Episode 611 | Bootstrapping ProfitWell to a $200M Exit (with Patrick Campbell)

Rob: We have another incredible story today on Startups For the Rest of Us. In this episode, I chat with Patrick Campbell, the co-founder of ProfitWell on how he and his co-founders bootstrapped it to a $200 million exit. Even if you’ve heard other interviews with him about this acquisition, I focused on questions that I had not heard answered elsewhere.

I asked a lot of questions about the actual transaction, like what was the stock versus cash split? How long did you have to stick around? What was the revenue breakdown of consulting versus SaaS when you sold? As well as talking through his and his co-founders thought process as they were deciding whether to sell.

Before we dive into that, I try not to do this often. But if you feel like you’ve got value from the show, I have a favor to ask you. As you probably know, MicroConf is the in-person, online community, and event series that is tied to Startups For the Rest of Us that launched out of this podcast.

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Again, if you feel like you’ve got value from this podcast, this would be a way to perhaps give a little value back. With that, let’s dive into my conversation with Patrick Campbell on his $200 million exit of ProfitWell.

Welcome back, Patrick Campbell. Thanks for joining me on the show, man.

Patrick: What’s up, man? Good to see you.

Rob: It is good to see you. It’s been a while.

Patrick: This goatee is working.

Rob: It’s working?

Patrick: Yeah.

Rob: All right.

Patrick: I haven’t seen you with this much facial hair in a long time, so I’m excited for this

Rob: I accidentally grew it while we were on a camping trip. I came back and I did a live stream, and people were like, this looks great. You should keep this forever. Only people didn’t like it. were my kids, but Sherry was like, you look better with it, and people were like, it makes you look younger. How does facial hair make you look younger?

Patrick: It’s really funny. The reason I have a beard—you’ve known me when I didn’t have a beard—is because I got called out for being too young in an exec. Not my exec team, but an exec meeting for a customer. I was so caught off guard that, insecurely, I was like, I’m just going to grow a beard now.

Now that I’m getting older, I’m like, oh, I’m going to start being clean shaven just to reverse back in age. I don’t know. Guys with facial hair, it’s a mystery. We’ll have to talk to the beard brand crew if we ever need to get down this rabbit hole.

Rob: Indeed. Folks, I’m sure everyone is aware. You bootstrapped ProfitWell with co-founders, sold it for, I believe the numbers are $200 million or north of $200 million. I’ve seen differing press releases. I see you as a future TinySeed investor.

Patrick: There we go. Einar already hit me up. Literally, it’s in the announcement. Einar DMs me and I just went, come on, man, give me a couple of days.

Rob: Let the body sink in the cold at least. You’ve spoken at MicroConf. Frankly, your journey started with ProfitWell as a consulting agency called Price Intelligently that you then built ProfitWell out of, which I think of as like stair-stepping or self-funding. It’s like you have this engine that’s generating money and you use it to basically build software products.

Most people don’t make that turn. There’s a lot of Dev shops, SEO shops, and marketing shops that try to productize. It’s very hard, so obviously you guys did something special. I’m curious, I have a bunch of questions that people have asked me and that I’ve been thinking about not only the acquisition itself, but the process of getting here. I think let’s start at the end. It’s a hero’s journey of like, here we are, you got a big bank transfer on a certain date a few weeks ago.

Patrick: An uncomfortable one.

Rob: Yeah, to where it’s like, whoa, I’m not just rich. Maybe generations of my family never have to work again. I mean, it’s a lot of money, dude. What does that feel like when you look at this huge sum with more commas than you’ve ever seen?

Patrick: Yeah. You know what’s really interesting about that? I think I’m going to stay at the end, but a comment you made about like the—we don’t call consulting, we call it services. We can get into that later if you want. I think that a lot of times why a lot of Dev shops end up not being able to get the product because they get hooked on the revenue. You personally get hooked on basically taking the money off the table.

To have, I would say, either the courage or the risk to basically say, okay, I’m making six figures right now, I’m taking profits off the table doing really, really well, to say, all right, we’re going to take that to zero next year or we’re going to slowly lower that revenue, even though I’m getting better and better bringing that money in. It’s a hard thing.

For us, the reason it worked well is we always were reinvesting all of the profit back into the business. To answer your actual question without going too much on a tangent, I did the Dave Ramsey thing. We did the Dave Ramsey thing, where we were paying off our house aggressively. We bought a house in Salt Lake City, so everything over an emergency fund was going to the house.

