Episode 527 | From Agency to SaaS, Equity Splits, and More Listener Questions with Courtland Allen

Rob: Welcome to this week’s episode of ‎Startups For the Rest of Us. I’m your host, Rob Walling. It’s Episode 527, where Courtland Allen from Indie Hackers joins me. We talk about moving from agency to SaaS. We talk about equity splits. We talk about the best cities for bootstrappers and more.

Before we dive into that conversation, ‎Startups For the Rest of Us has 890 worldwide ratings across 48 countries. Our most recent review is titled Inspirational. “Longtime listener, I run a portfolio of SaaS apps, three built from scratch, and one acquired recently. I learned a ton from this podcast. Very grateful.” That’s Danielle0412 from the UK. Thanks so much for that review, Danielle. If you haven’t left us a review or even just a rating, would appreciate a five-star rating. I’d love to push past that 900 worldwide rating mark on our way to 1000 in 2021.

Thanks again for joining me. Let’s dive into our listener questions that I answer with Courtland Allen. If you haven’t heard of Courtland, you should check out indiehackers.com. It’s a great online community for people building online businesses in order to improve their life. There’s a range of SaaS and info products and all types of things, indiehackers.com, as well as the Indie Hackers podcast, Courtland is the host of that. It’s an excellent interview and topical new show that many of us listen to every week. I’m a fan. Let’s dive right into our first listener question.

Courtland Allen, welcome back to ‎Startups For the Rest of Us.

Courtland: Rob, thanks for having me.

Rob: It’s always great to have you, Sir. I’m excited to talk through some listener questions today. We have a nice stable of things ranging from splitting branding, to business structure, to co-founder equity, stair-stepping, all that stuff. Are you ready to dive in?

Courtland: Yea, I’m ready to. Sounds like a lot of good stuff.

Rob: As usual, we always start with voicemails at the top of the stack. We’ll roll our first question from Dustin Overbeck, here.

Dustin: Hey Rob, my name is Dustin Overbeck and I run a web design agency called Town Web. We are a web design and hosting agency for municipalities all across the United States. I’ve been running this for 13 years. We have more than 550 customers, and we’re in about 35 different States. I’m getting ready to build a SaaS app that would be sold specifically to the same customers that I currently have for the web design and hosting part of things, but also to other municipalities who are not currently web design customers of ours.

I’m curious to know if you have any input on other web design agencies that entered the SaaS space because my question is more about branding and business structure. When I’m looking at the numbers for the SaaS app and the price points that we could sell to in the market that we can go after, I feel that this SaaS business could be 10-15 times bigger than what we currently have for the web design and the hosting side of things. I’m leaning towards, yes, we should have a separate brand for the SaaS product. I’m curious if you know of other agencies who have done that same thing, or if they entered the market with the same name as their agency. Although we do have a good brand known in the municipal web design industry, the brand that we can come out with for the SaaS app could actually be more exciting and maybe even more memorable to those potential clients that we can go after.

The other question is about business structure. If it’s going to be as a separate brand, should it be a completely separate business? I know there are inherent costs when you have two separate businesses because you’re now keeping track of two different books, two different tax filings. But if the second business could be 10-15 times bigger than the first business, is it worthwhile to have separate businesses? Thank you for any input.

Rob: Thanks for that question, Dustin. Courtland, you have thoughts?

Courtland: I do. I’m looking at his website now, Town Web. This is pretty cool. This whole idea of having an agency to build websites for the super-specific niche of municipal websites. This question really is about branding and this way he phrased it—should we start a new brand or go with their old brand. I would separate your identity from your brand. Their name and their logo are what I would classify as their identity. It’s Town Web, this cool American eagle looking thing going on next to it. But then your brand is more so your reputation with your customers. What do your customers actually think about you? You can’t change your reputation except slowly over time, but you can’t get rid of it either. You can get rid of your identity and then people can’t connect your identity to your reputation, and that’s bad if you have a good reputation.

When I look at this, on one hand, you could change your identity. You could have a completely different logo and name, but preserve your reputation by simply contacting your customers through sales. I presume when they do this new SaaS tool, they have 550 customers for their previous agency. They could just email these people from their previous identity, using their old email address, and say, hey, this is so-and-so from Town Web, the agency you’ve come to know and love. Then boom, your reputation is cemented because it’s already there. They already know you. You can say, we’re working on this new thing, what do you think, blah, blah, blah. Do you want to hop on a call? You’ve got your reputation preserved, which is your brand, and you can transfer that to your new identity with these few customers that you start with.

Even if his new business ends up being 10-15 times bigger than his old business, which is a pretty bold prediction, you’re still going to start probably by doing things that don’t scale. You’re still going to start with these sales calls and these cold emails probably, and they’re probably going to be towards your old customers. It’s worth preserving a reputation there and just making sure they know who you are and getting a good start there.

