and it’s not just, “Hey, talk to me if you want me to invest or something.” But it’s like you’re pretty free with your advice and you have obviously a lot of knowledge and experience having grown this company in extremely competitive space and having an incredible life-changing exit.  

Eran Galperin:
Yeah, it always gets me worked up to talk to a founders in the early stages and hearing about what they’re doing. It’s like, “Wow, that’s so exciting.” So yeah, I love having those calls.  

Rob Walling:
Eran Galperin, thanks so much for joining me on the show today.  

Eran Galperin:
Thank you so much, Rob. Been a pleasure.  

Rob Walling:
It was an absolute pleasure having Eran on the show. I hope you enjoyed this episode and took away some motivation and some lessons and some learnings that will help you grow your business this week. This is Rob Walling signing off from episode 728.

Rob Walling:
Welcome back to another episode of Startup For the Rest of Us. I’m your host, Rob Walling, and every week on this show, I talk about building an incredible life through startups. Usually, it’s bootstrapping and mostly bootstrapping. Sometime, I have venture-funded startups come on and talk about their experience. But realistically, it’s all about founders, humans that are trying to make a difference in their lives and the lives of the folks around them. Entrepreneurship has been the number one force in my life that has changed it for the better. It brought me from making $4 and 50 cents an hour at my first job and $17 an hour in my first job out of college to where I am today, in a position where finances are no longer a major concern in my life. And that feels like a very weird thing to say based on where I came from. 

So in today’s episode, I’m going to talk about building wealth, and specifically, I’m going to talk a bit about my story, the story of Sherry and I building wealth over the past 20-something years. And I’m going to talk about the activities we’ve done in order that have brought us the most wealth in our lives. And I realize that talking about money can be a taboo subject. I’ve never been someone to share my MRR and act like I’m building in public when in fact, I’m actually bragging in public. But I do think that many of us who are out to find freedom, purpose, and relationships, we need to find a way to make enough money to quit the day job or to augment our day job or at a certain point, to make enough money that we never have to work again. Because as much as most of us will say, “I don’t actually care about the money, I care about the freedom,” the money is the means to that end, the money is the means to get to freedom. 

Before we dive into that, you should check out, MicroConf Connect at microconfconnect.com. This is our online community and forum. We host it in Slack and we’re approaching 7,000 members. They’re bootstrapped and mostly bootstrapped SaaS founders. Recent conversations in Connect, including a debate about magic sign-in links, how long you should spend diving into a niche before deciding on the product offer, how to safeguard your product from misuse during free trials. At what point in your journey should you invest in a conference booth and more. It’s a vibrant and highly moderated community. Very high signal-to-noise if you’re looking to find and hang out with other misfits like you and I, head to Microconfconnect.com. 

Let’s dive in to a lesson on how to build wealth. And look, I could say how to get rich. That’s the gauche way of saying it, but I feel like there a way to talk about this topic tactfully and to talk about it respectfully and to talk about it frankly, with grace and thanks because if nothing else, I have an incredible amount of gratitude for what entrepreneurship has done in my life and the life of my family, and that’s why I want to share this with you today. So last week, I was on Twitter and I saw a tweet from Christopher cgimmer and he said, “My two greatest investments, number one, starting a business, number two, buying Bitcoin.” And that tweet reminded me of an essay, really a half-form blog post that I wrote a year, maybe two years ago. 

I thought of turning it into a tweet thread. I thought of posting it on the blog and just never did. But it was a reflection on the life that Sherry and I have built. And I started thinking through what are the ways that we lifted ourselves up from, I’ll say, humble beginnings. I won’t go into it too far, but between Sherry’s family and my family, we have convicted felons, we have drug addicts, we have folks who have been on food stamps, some folks who are still on food stamps. We’ve had people in and out of jail, we have alcoholics, we have a lot of stuff. And I’m not saying this to play the politician role of, oh, look at the humble beginnings we came from. But in all honesty, where we are today is a far cry from where we started. And the number one reason for that is entrepreneurship. 