In January this year, I had, I think it was about $12,000 in our bank account. Just Jenny and I, and a paid off house. We should have waited a little bit, but we were like, screw it, we don’t have kids, we don’t have any major emergencies, like the company is in a good place, my paychecks are going to keep coming in.

It was one of those things where it’s pretty crazy to go from that to feeling, essentially, like you won the lottery. I say it that way because this is a very champion problem, privilege conversation, like don’t worry, I recognize that for anyone listening. But I think one of the crazy things was, as a founder, especially an indie or a bootstrap founder, you always know that you’re going to get there. You are always like, I’m going to fail or I’m going to get there. But then when you actually catch the car, you’re like, oh, what just happened?

That was the feeling because I know I worked hard for it. I know the team worked hard for it. But it’s hard not to feel like you’ve won the lottery. I think that it’s been a couple of months since it closed. What’s been crazy is I realized that having means, essentially, you are the same person.

That’s both amazing and also terrible because you think, oh, once I have money, I’ll change this or I’ll change that. It’s only been eight weeks, but it’s like, oh no. The things I’m bad at, I’m so much more bad at the things I’m good at. Now I can amplify those particular things. I think that’s an initial impression or at least an initial impression after a couple of weeks of being able to sit on it.

The best advice I got was just to sit. I’m not jumping in anything. I think I told Einar, I was like, I’m sitting till the end of the year, probably. I don’t even have any mutual funds. I have no index funds. I have nothing except some crypto, so I’m just going to sit on it and come up with a thesis and a plan, probably in 2023.

Rob: Stuff is on sale right now, man.

Patrick: I know.

Rob: I’m envious.

Patrick: The best advice, just wind back, hang out. Just wait a little bit.

Rob: I think I hung on for about two or three months before I just had to start. I just couldn’t sit on cash. I could sit on a chunk of cash, but I started dollar cost averaging or I should say, we. Sherry and I started dollar cost averaging into some index funds, into crypto.

It was 2016, so it was a good time to get into crypto and an okay time to get into stocks. It wasn’t amazing, but I felt, oh, my God, the markets overvalued. Why am I buying in? But you just have to do it.

Patrick: You just got to the dollar cost average.

Rob: Yeah, that’s what we did. But you’re at a great place in time. You have a lot of money to move around, so that’d be good. Can you talk about the split? I imagine it was a split of stock and cash. Can you talk publicly about that?

Patrick: What I can say publicly is about half and half. It was definitely a stock component, definitely a cash component. It’s also one of the reasons we didn’t talk about the final number publicly. I was talking to you before we were recording. It’s kind of weird what you communicate, because in some ways, this is a bit of a merger. But it’s an acquisition because obviously, we’re getting bought, but Facu is now running the product.

I’m on the board of the exec team. Peter is still running a big portion of sales. The way I looked at it was that we’re kind of moving to a larger vessel, which is cool, but with a company that has a very, very unified mission with us, which is really cool. I think that there’s probably maybe three companies that we could have had this unified vision with at the detail that we have.

That’s been the cool part in terms of why we wanted stock to be a good portion of the deal and stuff like that. Now, I don’t have an earnout, but I intend to be here for four or five years. I intend to see this through the IPO just because I think it’s one of those things that I’m just excited about.

That’s a weird feeling too, because I’m still working just as hard. Those of you who know me, I work my butt off. It’s just one of those things. I still love what I do, which is great.

Rob: Yeah, it’s a great place to be in. This deal, north of $200 million, have you talked at all about what revenue you were doing in total? What percentage? Because you had the services wing and the SaaS wing, how did the percentage break down?

Patrick: Yeah, not doing public with the revenue numbers. It’s just interesting too. Again, what you choose to be public with. There’s not a huge incentive to be public, unfortunately. There’s a huge debate I always like. I tweet every so often like, show me a company that’s over $10 million that’s truly transparent that’s not public. It’s very rare.

As soon as we hit $10 million, I can tell you, we were over $10 million in revenue, we just stopped talking about it. I talked about it at MicroConf when we hit the 10 million.

Rob: I remember.

Patrick: That was the last time that I was public, actually, with those numbers.

Rob: That must have been 2017 or was it 2019?

Patrick: I actually don’t even remember. It might have been 2018 or 2019. What’s interesting is that it was $10 million in total revenue. Mostly or partially of that was the services revenue at the time. Every single quarter since then, the services revenue wasn’t growing at an exponential pace, but basically, the MRR pure software revenue was growing at a very, very doubling kind of pace. We ended up at sales around 50/50, basically.

