Episode 525 | A Bootstrapping Artifact from 2005

Welcome to this week’s episode of Startups for the Rest of Us. I am your host, Rob Walling. I’m trying something a little different this week. I came across this really long email that I had sent about 15 years ago, and then an ensuing email thread talking about software products, and really talking about me acquiring this product, DotNetInvoice. If you’re familiar with it, it was the first product that I made any substantial revenue from.

What’s interesting about this, there are a couple of artifacts of that time—phrases and companies—that you’ll hear me mention. But what is even more interesting is just to see the mindset of where I was at, where this space was 15 years ago, the thinking, just how nascent it was, how there were no examples of being a solo founder, and building a bootstrapped software company that didn’t go and raise funding. My aspirations were not large. They were truly to pay my mortgage or to make $8000 or $10,000 a month and be able to quit consulting. Even though that’s all I wanted to do, the topic of funding is mentioned several times in this thread as we try to iron this out.

To give you a context, this email was to a friend of mine who is also a longtime colleague, and for who I had done a ton of consulting work. He had run an actual consulting agency during the dot-com boom, and then had pivoted that when everything crashed into basically a remote agency. This is 2001–2002 and it was just a remote group of developers. There were only a few of us that he was keeping busy. We were contractors and I was able to work from home for the first time in my life, and that was super game-changing for me. I was able to set my own hours, for the most part, and for him, I always respected his sales chops. He just was a person who had business acumen.

I did not grow up knowing people who had business acumen, who knew how to market, who had money. When I used to hear the term friends and family round, I thought, what friends or family do I have that has enough money that they aren’t mostly living hand-to-mouth, and that could possibly write me a check to start a startup? It was just ridiculous. That was actually something that I always struggled with and I didn’t like the, it was who you knew who would get you the funding, and I just felt like and was such an outsider to that entire tech scene. Having grown up, my dad worked in construction and my mom basically raised us. She was a receptionist at a veterinary clinic, and that was our life.

I didn’t know anyone who ran a business aside from someone who owned a local ice cream shop. I remember thinking, man, that’s so cool. I want to run my own business. But that was it. You can hear my naivete around business life, starting a company, growing a company, and what it’s going to take. I had literally read the Inc. Magazine, Entrepreneur Magazine, the Red Herring, and Business 2.0. That was my picture of, if I’m going to build a software company, if I’m going to try to build a product, this is how people do it and that’s how I need to do it as well.

Although there are several takeaways from this email and from the whole conversation that I bring up in this episode, one of the big ones is just that I was trying to do something without a model, and that’s how a lot of us get here. We feel like the current models we’re being presented with just don’t feel right.

When you keep hearing about venture funding and you look at the WeWorks on the front page of TechCrunch and Ubers, and you hear some of them laying off these employees, a lot of them treat the employees in this constant need for funding and this thirst for this billion-dollar outcome, for some people—for a lot of us, I would say most of us—that just feels off. It doesn’t feel like who we are and the company that we want to build.

Although, as I say, almost every episode, we want to build ambitious startups, we don’t want to do it at the expense of relationships, of just having to treat people poorly, and make decisions based on satisfying investors. Even just the all-or-nothing idea of I have to have a billion-dollar outcome or else I’m a failure, that’s not the norm.

It’s so unfortunate that the press covers that because these are such edge cases. They’re such the one in a hundred, or thousand, or a million, whatever number you want to say, where so many of us just want to build an interesting business, want to grow it, want to change our lives, and change the lives of the people who are involved in it, but why does it have to be an all-or-nothing, bet-the-farm to grow to a billion dollars?

This was during the mental turning point that I was having, and you can see some of that coming out in this email thread. So, without further ado, here’s the email, the subject line is Business Proposition.

I’ve been thinking for a good couple of years that no matter how much our rates go up, we’re always scrambling for leads and working 9:00 AM to 5:00 PM to pay the bills. If we don’t work, we don’t get paid. This is not a terrible thing, of course, since our hourly rates are high and we make a good living. But from my years of reading finance books, I’ve come to believe there are three levels to making money. The lowest level is working for someone else, the next level is working for yourself, and the top-level is making passive income, whether it be through other people working for you as you’ve leveraged very well or through real estate or a product.