Now, obviously you could say, well, Sherry and I would’ve been okay even without entrepreneurship, and maybe we would have, we were working salary jobs before I started companies, and could we have built a great life, just the two of us working hard as salaried employees? Of course we could have. So I don’t want to sit here and act like entrepreneurship is the only reason that we’re alive today and the only reason we own a home or anything like that, because salary employment and investing in the stock market was the path that we were taking, and we were doing fine. We were certainly middle class and doing well. 

But as we look at this list of things that allowed us to build wealth, you’ll notice that entrepreneurship is number one, spoiler. But a bunch of the other ones came because entrepreneurship made enough money that then we could take several bets on different things that we wouldn’t have been able to if we didn’t have that money in the bank. I’m going to be honest, I was actually a bit surprised as I ran through this list. I’d never really thought about it before and to look at which activity contributed cash in what order was pretty fascinating to me. 

So in this episode, I’m going to walk through seven wealth creators, and this is not investment advice. Think of it more as a story. The story of Sherry and I coming out of college with 100, $200 in a bank account and building what I feel like is a pretty successful life that I’m very grateful for. And there was a ton of hard work, nights and weekends constantly for several years. I don’t do that anymore, but there’s probably six, seven years of basically clocking nights and weekends to start companies on the side as I was trying to figure it out. There was definitely some skill that Sheri and I built up through putting in the hours or through going to the library or through being on the internet and studying and learning. And obviously, there’s some luck involved as there always is. 

In addition, this is not investment advice. This is just the way that we think about allocating our money. And this may or may not work for you or even be relevant. So with that, first item on the list is selling companies. And for the most part it’s selling companies that we started from scratch. Sometimes it was selling companies that I acquired. So HitTail was a SaaS app that I bought in 2011 for $30,000, and by the time I sold it in 2015, the total revenue it generated plus the exit amount was just over $1 million. And one might say $1 million, Rob? That doesn’t sound like that much money. To us at that point in our lives, it was the first moment that we had life-changing money, “life-changing money,” not never have to work again, money, but it changed the way that we went about our day to day. It was the first time I ever saw $100,000 in a bank account, was working on HitTail. 

HitTail was highly profitable. It had a 90% gross. No, it had about an 85, maybe 90% net profit margin, net profit because it was just me and a couple contractors. And one might say, “Well, you had $30,000 to buy HitTail. I don’t have $30,000.” Guess what? Three years prior, I didn’t have $30,000 either, but I built businesses like .NET Invoice, I wrote Start Small Stay Small. I had a portfolio of small products and I saved the money from those as well as consulting that I was doing a few years prior to get that 30,000. So I truly stair-stepped my way up over the course of, depending on how you count, it was either six years or 11 years to get to that point where I could acquire a SaaS app and grow it. And I had built the skills to do that and I’d put in a lot of hard work along the way to be able to do it. 

Prior to that, I had, at any given time, I had around a dozen. It was like between nine and 12 small products doing hundreds to single digit thousands per month. And I cobbled those together to make a full-time living. And it was a great lifestyle. I worked 12 hours, 16 hours a week. We had young kids, but I was always worried that I wasn’t going to have revenue or income the next month or the next year. And I was constantly thinking about, am I going to have to go back and get a job? Am I going to have to go back to consulting? And once you taste the freedom of not doing those things, you really don’t want to go back. I became unemployable pretty quickly. Now, moving from that life-changing to sunset money where you can just ride off into the sunset. Some people call it FU money. You could say it’s never have to work again, money, but that of course was selling Drip. 

And one might say, “But Rob, you invested 150,000 or $200,000 into getting Drip built. So when you sold it for millions of dollars, I can’t do that because I don’t have 150 or $200,000.” Guess what? I didn’t either three years prior, but I bought HitTail for $30,000 and grew HitTail, which was doing, it was around $2,000 a month at the time. I grew it to 30,000 MRR and socked that money away in a bank account, put it away, put it away, put it away. So I had money in a business bank account to where I could pull that out and build Drip. This is why I get a little infuriated when I see comments, I’ll see them on the YouTube channel, for example, where I talk about if you have an unfair advantage, if you have an audience or if you have a network or if you have money, then use it. And someone will post a comment with, well, if I was lucky enough to have an audience like you, I didn’t build my audience because I was lucky. I built my audience because I’d put in almost 20 years of hard work. 