Our services revenue, the reason I quibble with the word consulting is that what we did, which I think a lot of people who were trying to stair step in terms of consulting or service revenue should do, is actually started off with software. It was a pure software product, originally. For the first six months of the business, we realized that iterating on that product was going to cost so much money, just time. We started putting humans like myself, basically, to kind of fill those gaps.

I think what ended up happening is we basically defended our margin, and then anything that we could fit within that margin, essentially was game, so we could grow the business, we could grow overhead, whatever it was. We set the margin, basically a 50%. That business was doing, I think, north of 50%. Not by much, but it’s doing about 50% margin, and then our SaaS revenue was 95% margin, something crazy like that.

That was one of those things where I think if you can defend a margin and then grow within that margin, keep going. I would argue, with services revenue, as long as you can keep that as its own separate unit, which is what we did, we had a Price Intelligently, retained team, or revenue recognition team for three different products. All one company, but growing in parallel, if that makes sense.

Rob: Yeah, it does. What was your total team size?

Patrick: I’m trying to think of how many one-on-ones I had the day of the announcement, because we announced to the team and literally like, cool, we’re going through 83 conversations just to like, here’s your offer. Everyone came on board. I think we’re at about 90 now if you count the pre-Paddlers. The whole company now is about 350. Good portion of the 350 is us, which is great. But I think we aligned on culture so much that it’s been a smooth transition so far.

Rob: Yeah, I’d heard you talk about that. I believe you had a conversation with Justin Jackson. I think I heard it there, where you’re digging more into the culture, and how impressed you are with the founder of Paddle, and just how the two of you jived. Were you reinvesting most things back into the business then, versus taking a lot of money out of it? It sounds like it was highly profitable, but you were reinvesting a lot of it.

Patrick: Everything. My average salary was $72,000 a year. I think, I can say, I was making $150,000 at the end in terms of my annual salary, but it was definitely no profit sharing, nothing like that.

Rob: Right. Typically, when you’re reinvesting like that, you’re doing it for an end goal of an exit.

Patrick: Yeah, totally.

Rob: Otherwise, you’d pull money out as you go. You cashflow it over. I’d imagine, you and your co-founders, had you had conversations about, we are growing this thing to exit at some point?

Patrick: Yeah. This is a really important thing, and I’ve talked about it a lot. Forgive me if you’ve heard this from me before, but I think you need to align, I would argue, not only your co-founding team, but probably your exec team on what the goal of whatever entity you’re building is.

I think ConvertKit, Nathan, they’re aligned on what they’re doing. They’re doing profit sharing. I think what we did is we wanted to build a very large company in a more traditional sense. Nathan wants to build a really large company, but they’re building it in a different way. I think that’s a really important thing.

We would always check in. Frankly, that’s what kicked off this process. We were checking in and we went okay, do we want to go the profit sharing route, because that’s always an option because we’re bootstrap? The answer was no. Two other options, we’re raising a traditional venture for the first time, because we hadn’t raised any capital before or doing M&A.

We actually didn’t even think about the M&A part until Christian started talking to us. It was one of those things where those were going to be those two paths. That’s kind of the thought process that we had.

Rob: Have you talked at all or can you talk about the ownership split between you and your co-founders? I know there were co-founders early, then someone came in late, and everything. Do you have three co-founders?

Patrick: Yeah. It’s really complicated, actually. It’s overly complicated. These original board advisors or board members and advisors at this point, they’d been like that for years. I think all three of us, we’d never started a company before.

They were part-time, I was full-time, which rarely does that work out, because there’s always some consternation about who’s doing what and you have this cut, but you’re not. There’s always just all these different surface areas for conflict. We certainly had all those surface areas be full of conflict.

The folks I call the co-founders, the people who were in the trenches the whole time, or Peter Zotto who runs sales and revenue, and then Facundo who runs our product, basically, and engineering. I’m probably not going to get into splits just because it’s not my story to tell in terms of these types of things.

Rob: It’s personal.

Patrick: I do think it was really important, even though we were bootstrapped, I think, just because I know a lot of the listeners of the show. For one, I think it’s totally fine to do Mailchimp or a lot of small businesses, where the owner owns 100% of it as long as you’re super upfront with your team.