Rob: I like the way you’re thinking about it. The way I think about it is 37signals in Basecamp, that’s probably the best example. 37signals was their design agency, it was the company name because Signal v. Noise was their blog name, and then Basecamp was the product. And you knew that 37signals built Basecamp, and you trusted 37signals because you’d read their blog, or their books, or whatever.

That’s how I think about it, which is what you’re saying here is you have Town Web, it has a brand, it has an identity. Personally, in their shoes, I would not name the SaaS app Town Web. I would have them be very separate. He didn’t specify what it was going to be, but it’s XYZ Tool by Town Web. You can easily have that which is where you can borrow your brand equity. It’s much like the state of independence State of Independence Saas report by MicroConf.

We lend MicroConf branding to this new thing, but it still is able to have its own identity. Because to your point, you’re going to start with older, existing customers, and so having that brand is important, having the relationship. When you get up to new customers, I agree with Dustin when he says, we could do something more exciting. We could come up with a cool name and a cool logo and even develop its own identity.

Personally, if I were doing this, maybe you launch 1, 2, 3 SaaS apps. Now, you need three different SaaS apps over the course of 10 or 20 years. You don’t want them tied to the agency. If it becomes literally 10-15 times the size, since SaaS apps by nature are more profitable than agencies, my guess is much 37signals did, much like Mailchimp did—because they were an agency before they launched email marketing software—they wound up shutting theirs down. I’m sure that’s not Dustin’s plan right now. And I’m sure he wouldn’t go into it saying, I’m going to shut it down. Shut down, or sell it, or somehow walk away from it. Because if you get a SaaS app doing millions of dollars a year, suddenly things are really annoyances. I’ve been there. I’ve had many businesses and when one gets big it’s, oh, this is what I should be focusing on. With that in mind, I would hate for the two to be coupled to the point where you lose optionality.

Courtland: Another business that comes to mind here is Wildbit, which also started as an agency, and now they’ve got a host of different products. Go to wildbit.com and see, here’s the company that owns the different products. But you can also go directly to those products. Each of which has its own unique brand, it could get very confusing. Town Web, it is an agency, but then they also have a product called Town Web. Now it’s two different things. Now they’re stuck in the situation where they have one website that’s trying to cater to two different customers—one case of product and one case of service. Then, you’re also right, what if they want to launch more SaaS businesses in the future, it’s just going to be confusing. I like the idea of having separate brands and you can just manually transfer the reputation from your first brand to your next brand by getting in contact with your existing customers.

Rob: Exactly. Likewise, his second question was about business entities and whether you should separate them. Look, if you were not a super legitimate web agency that had the budget to do it, in the early days you could say maybe we keep them under the same corporate umbrella, and maybe just save on the $500 or $1000 a year, maybe it’s $2000 a year of bookkeeping and tax filings. But given that you are a legitimate business from the start, if I were in Dustin’s shoes, it would absolutely be a separate entity.

Whether the SaaS product, whether that’s an LLC or an S corp, C corp, whatever you want to do, I would form this thing, I would keep separate books, I would put a trunk of money into it, essentially angel investing. Whether Town Web puts that money in, or you put that money in personally, give it enough budget that you can build and support it. You can always fund it more later, but you maintain that because that is essential if it goes under, you can then have losses against it, which you should be able to write off. If you ever decide to sell it someday, I know that’s the last thing you’re probably thinking about, it should be separate. Because if it’s tied in expenses, and credit cards and bank accounts are all tied into an agency, it’s just a mess.

While it feels maybe a little overkill in the early days—I got to have a second tax filing and yes, you do have to probably go through Stripe Atlas to get a separate entity—there are some duplicate things I just don’t think you’re going to regret. You could always merge them later. It’s easier to merge things than it is to pull them apart. In fact, I went down this road. I had an umbrella company now called Start Small, LLC and it owned several small products that I owned and I would just slowly pile them on.

It owned my half of MicroConf and my portion of all these things, and then Drip initially launched under there. As Drip got bigger and bigger and started employing all of us and becoming just a more legitimate company, I was like, this should be its own Corp. I eventually did have to fork it out basically and pull it out of this LLC that owned all this other stuff. It was painful. It wasn’t totally undoable, it turns out it was the right decision because within a year we got the acquisition offer. We sold it. It would have been an absolute nightmare to try to go through a sale with shared books, shared expenses, because an acquirer wants a clean break. They want to know that this Corp owns all the IP and that everything is clean. Thank you for the question, Dustin. I really appreciate that.