The product idea has come up before. I recalled you and one of my coworkers discussing a web-based product for service companies in a certain area of the country. I’m not sure if I was working for you at the time, but I thought it was a good idea.

I’ve also taken stabs at passive income through technology like when I built FeedShot, which makes around $100 a month—woohoo—Flogs, which I sold. It was too much work for too little payoff. And Dig started a personal finance section basically, was going to make it irrelevant. And some forum software I owned called Chitchat.net, which I sold a few months ago after trying to market it and not having the success that I wanted.

Although these haven’t been failures per se, they have not been the smashing success as I once hoped. But I’ve learned a lot in the process about marketing online, Google AdWords, search engine rankings, and supporting a product.

The next step in this evolution was when I was at a client site, and I realized they have a fat stream of recurring revenue because they have customers who pay them around $10 per month to use their hosted online time tracker. The company is only seven employees and they’re bringing in quite a bit of money in annual revenue. It’s not revenue they have to sell for all the time, a good chunk of it just appears monthly in their bank accounts. Now, they’ve been around for a long time and they built a nice customer list, but this seems like a nice business to be in.

With that in mind, it’s always been in the back of my mind to build or buy something that I can leverage, something that scales better than my one hour of work. I’ve explored many, many products and websites in the past couple of years as I trawl the ‘website for sale’ boards on eBay, SitePoint, and DomainState, realizing a lot of these things sell for far less than I could build them for, strange though, that is.

Most of them are crap, or things I’m not interested in, or things I don’t think will scale to the level I’d like. But I found one recently through sheer coincidence that fits all the criteria I’ve set up. It’s in .NET, it serves businesses which I’d prefer over consumers. Even back then, it’s crazy, it’s well written. I’ve seen the source code and it’s already selling to real customers.

The product is an ASP.Net invoicing app called DotNetInvoice. I saw a link to it from a post the developer made. He was actually just describing his portfolio of things he developed, looking for someone with marketing knowledge to help him market and sell his ideas better.

I clicked on the link, thought the site is clean, sells the product well, and the product demos really well. I emailed and asked if he’d be willing to sell it. He said he wasn’t opposed to the idea. At this point, I’m thinking it’s going to take a lot of cash to buy the thing. I found out that he and another developer wrote it and they’ve averaged between $700 and $1000 per month in sales for the past six months or so, which in this present day, Rob—cutting in—turned out not to actually be 100% factual.

Their site ranks high for some decent keywords and they get several 100 unique visitors per month with no advertising. They sell a supported version of the product and an unsupported one, but they sell almost none of the supported version, so he says they barely do any support. Somewhere around an hour or two per month, they’ve obviously spent hundreds upon hundreds of hours building the product in the site. Version 2.0 has 60 web pages and 20 database tables. You and I both know how long that would take to build and how expensive it would be at our rates.

It’s interesting for me to read this, looking back over these years because several of the things that I’m saying did not pan out, were not actually true, and I didn’t know any better. I didn’t know how to do the due diligence that well. These are things that a modern-day broker would have sussed out. Back to the email.

The potential I see in this product is threefold. Number one, I like the fact that it’s selling by itself through keywords and word of mouth, that’s a good revenue stream and something that should be put back into the product, whether for the development of new features or for marketing.

Number two, the next level I see is to create a higher-priced version and start hitting up small- and medium-sized businesses that are in need of invoicing software. This thing automates recurring invoices. Talk about a killer app for snowblowers, pool guys, landscaping companies, web hosts, et cetera. Some of them would require time on the phone selling, and that’s why we need to increase the price because I don’t think the economics of selling a $98 product will work out if we have to make sales calls.