And I know people who build it a lot faster than that, but however many years you put in, it’s not luck, it’s about putting in hard work and reaping the rewards. And so I can imagine someone listening to this and say, “Well, I don’t have $150,000 to build Drip. I don’t have $30,000 to build HitTail. I don’t have $11,000 to buy .Net Invoice,” which is what I bought it for back in ’05, ’06. I didn’t either until I did freelance work on the side in addition to my day job and saved up enough money to buy .Net Invoice, and then parlayed .Net Invoice into money in the bank to buy HitTail and then parlayed that. You know what I mean? It’s like it took us a long time. 

If you think about it, the typical startup journey you hear about these days, “typical,” I’ll put in quotes, people say, “Oh, in three years I quit my job. In a year, I quit my job. In five years I became a millionaire.” I started building and trying to launch software products really around probably 2002, 2003, and I had my first thousand dollars revenue month in ’05, ’06. Think of how long that is. That’s a lot of nights and weekends, and it’s not what you see on Twitter today. It took us a long time because we had no backstop. We did not have parents who would bail us out if we went to zero, if we lost our apartment, if we didn’t have money to pay for it, we couldn’t move in with anybody. Not having a backstop makes it really scary and it can make you risk averse, which is what we were because we had to show up for our jobs every day and trade dollars for hours because we had to make a rent payment because we had no backstop. 

And so I did a talk several years back called 11 Years to Overnight Success, where I started the timer at 2005, which is around the time I acquired .Net Invoice and ended it in 2016, which is when we sold Drip. And that was the moment where I never had to work again. And it took us 11 years to get to that point. Why did it take so long? Because I stair-stepped, because I did it carefully and because we did it in a pretty risk-averse fashion such that we would never lose the house. We didn’t put a bunch of money on credit cards, we didn’t take out a second mortgage to invest in our business. You might be more risk-averse. In fact, you might have a backstop if you have rich parents, if you have $200,000 in the bank that you’ve earned and saved or that someone gave you, that’s amazing. Then you can take bigger risks and you can do it a lot faster than we did. 

But we took one step in front of the other and put in hard work, luck and skill over years. And frankly at this point, decades. When I say think in years not months, what I actually mean is think in decades, not years, but that would be too painful to tell people when they’re first starting out. So that was number one, selling companies. And I realized I included running HitTail, meaning taking profit off of it. So I muddied the waters a little bit. But realistically, the number one driver of wealth building for us has been exiting companies. And the beauty about selling is, at least in the US, the tax laws are so favorable because they give you long-term capital gains in your tax rate is far less than if you draw profits out of a business. 

In addition, depending on how you’re growing and what the multiples are, you can often sell for 10 years worth of net profit or 15 years worth of net profit. So you dramatically accelerate the amount of cash you get today, and that allows you to make other bets that may pay off for you as we did in 2016. 

You may not want to hear it, but number two on our list is cryptocurrency. And I know some people are cringing. I’m not a crypto bro, I’m not a crypto maximalist, but when I started hearing about crypto in let’s say 2014 or ’15, I was intrigued by it, but much like investing, I didn’t want to spend any time focusing on it because I was busy being an entrepreneur and I wanted to focus on growing a company. But after selling Drip in 2016, we obviously had a large sum of cash and I wanted that to last the rest of our lives. And a very interesting side effect of having a large amount of money is that you can make larger than sensible bets on very risky things. 

So prior to that, we had made a few angel investments, and of course, that’s lower here on the list, but we’d made some angel investments in startups. And I started thinking of crypto as an angel investment and I told Sherry, it’s either going to 100x or it’s going to go to zero. So let’s put an amount of money into crypto to where it goes to zero, it doesn’t matter to us. And here’s the thing, it comes back to entrepreneurship because if we hadn’t sold Drip, then could we have put $1,000 into crypto? Yeah, probably. And do I think putting 1% of your net worth or 2% or some very small amount into risky bets is a good thing? I do personally. 