Our next question is from an anonymous question asker. It’s about co-founding an app, what percent equity split he should think about. He says, “My business coach came to me with an idea for a SaaS app that he would like me to build and handle the technical side. He would handle the marketing side of things. We would be bootstrapping so no initial investments. I offered that I would build the app, handle the features, maintenance, upgrades, and support for 40% of profits and 40% of any future sale of the web app. Is this a fair number? Bouncing this off a friend, they said it might be too much and they were thinking it should be more like 10%.

I usually recommend co-founders split things 50/50 when I’m asked this question, but my business coach brought the idea to me and he’s approaching retirement, so I reduced it to 40%. I’m not sure I would want to spend the time to develop it for less than 40% equity since I could use the same time to work on my own SaaS that I’m currently building. My business coach has no experience with SaaS or web apps so I expect to bring a lot of knowledge on the product side, on the technical side, and that will even cover some of the marketing optimization, SEO, building an email list, et cetera. In my opinion, this has a pretty good chance of success. The business coach knows the founder of a similar SaaS in another niche that has 200 plus users at $50, a month and is still growing.” So that’s like $10,000 MRR. “Thanks for all the great content over the years.”

Courtland, what do you think?

Courtland: Tricky topic. I’ve had some bad co-founder fights in my past, over equity actually. I think a lot of it really comes down to not exactly the number that you named, but the process that you use to get to that number, and how much you and your co-founder on the same page about that. It can be easy to throw a number out, it can be easy to say, oh, let’s be 50/50 now. But if you haven’t thought about why you’re choosing that and you haven’t specifically agreed with your co-founders on why you’re choosing that, later on, it opens up just a lot of space for unhappiness, disputes, and misunderstanding. If it comes down to that, you want to be able to say, look, this is what we decided on and here’s exactly why we’re changing this now.

The first thing I would do rather than just say it needs to be 50/50, maybe a small discount because it’s the other person’s idea, I would say the way you split your equity should be based less on equality and everybody getting the same and more on contribution. If your level of contribution later on is different, it might arouse some resentment and some tough conversations down the road. Some of the factors that are important to me like your level of experience and effectiveness, and how much time you plan to spend on this, it sounds like the question asked to who has another SaaS business that they’re going to be splitting their time between. Does their partner also have another thing going on? Are they going to be full-time on this? That’s a huge factor.

Joining later means taking on a little bit less risk, which means that can affect your equity. The more risks you’re taking on, the more equity you should probably get. Contributing to the idea means you’re at more risk because it’s your idea and you can’t go to someone else. Writing code is a pretty effective major thing to do. You should think about what is the other person going to do in their role, and how’s that going to shift over time? These are things that are difficult to predict.

What I would do is I would start by sitting down with my potential co-founder and saying let’s come up with some framework that takes as many of these factors into account as we can possibly predict, and then agree on that framework. And then have a completely separate conversation after that, where you plug in the values and the numbers into this framework and you see what that spits out.

Rob: You want to know their contributions in a number of different ways before you talk about equity.

Courtland: Exactly. Because there’s so many different ways that things can change over time. Some of that is protected by vesting your equity but a lot of it isn’t. If somebody decides that they’re going to start working only half time instead of full time, that’s something that happens quite often due to life circumstances. How do you want to play that in terms of equity, if your equity was decided with the assumption that you would both be full-time on this thing, plus a range of other different activities? It’s good to just be open-minded and open-eyed about this stuff and try to, as best as you can, look into the future and predict what might go wrong and how we can pre-handle it so that when it actually happens, it’s not this big surprise, and we don’t have to figure out what we’re going to do from scratch.

Rob: I like that you brought up vesting, for sure. I think that’s the number one thing I would have is that both of you should be vesting such that if one person walks away, they don’t take their equity. I liked your point about full-time that if you are both going to be full-time, which doesn’t sound like you are, but if you’re planning to be 40 hours a week each, if someone drops to 30 or 20 hours, if you’re working at a startup and you have stock options, typically you stop vesting when you go part-time. That’s something to think about.

The biggest question I have is you’re bringing the technical side and you’re bringing marketing, SEO, building an email list—a bunch of the marketing side. What is your co-founder bringing aside from an idea? If he’s approaching retirement, as you say, how hard is he going to work on this and for how long? There are maybe yellow flags in my mind, are you both committed? That goes back to your questions, Courtland, of have you talked this through? Have you sat down and said, you’re going to retire in two years, are you going to work on this after this? Or is your plan that you want to build this up and sell it in two years? In that case, what should our vesting schedule look like? Should I maybe take on more of it? Maybe this is more of a side project for you, or is it a side project for me? Everything you’ve raised, it fits into that.

He had a sentence early on that says, I would do maintenance, upgrades, and support for 40% of profits and 40% of future sales, the future sale of the web app. We should just be doing equity. Why wouldn’t you just take equity, which in essence would be profits and sales? You can have phantom equity and all that but if you were giving this much to it, I’m just not sure if that’s the right approach. But later on, he does mention equity, which is easier to vest than phantom equity that may be an aside. But you’re right, there’s a lot of details here that make it an it-depends scenario.