Finally, this seems like a fabulous opportunity to create recurring revenue. Why not modify this thing so we can host X number of clients of the same install and become an ASP? And this is me jumping in. ASP was an Application Service Provider, and that was what SaaS was called before we called it SaaS. But what’s interesting is then I use SaaS later in the next couple of sentences. I’m not sure why I did that, but ASP was still a term. Back to the email.

We could charge $12 to $149 per month—I have no idea why I came up with those numbers, it’s so random—and compete with the other service out there. I’m not sure if I meant to say service. I don’t know what SaaS or ASP invoicing software there was at the time. I don’t know FreshBooks has launched. Back to the email.

Software as a Service seems like a great business. The larger SaaS companies are even being given a lot of funding right now because Wall Street likes the recurring revenue. Read these two issues ago in Red Herring magazine, which is now defunct. It’s so of its time, it’s just so incredible. It does feel like a lifetime ago in terms of just the lack of knowledge of how things actually worked. For me to say, I don’t think the economics of selling a $98-product will work if we have to make sales calls. Of course, they won’t. You need to sell thousands and thousands of dollars per sale to make it worth the sales calls.

Now, that was a hard part of doing this. I don’t know anyone else on the internet who has done this. I didn’t know anyone who was talking aside from Joel Spolsky, and I had just heard of Basecamp. I actually mentioned them later on in this conversation. I linked to basecamphq.com and then talked about how these guys are getting some traction right now. It really is this pioneer end of the internet, the pioneer days of this whole SaaS model, and I was just trying to figure out, man is this something that will even work? Can you do it at this scale? I’m still thinking in terms of funding like, oh, if we get some traction, we can raise funding, which again, is not something that, why would I think that? Why didn’t I just want to build a profitable business? Because there was no model for it. Back to the email.

I made him an offer, $10,000 for everything. He counted at $15,000 and I counted this morning at $11,000. I’ve not heard back yet, but I expect to this weekend. I’ve verified the past four months of site traffic and revenue with screenshots, which is how I’ve typically done it. I verified they rank on the first page of Google for various keywords, I’ve seen the complete V 1.1 source code, samples of the 2.0 code. It’s not exactly how I would have done it, but it’s very clean and appears to be pretty well-documented.

Here’s where I start to get down to the nitty-gritty, the deal. This is the longest email ever. I can’t believe I even sent an email like this. This feels like it should be an ebook or something. Back to the email.

The final thing I like about this idea is that I can own something, not to say it’s bad building and maintaining other people’s stuff, but I’ve come to the point where I want to change from what I’ve been doing for the past six years. I know you’ve been doing it even longer. I feel like I have the experience, the knowledge, the motivation to make something like this pay big dividends. Actually, I only have some of the experience and that’s where you come in. I think this team needs two sides: the technical person and the salesperson. Certainly, we would both be involved in both areas, but you understand what I’m getting at.

Of all the people in my life whom I trust, you are one of the most gifted at sales, have an amazing understanding of tech, and I know that we make a good team. No one else fits this bill and that’s why I propose we consider doing this venture together. As a thought through making this happen, I’ve realized that many discussions need to take place about which new features to develop, which markets to go after, how to price it, and others. Those will be so much more fruitful with two smart people involved.

My thoughts are as follows, and these are not set in stone. Number one, we go in 50/50. We split the upfront costs of the software, try as best as we can to work an equal number of hours each month.

Number two, this is certainly not going to be our primary source of income. I plan to take 4–6 hours each week during work time since I have no free time anymore due to the baby—who’s now almost 14 years old—to put towards this project. The more revenue we make, the more time I can give it, shrinking the number of consulting hours I work. It would be up to you if you want to work on it during work hours or not.

Number three, if you don’t have time, don’t have the desire, don’t like the product, don’t like the idea, please don’t feel any pressure to do this. My feelings will not be hurt and our relationship will not change in any way. I’ll probably move ahead even if you decide not to but we’ll make adjustments from the plan I’ve outlined above. But seriously, I realize I’m throwing a lot at you here and I will be 100% cool if we aren’t able to pull this together.

Number four, we would sign a partnership agreement. Hey, getting it into writing, that was good.