In fact, we have done it with angel investments and with cryptocurrencies. Do I think everyone should do it? I don’t know, it depends on your risk tolerance, but to me, I saw what [inaudible 00:14:55] calls asymmetric upside, which is, if this can potentially 100x, could I put $1,000, $10,000, $50,000 into it? Well, it depends on how much you’re worth, right? If your entire net worth is $50,000, that would be foolish to put 50,000 in. But if you literally have millions and millions of dollars sitting in a bank account, is it foolish to put tens of thousands into something that could potentially be worth millions someday? Maybe. So is it super risky? Of course. But over the course of, I think it was seven months, eight months, we basically dollar cost averaged less than 1% of our net worth. So it was tens of thousands of dollars into several cryptocurrencies. This is ETH, it was Bitcoin, I think it was Litecoin at the time. I think I picked three or four. 

And again, it was either going to 100x or it was going to go to zero. And when I say dollar cost averaging, what that means is instead of buying a big chunk all at once, you buy a small amount every day, every week, every hour, whatever it is to get up to your target allocation. And I genuinely wrote it off, expected that money never to come back. Much like any angel investment check we write, I don’t include that in our net worth anymore. I consider that it’s zero until it’s not. And one could say, “Well, you got a little lucky.” Yeah, probably also could have bought two years later when it crashed. Also, could have bought a couple years after that when it crashed. 

But if you dollar cost average in and you don’t put any more in than you can lose. It just didn’t seem that risky. I’m pretty risk averse person. I’ve never had a backstop. And so for context, we started buying ETH around, I think it was somewhere between six and $10, and Bitcoin was at 600 or so. And obviously, as of this writing, they’re at 3300 and 66,000 respectively. Which just feels bizarre, right? Crypto to me was just a mechanism. It was just a thing that could go up. I have no desire to persuade you to purchase it, right? And I’ve gotten into discussions where people will ask the usual question, well, why is it valuable? Why not just buy gold, isn’t it a bubble? And it’s like, I don’t know. I just view it as an angel investment. It’s a lens of opportunity. And again, never could have done this without having the exit. 

And the interesting part about this is within months, it started going up, I think it was six or eight months, it started going up so quickly that actually, it scared me because it went from tens of thousands up literally into the single digit millions, and it became almost… It was like a fear of liability about the volatility. And so we started dollar cost averaging out as much as we could. Back then it was actually hard to sell crypto. There were all these limits on exiting, and that was a good thing because I think we would’ve sold more than probably would’ve been wise. We were held in by these limits, and those limits allowed us to leave more in, that then of course grew over the following five, six years. I just don’t think we would’ve kept it that long. 

So I’ve appreciated how those limits probably went against the scarcity mindset of, oh no, it’s going to go down and we’re going to “lose” a bunch of money even though we’re still playing with house money. So in the subsequent years, we have definitely sold seven figures, obviously playing with house money plus, plus, taking chips off the table, but still have enough that if it continues to go up, that we ride that wave as well. So what’s the learning there? Is it everyone should buy crypto? Is it everyone should dollar-cost average into risky assets? I think it’s that making money creates opportunity and allows you to make bets on things that otherwise you never could have. And again, this is where it comes back to entrepreneurship. 

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Number three on this list is running profitable companies or owning profitable products. Some software, some knowledge products. So think of things like running HitTail, running my product portfolio back in the day. Dr. Sherry Walling, my wife runs Zen Founder, which is a very successful executive and start-up founder coaching practice zenfounder.com if you want to check that out. I had a micro agency back in the day. And of course, book sales, since we publish our own books, you can actually make decent money if you sell 20,000 copies like the SaaS Playbook has sold. There are no big hits in this one. This one is really number three on the list by virtue of how many years we’ve done them. 

Sherry has run Zen founder, I think since, I don’t know, maybe 2013, 2014, so a decade. And I ran HitTail for five years. It was highly profitable. The product portfolio was six, seven, eight years. Sherry’s written two books. I’ve written four books. Each of these things, we just have done them for a lot of years, so none of them was a breakaway, mad influx of cash, but each of these was either additive to our day jobs or it was a nice steady income stream to keep us going long enough to have some of the other big hits. 

Number four on the list is angel investing. And for a while, I’ll be honest, this was number two on the list, and this is mostly due to an angel investment that I was able to make in WP Engine. There are also a few startups we’ve invested in that have returned, I’ll say single digit multiples. So let’s say a 3x, a 4x, a 5x, which they’re nice, but they’re not the return that the WP Engine did. And we also have a couple that kick off dividends that again, are nice to haves, although we pay income tax on them. 