Courtland: When you’re working with a co-founder, this shouldn’t be a super tough conversation to have. If things go poorly, there are things that are stressful later on, there’s going to be a lot of other harder conversations to have when things are on the line. At this point, if you only have an idea, and you haven’t gotten started, really nothing’s on the line. No one’s sacrificed a lot. Ideally, when you work with a co-founder, it’s somebody you’ve worked together with, how you deal with conflict resolution, you have shared values, and you want to test that stuff as early as possible. Presumably, this person hasn’t worked with a co-founder before, but having this conversation upfront and just being straightforward about it, it’s a good test because if this conversation goes poorly when there’s nothing on the line, maybe this isn’t someone you want to work with.

Rob: As the developer, your work is front-loaded. It’s easy for the two of you to have a conversation and for you to go spend four, five, or six months building a product only to come back and find your co-founder has lost interest. Or your co-founder maybe can’t deliver on what they promised. Maybe they don’t have the connections and maybe they can’t do sales. What is he bringing to the table? And what can he be doing hour for hour, if you want an even split or close to it, while you’re writing code? Because we know there’s a lot of things you can do. You can be out having validation conversations, customer development, you can have input on the product, you can be taking pre-sales, you can be writing articles, you can do marketing, landing pages. I know you said you have most of that knowledge, but having an idea and being a subject matter expert in a space is fine, but that’s not even table stakes to me for an even split if you’re going to go spend hundreds of hours building and marketing a product.

Courtland: Agreed. It’s one of those things where early on having the idea seems very important because there’s literally nothing else. You might think, oh, this person should get 60%. But the more sweat equity you put into things, the longer you sit there and toil, and write code, and work as the months and years pass, the value of the work that you’re doing increases relative to the value of that idea. If this person isn’t actually contributing a lot in that domain, which so far isn’t necessarily proven that they have, or even can, whereas it’s probably pretty proven that you are a developer who can build things, you were just taking on a lot of risk as a developer in that situation.

Rob: Thanks again for the question. I hope our thoughts were helpful. The next question is from Franco and he’s talking about the stair-step approach, the first step. He says, “Thank you for all your awesome content. It helps motivate me and helps me power through even at the beginnings of a path to a software centered business/life.

My question for you is where should I look when trying to take the first step to make something the world can use and appreciate. Thankfully, the SaaS sector has been growing and gaining traction, but for those of us who are beginning from scratch in the industry, it’s become increasingly hard to take that first step, mainly in my own experience because every niche has been saturated and the expertise needed to start something has increased as well. Hopefully I’m wrong and you can tell me or anyone who is in the same place, where or how we should approach this problem. Thanks for the podcast. I’ve been listening for about half a year and I even enjoy the old episodes from years ago.”

Thanks for the question, Franco. I’ll just add one sentence here. I don’t think every niche is saturated. I do think the smaller and smaller you go, there are opportunities. I wrote an entire book on this. Courtland, what are your thoughts for Franco?

Courtland: I liked that you said that because the entire idea of there being a staircase and Rob, you’re the expert on this, is that the first step is the smallest step. It’s the easiest step. You should always be thinking, what is the smallest thing that I can do to get started, to get my momentum going, to get a couple of wins under my belt, and then parlay those wins and the advantages you accrue to take the next step. When you’re looking at it from that point of view, it doesn’t matter if a space is saturated because if you’re looking at it that way, you’re looking at the tenth or the eleventh step on the staircase. You’re trying to be focusing on the first step where you pick such a tiny niche, or such a very specific problem, or something that’s so straightforward that it doesn’t really matter that there are other bigger players in the space later on.

In my opinion, if you were in a particular situation or you’re not even sure what industry you want to go into, what problem you’re going to solve, one of the best steps you can take is just to do some research. Take a look at what’s out there, what problems people have. I, myself, favor an approach where you look at the intersection of things that you’re interested in and things where people have valuable problems to solve as evidenced by the fact that people are spending a lot of money there.

I have a friend who started a business in the recruiting space. She was very passionate about applying for jobs to become a software engineer, and how terrible that was, and how fake the process was. Something that was recently on her mind and she cared a lot about, and she thought she could do a much better job. It was an industry where companies spent a lot of money on recruiters, on hiring software engineers, on all sorts of different activities there. It satisfied both requirements. It took her a month of just looking around at different things to even just figure out that’s the problem that she cared about, and that’s where she started. She started off by writing.