Number five, we would have to agree to reconcile, meaning, your friendship is worth more to me than this business. If this […] hits the fan at some point, you and I must agree to overcome the problem and figure out how to stay friends. Of all the items on this list, this is the one I will not budge on.

I imagine you have a zillion questions right now. Feel free to send me an email or give me a call on my cell. I’ll be in touch once I hear back from the DotNetInvoice guys.

Aside from just the early stage, my lack of knowledge and experience in just the early stage of this, and just the whole space, I feel like I thought this stuff through pretty well. I was pleased to see that I was valuing relationships over the business and that was such an important thing to me. In retrospect, this would have been a terrible partnership. As much as we were friends, and we still keep in touch now and again, but we haven’t talked on the phone in years. We emailed—I don’t know—once a year, tops, once every couple of years. I still like and respect him, but he went off and did his own thing and I went off and obviously did my own thing.

Knowing what I know now, I was scared to do it on my own and I felt that I wanted there to be someone else there so that I didn’t make a bunch of mistakes and that’s understandable. But I also think I was grasping around at anyone I knew who had business experience. Since he had been running this successful agency, this consulting firm for several years and I had done a ton of work for him and we got along, I felt like that would be a good thing. I just don’t think it would have worked well and trying to pivot it into his skill set. He was a salesperson, not a developer.

I think that would have probably not worked because the product, the way I then went about—I’d doubled down on SEO, I did a bunch of Adwords, and just up those skills, just did a bunch of marketing, got inbound leads, and sold it. I just don’t think that his skill set of doing high-touch sales would have been that valuable to it. We both would have felt bad about it and that things worked out the way they did, but I want to continue with the story a little bit.

We went back and forth a few times and he basically said, hey, I can’t make a decision right now. But then he had some interesting things to say about the fact that he was running this remote small agency back before most people were doing it. He says, I think that’s a better model, and I’m making pretty good money doing that, and products are going to be a pain. He said, I feel like if I could just get a little more work, get a couple more contractors—I was essentially contracting for him—that he could do better than trying to grow a product.

I came back and said, yeah but you’re not building anything that is worth anything. Can you sell an agency that has three, four, five contractors and is doing however much a year in revenue? Are you building long-term value?

What’s interesting is we both had goals of freedom, but he wanted to just accomplish things. He wanted to make a lot of money, which I do not hold against anyone—any business person who’s trying to launch their company—but for me, it was much more. I think about freedom and the ability to create what I wanted and to make-build interesting things that I had control over. I don’t think he had that same drive, and that’s okay.

This is a lot about knowing yourself, whether you just find this out, or you take StrengthsFinder, you take the Enneagram, or you talk to people around you who tell you this is what drives you. Knowing yourself is such a big part of this, and looking back over this conversation, it is really fascinating that he digs in and successfully defends the agency model. He says, look, I make quite a bit of money. I don’t work that much and instead of losing focus, wandering off, and doing a product, adding a few more contractors is probably the way to go.

At some point he says, I’m not saying that growing this agency sounds like a lot of fun or it’s anything I’m passionate about, but if it just gives me more cash flow while I explore other opportunities, that’s an opportunity. But one thing that it came down to, he said, the bigger problem than sales actually is finding good people. I could probably keep another two developers busy if I found decent folks.

And that had been a big issue, was scaling the agency. It was not about sales for him because he was good at it and had a lot of contacts. It was finding developers that he didn’t have to micromanage and be constantly project managed. He goes on to say, I’m 100% on board with building and selling products, but that model has its own challenges. Growth can be much more rapid, but you have to invest a lot of money upfront to develop the product and continually invest to improve it. You’re also constantly under threat by free services.

This is such an interesting point because it is completely, I don’t say it’s relevant at all to be done anyway, but it is funny and it was thinking at that time. You’re constantly under threat by free services. How would you like to have a web reporting tool and then have Google come up with a free one? I’m sure he’s referencing Google Analytics. I don’t remember when Google Analytics came out, but that was kind of I was thinking at the time is that all these big players just released free versions of everything, which I don’t think has totally come to pass as we have seen that B2B SaaS is done quite well. Then we went down a pretty interesting thread.