But realistically, the power law plays out here through my investments. Sharon and I have 20 plus angel investments on our own in addition to the ones through TinySeed. And when WP Engine had what I think was considered a private equity growth round in 2018 or ’19, we got bought out and that was enough money that we could pay cash for our next house, which we had to do because I didn’t have a job. I couldn’t get a loan because I didn’t have a job. Think about the irony of that. This was after selling Drip, but after having all this, but angel investing is another one that is 100x or go to zero. And any money that we’ve written, we’ve basically written off the moment we write the check. 

And again, someone might say, “Well, I can’t angel invest.” And it’s like, well, you got to make money first, right? We only were able to do it by building companies and having enough revenue that we had money in the bank that we could potentially invest. In addition, who invested in WP engine? Well, it was a handpicked list. It was oversubscribed. And Jason Cohen approached me and said, “If you want to invest, I’ll save money in the round for you.” Why did he do that? Because he had read my blog and he had read Start Small Stay Small, and he said, “I think you could advise me on virtual assistance and potentially email marketing and potentially SEO. These were things that he saw that I was knowledgeable in. 

So did I “earn” that? I don’t know. It was a combination of hard work because I put two to 400 hours into my blog every year between 2005 and 2011. A lot of times during lunch hours at my day job. When other people went out to lunch, I would go and I would write. So there was some hard work there. Was there luck? Absolutely. And was there skill? Yeah, it’s debatable, but that was the first angel check we ever wrote. In fact, we were not accredited investors. And so there’s a bit of luck there that he was willing to do what’s called a friends and family type situation. So I’m super grateful for Angel investing. 

Now, if we had never done angel investment, would we still be fine? Would we still be well off? Would we still have wealth? We would, but it’s that nice to have thing that allowed us to level up our standard of living. And to be honest, it’s just pretty fun. I love being involved in startups, as you can imagine, as my life’s mission is to multiply the number of independent self-sustaining startups in the world, and therefore, angel investing being number four on this list is apropos. 

Number five is salaried employment. This is working for other people. Both Sherry and I had many W-2 jobs in our lives. It’s the default. It’s what you do when you’re starting out, most of us. I kind of wished I was just a contractor freelancer when I started, but I was too risk-averse, and I wanted a steady paycheck to pay for that apartment that we lived in in Sacramento, California, where the rent was $720 a month for a two-bedroom place back in 2000. Nothing wrong with salaried employment. I learned so much. I really learned how to code as a salaried employer. I learned how to hire. I learned how to interview. I learned how to manage. 

I think folks who don’t have a salary job before they go out on our own are at a bit of a disadvantage if you haven’t learned those skills. So would I say you should get a salary job before going out on your own? I wouldn’t say that. Some people naturally can just do those things, are better at management, are better at hiring. They have the confidence, somehow they just figure it out. I was not one of those. I was very inexperienced. I was very timid. I was scared to do things like interview other people. I didn’t know how. And I learned those on the job and it made me a better entrepreneur once I decided to strike out on my own. 

Number six of seven is investing in what I’ll call typical investments like stocks, bonds, REITs, and so on. The challenge that we saw there was you need money to make money. You can put money away every month, which we were doing. Oh, hey, I’ll put $400 a month away, or $1000 a month at a certain point, or even $2,000 a month. And so in a year you save 6,000, 12,000, 24,000. And when you think about how much you actually need in the bank or in investments to retire, that’s a lot of years. There’s a reason you might have to work 40 or 50 years to get there. And so I quickly saw that although Sherry and I were making money, and we could afford a home in California, I saw that we were not going to get rich by saving. And that is something I think in the early days, again, 20, 25 years ago, I thought we could penny pinch or save our way into wealth. 

And some people might do that, but I didn’t see it as a path for us. And that was one of the motivations for starting companies. One, I wanted freedom, but also, I wanted an opportunity to be more in control of my income. And the idea that I needed more money to make money was frustrating to me because no matter how much I saved, it just didn’t grow fast enough. And by the time we were starting to make money, like real money from HitTail or Drip, we had saved up, I think it was around $350,000 in investments. And we were what? In our early to mid-30s. And so that’s not terrible, but that’s a lot of years and a lot of working to not have enough money to be able to retire on. 