Writing isn’t that competitive, lots of people are writing. But it doesn’t matter how saturated the writing space is, people will still share your blog posts on Twitter if they’re well-written. They can still be indexed on Google. I would look toward picking a problem first. Then I would look toward maybe even doing something very lightweight, maybe info-related or content-related, where it doesn’t matter what the competitors are doing, and where you can have some real quick wins before I worry too much about jumping straight towards building a SaaS in a competitive space.

Rob: Yes. This is where I invoke the ‎Startups For the Rest of Us drinking game. We all do a shot because I say a stair-step approach to bootstrapping, which Franco brought up. He raised the issue of where I should look. Obviously, these one-time sale products with a single sales channel—like a WordPress Plugin, or a mobile app, or Shopify add-on, or an info product, as you said, or any type of app store, makes it ThemeForest—any of these things make it pretty easy to get started with not a ton of marketing knowledge needed. Imagine if you launch a WordPress theme on ThemeForest, or you do adopt a WordPress plugin, or you already launched something, every niche is not saturated.

Saturated is even a strong word because you can always compete, but maybe when you’re still playing high school ball right now, and the miners in the majors, people are just better at what they’re doing. They have more experience, they have more budget, and they have more history doing it.

I do think that you want to take more of the Start Small, Stay Small approach, which is to look at smaller niches that are underserved and just cut your teeth at those, and you build up experience, you build up a little bit of revenue, you build up your skill set, you build that tool belt, and then you can go essentially build off from there. I do think a lot of people make the mistake of wanting to build a SaaS app which is awesome then we all aspire to do that, but trying to do that as your first step is a real challenge.

Frankly, if you know a programming language, if you’re a mobile developer, I would probably start thinking about launching something in mobile. But if you’re PHP or Pro, I’d probably lean towards WordPress. When you look at all the B2B app stores and just do a Google search for them—there’s Salesforce, and Shopify, and I don’t know, there’s got to be dozens of others, I know there are Photoshop add-ons—you can do just on and on and on. It’s just finding something and picking it and taking a shot.

Courtland: I like some of the stories that have inspired me recently from just founders that I’ve talked to on Indie Hackers. I talked to Tara Reed who is in the education space. She’s been teaching founders to build businesses without code. Her path for getting started was really simple. She gave a talk somewhere where she talked about how an app that she was building didn’t use any code. People are interested and they’re like, how does she do it? She said, oh, I’ll teach you, just pay me $900 and I’ll let you know. She got 10 students who paid her, and she taught them, and then put out the call, hey, it went really well. I could teach more people. And she had 50 or 60 students sign up for that one. Then after that, she grew by reaching out to influencers in the space and doing Instagram takeover ads of their Instagram pages, or Twitter takeovers. You’re just going to pay them to advertise to their audiences.

Again, she just started very small. She wasn’t like, I need to go up against Lambda School or any other code school, day one with a slick website. It was just one-on-one sales, a very small number of students. Almost any education business can start that way if you’re willing to charge enough for what you’re teaching.

Maybe one other example would be Kristy Lawrence, who did start with a SaaS app called Plan. She spent eight or nine months developing relationships with influencers on Instagram—talking to them, getting to know what their challenges were, getting to know what their problems were, getting to know what would be valuable for them in the space, commiserating because she was an influencer herself, and sharing tips and tricks.

By the time she had her SaaS built, she had a pretty long list of people who not only would be her users, but who could promote it to their followers, and their audiences, and could help sell it. She ended up making $10,000 or $20,000 in the first week of her SaaS business existing. But that’s because she didn’t start by just starting to code. She started by talking to lots of people one-on-one, which is something you can always do regardless of how saturated the space is.

Rob: I love it. And just between you and I, since no one else is listening, I’ve started work on another book. Have you ever written a book? It is so painful.

Courtland: I haven’t, but Stripe keeps trying to get me to write one with Stripe Press.

Rob: It never gets easier. This is the fourth book I’m writing. Sherry and I had a bunch of podcasts. Essentially, she took an inroad into the second so it’s 3 ½ books, but it’s still not getting easier. The point of that is, though I obviously have a whole section on finding an idea. It’s looking for your advantages and it’s solving a problem, which is what you’ve just said. I have this huge list of things, which is to scratch your own niche. That’s what most people quote and it’s become famous because Basecamp said it for years. But then that went away because we all scratched our own niches. It’s not that it doesn’t exist, but it’s how many bug tracking tools, how many project management tools do we need.

I have all these other startups that I’ve seen, whether it’s through TinySeed, or MicroConf, or hearing on Indie Hackers, or an interview on this show. People encounter a problem with their day job. People see a problem of a spouse, or a relative, or a colleague. People have a poor customer experience and realize they want to build an app that makes it better. People find a problem online by going to a core thread or being in Facebook groups, you can translate an existing idea to a new niche.