I’m skipping over the boring stuff, but at one point he said, I’ve had a couple of product ideas I could do very well, and one of them was project management and a time tracking tool. I said, have you checked out basecamphq.com? These guys seem to have some momentum in this space. There are quite a few web-based project management products available, but I’m not sure how many of them have time trackers built-in. A lightweight PM time-tracking invoicing app does sound interesting and then he said, here’s what I recommend. How about we start working on a business plan together? I’ll give my time freely whether I decide to partner with you or not.

I remembered thinking this is the bootstrapper in me or the person who wants to start their own companies. I was like, I don’t want to make a business plan. He was more of a business school-type thinker and I wanted to build a business instead of a business plan. Maybe that’s where this ‘build a business set of slides next’ thing that I say comes from, but I really remembered feeling averse to the idea and not kind of. I remembered thinking, that’s the least fun thing I could do here. I really do just want to get this thing, dig in, figure out how to grow it, bring in more leads, and not spend time. We were talking about the Palo Alto Software. It’s paloalto.com and it’s this business plan creator thing and the thread basically ends.

I don’t know what my thinking was at the time because my last thing says, yeah, let me order a copy, and we can do that. And we just never moved forward. I remember thinking a little bit if that’s your approach to things, that is a bit of a red flag for me.

Honestly, that’s not to say that creating business plans is a bad thing, but it’s not how I’m wired and it wasn’t how I wanted to build a product. It wasn’t how I wanted to build a business. I did want to get boots on the ground. I wanted to start talking to customers, driving traffic, and doing all the things that we do that we talk about in this space.

I’m guessing he did too, but he wanted some high-level plan. When I thought about that, even when I think about it now I’m just not sure it would’ve all been guesswork. I would’ve gotten in this business plan creator and it would say, how much do you think revenue will be next month? Then next year? And we would have been making stuff up.

The business plan would have been a list of, what was it? I’m going to build some features, and hear marketing approaches? What else do you need with such a simple product? We don’t need a business plan for not raising capital, or it’s not a super complex thing, and there are not 10 of us working on it. This is my internal monologue. I’m not saying that this is 100% right for everyone because I do think there are people who want their thoughts to be structured. They want to make that plan and try to be able to stick to it, but it’s never how I thought of building new things.

What wound up happening was I acquired the software on my own, and I moved forward with it. I found out that the revenue wasn’t as high as it had been. They had basically sent some launch emails to an email list to get the revenue juiced up. The screenshots were correct, but it was not on-going traffic and they said, oh, we had a mess up with our PayPal. We can’t go back more than four months, but if I was able to go back prior to four months, it would have shown that there was $200 a month or something it was selling. It was a mess. The code was an alpha phase. They were trying to sell it to people. People were really mad because there were bugs. It’s like you have invoicing software, what is your one job? It’s to do the math correctly, and they literally had math errors in the software.

I was working the consulting during the day, and then I was doing these nights and weekends. I put in quite a bit of time. Over about six weeks, I’ve fixed literally dozens of bugs that I found in the software, and customers were super mad. They just felt they had been oversold and let down, and I responded to a bunch of emails. I was doing all the support via Gmail at that time.

I basically said, look, I’m the new owner and I’m going to fix all this stuff. Just hang with me. Some people have paid—I forgot what’s the lowest price they’d charge—probably between $30 and $49 for the early access pricing, and then they had raised it to $98. They had said there was a supported and unsupported version so they didn’t have to provide support, but all the people who bought it and then wanted support because there were bugs or because they didn’t understand, they didn’t want to be told that it wasn’t supported. It’s not a way to get out of supporting something, so I quickly got rid of that whole thing and everything came with support.