These days, we are almost more in the barbell strategy. You can Google that if you haven’t heard of it. But we have, I’ll say, a traditionally small amount of money in typical investments like stock bonds and REITs, and we have more money in highly risky assets like a crypto, collectibles, startups and other alternative assets. And then we have a bigger chunk in extremely safe assets like cash or these days in the high interest rate environment in savings accounts or an equivalent that paying four or 5% on cash makes sense to do that. So I’m still a proponent of stocks, bonds, REITs and et cetera. We still have money in there, but it’s definitely become more of a background thing I’ll say, or just something. It’s an infrastructure thing of we put this money in and it’s great to watch it grow in your index funds, but it is not a major driver of wealth. It’s more of a way to maintain wealth or to grow wealth, but not to actually make wealth. 

And the seventh and for the most part, final thing that gave us any type of noticeable amount of money, obviously there are things like savings account interest over the years. Have we made single digit thousands? I’m not going to include stuff like that, but this is the last one that I think has made us tens of thousands or hundreds of thousands in lifetime wealth. And this was investing in real estate and it was in the early ‘2000s. We since have not bought a bunch of real estate. As I said, I have money in other things, and I know there are folks out there screaming at the microphone talking about the amazing tax write-offs. And I know there are tons of advantages to it, but it’s not something that we are presently in. 

The thing I was looking for was an edge. And so in the early ‘2000s in Los Angeles, we were buying up units and houses with two on a lots. And so we at one point had like seven units. And you could do this through leverage, right? I think it was three or four properties and seven total units. Many of them unpermitted as they are in LA. And you could do this through leverage because you could buy a half a million dollar or a $300,000 property with 5% down or something. And that cut both ways because when the market plummeted, of course, then you are losing a ton of money. But what I realized was that we had no edge, in that we had money and other people had more money and other people had inside deals and other people knew more about real estate than we did. And as such, I felt like I was the retail investor who was getting taken advantage of. And even though we owned these homes and there was some equity in them, we were really at the whim of the real estate market in LA. 

And as it started to crash in, it got soft in ’06, it started going down in ’07 or flatlining, and then in ’08 it started plummeting. We sold all of that because I didn’t want to be in debt, hundreds of thousands of dollars to the banks or have my properties foreclosed on. And it was something that that was the moment. If you think about that timing, that ’06, ’07, ’08, that was the moment that I had the realization of what is my edge? Well, my edge is I’m a software developer, I know how to write code. Is there a way that I can monetize that? Because not everyone can do that. And that’s when I realized, oh, if I learn to market and I know how to code, almost no one does that. And so that turns you into a pretty incredible force because if you can write copy and you can position products and you can do SEO, you can run ads, you can build something that people want and are willing to pay for, there are very few people that can do that. And that is where I realized I had the edge. 

And so at that point, we did sell the real estate that we had, and it sounds like we were real estate moguls or something. It’s like we were leveraged to the gills. And if in total we made 100,000, $200,000 over, it was many years of nights and weekends, as I was also doing software products. I was that guy that was trying to figure out the hustle. How do I raise our lot in life? How do we get out of working dollars for hours and making $30,000 a year, $50,000 a year, and actually get to a point where we have enough money that we can “make a difference,” right? That we have enough money that we can now make money by investing in typical investments or by dollar cost averaging into crypto. And that of course, led me to entrepreneurship, to software entrepreneurship and also writing books and all that. I just can’t underscore how much that changed mine and Sherry’s life. 

So to recap, seven ways that Sherry and I made life-changing wealth in our life, number one is selling companies. Number two is investing in crypto. It sounds so weird to say. Number three, running profitable companies. Four, angel investing. Five, salaried employment. Six, investing in typical investments like stocks, bonds, and REITs. And seven, investing in real estate specifically in the early ‘2000s. 

Hope you enjoyed this. It’s a bit of a story walk down memory lane, but also trying to pull out some learnings that I hope can help you as you move forward. And thanks to Christopher Gimmer for posting that tweet and reminding me of this thought process that I had a year or two ago so that I could revisit it here on this show. It’s been great being with you here today. If you keep listening every week, I’ll keep recording. This is Rob Walling signing off from episode 709.