There’s proposal software, but there’s no proposal software for designers, or there’s no proposal software for this or that, so just niche something down. You can find a large space with a hated competitor like Drifted with Infusionsoft and Xero did with QuickBooks. You can build on your, if you have an audience reputation, build on that. If you have a good network build on that, so on and on. Any of these is almost individually a thought experiment.

Each of those things, I just rattled off. Again, those will be in a book out sometime next year, maybe, but there are so many ways. Each of them, there’s no path. There’s no blueprint for this part. There’s no one, two, three-step. Once you get to product-market fit, and you have customers, and you start having channels at work, it is extremely repeatable. Usually, there is a pretty solid blueprint of how to go from there up, how to go from there, to a million, to 10 million, or whatever.

There are all these paths and everything. But in these early days, it’s much more you have a compass, not a map, and so you’re just kind of wandering and trying to take in thoughts and see what resonates with you and see there’s a product founder fit and there are all these things. But there are a lot of ways to get there. Don’t expect that anyone else’s approach will definitely work for you. Look at a lot of different approaches.

Courtland, I like that you brought up the folks that you interviewed on Indie Hackers because those are just two examples of people who kind of found their way. Maybe it sounds like they almost did it accidentally, maybe they didn’t. They just kind of took it one step at a time in these very small increments and built it into something pretty impressive.

Courtland: I’m a big fan of being very deliberate about ideation. It’s a very tall order to sit around and wait for inspiration to strike you in the shower. But if you’re going through the world, and you’re deliberately looking for problems, and you get your antenna up. Whenever you see somebody complain about something, wherever you see somebody pay for something, whenever you see somebody asking for something, you evaluate that problem. You’re just going to get a lot more sort of shots on goal. Most of those problems won’t be something that really resonates with you.

But if you’re just absentmindedly, hoping a problem comes to mind, almost none of them will turn into anything. Often, if you just start with something that’s not great, building that you’ll encounter lots of other problems that are burning, that may be you need solved or you see other people need to be solved, that can get you to where you want to go. There is no tried-and-true blueprint or roadmap, but there are a lot of things you can do to massively increase your chances of having a good idea to start with.

Rob: For me, one of those is having a notebook and taking notes, as you said, every time an idea comes around or someone mentions a pain-point and just adapting that over time. My best ideas never come in flurries, they never come instantly. They almost always come and are refined over weeks, if not months. I have a list and list of ideas that I’ve had since probably 2008 or 2009 in notebooks. Now, a bunch of them have been built and I can check them off the list. I don’t need to do those, but the new ideas, the idea for Drip came over weeks and it wasn’t just a simple thing. They evolve.

Cortland: I’ll say one more thing on that, which is the cool thing about taking notes, the way that you’re doing it is it helps you escape this recency bias. Whenever we get a new idea, we just get super excited about it, it’s the best thing ever. A lot of that excitement is because it’s new. If you let your ideas simmer for a while, like four to six weeks, four to six months, sometimes ideas that you are really excited about it turns out that you’re not that excited about. Some of these ideas that you’ve written down, you’ll be excited about for years. Those are the ideas that actually have legs, that actually resonate with what you want to build, and that might have some merit like on a structural strategic level as well. Keeping a running log like that is so great because it can help you make better decisions instead of just impulsively choosing what the product of the day, whatever got you excited about this week.

Rob: Yeah. I have a 48-hour cooling-off period on registering domain names. We’ve talked about this, how many domain names do I have. Ian has shown from Tropical MBA, calls it the Boulevard of Broken Dreams. That’s his GoDaddy account because I used to register a domain. Look, great idea, register the domain. Now, it’s like two days and then if I still like it, I’ll register the domain.  I’ve written up entire SaaS apps or business ideas and come back to them a week or two later. And I was just like, what was I thinking? This is a terrible idea. That’s good, it’s good to see it with fresh eyes.

So thanks for the question, Franco. I hope that was helpful. Our next question is from Kevin. He’s asking about the best city for bootstrappers. He says, “What do you think are the top cities for bootstrappers? I’ve heard San Francisco and New York City are too expensive. I’ve heard cities like Raleigh, North Carolina, Denver, Austin, Salt Lake City, Minneapolis, and Atlanta are good choices. Do you have any thoughts on this and how much does it matter? Thanks in advance. Kevin.”

Courtland, you’re actually currently moving about the country. What do you think about this?

Courtland: I did the SF thing for 10 years. I bootstrapped a business in SF and I can say you’re 100% spot on. It is too expensive. My burn rate was absolutely insane trying to bootstrap a business from SF, which was fine for me because I probably needed a little bit of pressure, something to light a fire under my ass and get me coding. But I then embarked on a six-week road trip earlier this summer. Now, I’m in Seattle, which is also expensive but much less expensive than SF.