But then I realized a couple of things. One, this software is too cheap and it was $98 at that time. I didn’t experiment and said, selling about three copies a month right now, I’m going to raise the price to $295. Next month, it sold three copies at $295, and it made $900 the next month, and then I was, oh, this is interesting because that’s in essence, probably approached what our rent payment was at the time. That was the year of my wife’s residency at Yale. We were there and I remember thinking this is interesting. Can I triple this? Can I 10X this? How big does this actually have to get in order for me to quit consulting? And that was the dream at the time.

Now, what was cool is that this is where I was building that tool belt. I learned a lot about SEO, Google AdWords, and I learned customer support. I learned copywriting, I was reading books on how to write better copy. I was learning just all the stuff around software development that involves building a product, supporting that product, marketing that product, and doing lightweight sales on the product. I didn’t want to jump on the phone with someone for a $300 product, so I made that clear upfront.

And I cut my teeth on this one. This is the first one that generated more than $100 or $200 a month and I eventually got it up. I remember the best month ever was about $5000, but most months were between about $2000 and $4000. That was a really nice chunk of change, given that I was working full time as a consultant during the day, and the learning experience was amazing.

Later as I moved on, I built out a whole portfolio of products, started moving into SaaS, and at a certain point I had just enough going on as I was writing my book and starting the podcast in MicroConf that I found a business partner who is coincidentally a mutual friend of the guy who I had the email thread. Just for that long email thread, the three of us knew each other. I basically brought him on as a business partner, and he bought in, and we were 50/50 on DotNetInvoice for a few years. Then at a certain point, it just didn’t even make sense for me to be working on it anymore.

I had so much else going on at such a different level. It truly was that stair step. It was a great stair step app. It was a one time sale. It had a couple of traffic channels that I built my tool belt on, and I tried to grow it. I thought it was going to be a $10,000, $20,000, $30,000 app. I looked into making it into a SaaS, all the things that you would do. Spent a couple of years as I was building and acquiring other apps on the side, and it just never grew. The market wasn’t that big for it.

A big thing was it was bought by .NET developers who are either consultants, and they wanted to implement it, use it as a codebase for consulting projects or they wanted to control their own data and didn’t want to use the SaaS version. The market was not huge, but it did have a niche. This is where I learned all these things. It’s like, oh having a niche, going B2B, higher price points or better. I built out that tool belt, this is where I started thinking about stepping up from one to the next. And is that worthwhile? Of course, I didn’t come up with stair-stepping until years later.

I really do look back with terror because that $11,000 check I wrote for this app was pretty much all the money I had in the business bank account and that was all side work that I had been doing. It was a tremendous investment for me. It was very scary. When I wrote the check, and I got the code and the customers were all mad, what have I done? What went through my head? What have I just done? I could have bought a car or two—because most of my life, I’ve only driven used cars—and I had just dropped all this money. I’m screwed now, and my back was to the wall.

That is something I’ve talked about in the past is there was something about I couldn’t give up. I couldn’t just quit. I couldn’t let myself do that because my back was to the wall because I had written that big check. I felt like I was on the hook for that and that I had to bring it to fruition, or else admit that this wasn’t possible. Admit that I couldn’t do it or just that isn’t a feasible approach. I couldn’t let that happen.

I did work 60-hour weeks for a couple of months, turned it around, and again, did a ton of learning. I have zero, I shouldn’t say zero regrets. Of course, there are regrets, like could I have dug into PayPal more? Could I have probably overpaid for the app based on how much revenue it was doing? There are like regrets like that, but in the scheme of things, it just doesn’t matter at this point.

To put a bow on the story, in the end, I was doing so much other stuff with HitTail and I don’t even remember if I’d started to Drip, but they just had a certain point where it wasn’t worth focusing on anymore and I wasn’t upholding my end of the bargain as a partner in the business. I eventually just gave it to that business partner that had come on several years earlier, and all that worked out, and we’re still on good terms. He and I talk and reminisce about it every once in a while, and it turned out to be a pretty interesting story.

I hope you enjoyed this walk down memory lane. Hopefully, you may have learned something. Maybe it was just an entertaining story. Maybe it inspires you to take some action and get your back to the wall. Keep shipping. Thank you for listening. I’ll see you next time.