My take on this entire question is that it does matter where you live. But in terms of business, it matters less and less, especially as the world becomes more remote, which we’ve seen happen in a drastic fashion with the pandemic. There’s more to life than just business and the city that you’re living in decreasingly matters to your business and increasingly matters to your life outside of your business. These two things are related actually because it’s easier to continue with your bootstrap business if your life outside of your business is happy. There’s a lot here to paying attention to the universal things that we know contribute to happiness and not trying to innovate too much here.

Health. Do you live in a place where it’s easy for you to exercise, it’s easy for you to eat well? For me, like in Seattle, I picked a place where I’m about half a mile from the nearest Whole Foods, which is one of my favorite grocery stores. I pretty much walk there, walk a mile every day to get groceries and cook. Just having that habit in my life is super easy. If I had to drive to go to the grocery store, I would just be less healthy.

Relationships. If you live near friends and family, that’s huge. In Seattle, I have four of my closest friends in the world who live here and they all know each other. We’ve been going on lots of hikes and doing lots of stuff together. It’s just been so great just for me personally. I’m just having more fun in life living next to them than I would if I moved somewhere where I didn’t have friends or family. That’s a big thing to take into account.

Obviously, financial security. Living places where you can afford, especially if you’re bootstrapping. You want to keep that burn rate low. Maybe the one caveat here is, I will say, that there are places where the people there can give you energy and actually be motivating. It does help to be near people who are actually getting stuff done because they will inspire you. A lot of the cities that you listed—Raleigh, Denver, Atlanta—there are burgeoning tech scenes and it’s not impossible to find somebody who’s doing something that you’re doing. People aren’t going to look at you like you have two heads when you tell them you’re bootstrapping a tech business.

If you can get all of those, I would try to check all those boxes. But if you don’t check a few, I would check the ones that align with your personal happiness and health over trying to be somewhere where there’s some weird business advantage because that just matters less and less.

Rob: Those are great insights. What he asked, what you echoed, and what I will also echo is that if you’re bootstrapping, stay away from expensive cities unless you have a lot of money. One of the advantages of bootstrapping Drip in Fresno, California is that we could hire developers for about a third of the price as the Bay area. It was about a three-hour drive to the Bay area. We could live in California, but not deal with the high rents and high salaries. You have to weigh those to a certain extent.

What you touched on, which is what city resonates with you, there is a Paul Graham essay called Cities and Ambition. Basically, what he says is certain cities that he’s lived in, they have an ambition. The people around you have an ambition. He had lived in Boston, and Paris, and New York, and a couple of other places. He said, in Boston, the ambition is to be more intelligent. There are more universities per capita than any other city in the country. In Paris, it was something about art. It was either to enjoy beauty or enjoy art. In New York, it was about money. The Bay Area was about power. Seattle is outdoors. That doesn’t mean you have to be that.

In LA, I lived there, it was about looking good. There’s a lot of physical attractiveness and some people are shallow, but some people are also just really into being fit and that’s okay. But if you really don’t want to have to be cool, LA can grind on you. If you don’t want to own the new sunglasses and you don’t want to dress in the new fashion and you don’t want to be really in shape, it can wear on you. The same thing, if you’re not into outdoorsy stuff and the rain bothers you, maybe Seattle is not a fit.

Trying to find a city, trying to live in a lot of different cities, and figure out which one’s ambition fits you is what you’re saying and it lines up. Cities and Ambition—I highly recommend. Folks, check that out. For me, if I were to just pick some cities and it’s based on travel and a lot based on listening to the Tropical MBA podcast because they talk a lot about location. If you think about ‎Startups For the Rest of Us, it’s about SaaS, and startups and software versus TMBA is about all different business types. But the unifying factor there, it started as digital nomadism, the ability to travel while you start companies.

In the US, if I were to just pick cities, for me personally, it would be Seattle, Portland, or Austin, and Minneapolis is one, too. Although the winters here are tough but man, the quality of life here is amazing. If you can get over the winters, those are some great cities. If I was in Europe, I’d probably live in Barcelona, there’s an entrepreneur community there, it’s a beautiful city. South America, Medellin is a big hotbed of TMBA folks. In Asia, it’s Chiang Mai and Saigon, those are places that I hear there being entrepreneurial activity.

To your point, Courtland, it’s not that my business should be based there. It doesn’t matter where my business is based. I named those cities because there are enough other entrepreneurs around to keep you motivated and that you can meet up. I have a friend who’s extremely successful now and lives in a city where he has entrepreneur friends and stuff, but he lived in Miami for years, or somewhere in Florida. He said just no one here is starting companies. And he’s like, I have to get out of this place, even though he had a business and it was successful. He’s like, I can’t stand to be here because nobody thinks as I do, and everyone’s retired, or they’re partying. This is not fun for me.

You have to know yourself. Are you cool with just not having anyone with anything really in common with you? Well then, maybe go live on the beach in Florida because I’m sure that’s an amazing life from a climate perspective and from enjoyment and a partying perspective to nightlife. But if you want to have some type of face-to-face community, then you need to think about there are a lot of cities in the country that just won’t have that.

For you to try to determine this, I would look at Tropical MBA. I would look at the locations of Indie Hackers meetups, I know they’re not happening right now because of COVID, but they’ll come back. I would look at places that we hold MicroConfs because we are probably going to have seven, eight, nine MicroConfs in 2021. We’re picking cities that have a lot of entrepreneurial activity. And, you can go to meetup.com and search for a startup founder, entrepreneur stuff.

As I was moving around, because Sherry and I, we moved 10 times in 10 years when we got married and she was in grad school. When we were going to go to that next city, I would always go on bait up and try to figure out is this going to be a place where I basically have no entrepreneurial friends or do I think I can meet some people?

Courtland: I think that’s such a great point. Paul Graham asked a point that basically, we’re very tribal creatures and every city has its own tribe. People value different things, have different cultural norms, and different tribes. I lived in Boston as well, and I met at least 5 or 10 people in Boston who imitated John Nash from that movie A Beautiful Mind, they just wanted to be the crazy genius because that’s what Boston elevated—academic excellence and genius. I’ve lived in SF for 10 years and I met at least 5 or 10 people who emulated Steve Jobs. They wanted to be like the crazy, super successful startup founder. Even if you are a contrarian person, a lot of your energy comes internally, yeah, but a lot of your energy as a human being comes from your tribe and your surroundings.

If you’re in Miami and everybody’s partying all the time, you’re just going to feel bad about staying in to do any work. If you’re in Seattle, everyone’s hiking, you’re going to feel bad if you don’t go on a hike every now and then. I want to second that idea of understanding what tribe are you gonna be moving into and make sure it’s one where the things that people value or going to push you the direction that you want to go

Rob: To close us out on this question, there’s an interesting point around venture-funded versus bootstrapped and mostly bootstrapped companies. Venture funded companies have traditionally been very densely packed in a handful of cities. I don’t remember what the exact number was, but as of 5 or 10 years ago, 80% of entrepreneur companies were in two or three cities. It was really, really low. Maybe even been 90%, it was incredible. Well, when we did the state of independent SaaS survey and then the report last year, we had 340 different cities of bootstrappers and bootstrap and mostly bootstrap founders.

The interesting thing is the number one city—at least according to this report, which had just under 1600 responses from around the world—the number one city is London with 4% of the respondents. The second city is remote with 3%, meaning they just had no headquarters. And then the third city, which may be skewed because I’m here, it was Minneapolis. I’m actually surprised that it’s that high, but it’s 2.5%. From there, 2% is Austin, New York, San Francisco, Toronto. We have 1.7% in Denver, Portland, Boston, Chicago. It’s just all these cities and then it goes to Australia. It is all over, it really is. You can live anywhere. It’s just a matter of balancing all of these things—balancing the ambition, then the desire of the place itself, of the community. And then, are there entrepreneurs around to kind of have camaraderie with.

Courtland: A lot of the cities you just listed were at the top of the list of Indie Hackers’ meetups cities, where you could go to those cities. They have great meetups in Toronto, London, Dublin, and Denver. One continent that we missed was Africa. I’ve been to Cape Town twice and just met a ton of bootstrap founders living the life. That’s one of the most beautiful cities in the world. It’s extremely cheap, extremely affordable, and people that are very motivated. I love this idea of the fact that these bootstrap companies are spread out. There is no like one base for bootstrappers. It’s all over the world.

Rob: Courtland Allen, thank you so much for joining me today, sir. I had a blast.

Courtland: Same here. Thanks for inviting me on

Rob: Folks who want to keep up with you, you are @csallen on Twitter, as well as @indiehackers. I assume you’re one of the mischief-makers behind that account.

Courtland: Yeah. I occasionally get behind the Twitter account.

Rob: That and then indiehackers.com, of course, if they want to see what you’re working on every day. Thanks again for joining me, man.

Courtland: Thanks for having me, Rob.

Rob: Thank you for joining us this week, I hope you enjoyed that. We have several listener questions left in the coffers. But as always, voicemails go to the top of the stack. If you want to send us a Dropbox link to questions@startupsfortherestofus.com. Google Drive links work, too. You can also send text questions. We don’t have such a huge backlog, we could use some additional questions on any of these topics or any questions you are facing. You can remain anonymous or you can plug your project that you’re working on if you want. Feel free to send your emails to questions@startupsfortherestofus.com.

Thanks again for joining me and I will talk to you again next Tuesday morning.