If your team is hurt when you sell and there’s no outcome for them, you were always upfront, which I think is what Mailchimp technically did. There were a lot of armchair quarterbacks who were all like, oh, yeah, you should have given more. It’s like, no, no, he overpaid, and everyone knew what was going on.

I think what we chose was a different route, where every single person in the company had equity. Every single person who was there over their cliff basically got some sort of outcome. We accelerated, everyone’s vesting, who was in the company at the time of the sale. It’s just one of those things where we choose to spread things a lot, but I don’t judge people who do the opposite. You have multiple options when you’re trying to build something.

Rob: Right. Did I hear you say that you minted X number of millionaires or something? I don’t know if you talked about that. What’s that breakdown?

Patrick: Yeah, we minted. I got the numbers in front of me, 13 millionaires, 33 people made over $100,000, 98 people over $10,000, and then 124 people received some sort of consideration. Those were folks who were inside the business and obviously a lot of folks who had left the business since.

Rob: Who had left, but they kept the equity.

Patrick: Yeah, of course. What was unique for us too is we did profit interests in management interests, that type of a structure. Our team didn’t have to pay anything to get their equity. It wasn’t like options where they had to exercise them. It was one of those things, where each year, because we were running all the profit back into the business, there were no taxes. It wasn’t one of those things where they had to pay taxes on it on a continual basis. Even if there was, the company took care of it.

Essentially, it was one of those things where they just own the equity. That was another option. I think options, there’s a reason they exist, but there are some trade offs. I think if you’re in a bootstrap company, it’s a huge selling point, especially someone who’s been burned on options.

It’s like, hey, no, no, you own these. You own these outright. You have to vest them, but you don’t have to buy them. You’ll get taxed basically at a liquidity event rather than out on anything else, or any distributions which we didn’t end up doing.

Rob: Yeah, there are a lot of different options, people. I don’t mean stock options. I mean, there are a lot of different ways to do this. There’s profit sharing. There’s, like you said, the Mailchimp way, which I think was just more bonus-oriented and just paying high salaries plus bonuses.

There’s true stock options, and then there’s profit interests, RSUs. There’s a lot more than I think people commonly think about. Especially when you are bootstrapped, you have to think about it a little differently than just going the traditional path. Did you ever consider taking funding?

Patrick: We had one point. In the early days, you get very enamored by the inbound, because you’re like, oh, I’m pretty, and you don’t realize you’re just on the other end of BDR. It’s basically these associates who are trying to hit you up.

I think what’s interesting is you reach a point where you’re like, I’m not going to talk to any of these people, and then that makes them more excited. What ended up happening is a couple of years ago, I got an intro because I respected the person doing the intro to someone. I had a conversation with them, just a random coffee. They basically threw a term sheet in front of us.

Within two meetings, we knew this was just a game to get us off the sideline. I did work mildly to get us off the sideline, but we never ran a formal process, anything like that. The way we funded the business was not only through all the profits, but in the early days, I cashed out my 401(k). I was pretty young when I started the business, so it was like $14,000. I think I had to pay half of it to tax, because they hit you pretty hard on that.

Basically, I lived in Boston on beans and rice basically for about nine months before I started paying myself a very small salary. Again, no kids, no mortgage. These are all caveats. Also I didn’t have any student debt, thankfully. That was a really, really big thing that I had some scholarships that basically wiped my debt out.

Rob: I feel like bootstrapping is both simpler and more complicated than raising funding. For me, it’s simpler to run the business. There are fewer stakeholders, but it makes getting there, I think, a lot harder. One of my regrets is I didn’t raise half a million bucks with Drip, because I’ve been grinding for years.

Patrick: Sorry, I’m interrupting you. I agree, because as soon as we knew that ProfitWell was going to be free and the barrier to accuracy was going to be something that was actually really hard, we should have raised money, even if it was $1-$2 million seed or small Series A. We should have done that immediately, because I think it would have knocked two, three years off of the life cycle. This was my first business, and I think it’s just things you’ll learn as you keep going, so I wholeheartedly agree.

Rob: I was doing a talk on how bootstrappers, if you did come across, suddenly you signed a big annual deal with a customer and you have $100,000 in the bank, or if you do take a small amount of funding, or whatever. If you suddenly have money, here’s how, as a bootstrapper, I would think about spending it.

One of the things I said early on that I was like, this is crazy accurate. But in your personal life, money saves you hours. It saves you not having to drive to the store. It saves you paying someone to help you. But in your startup, in your business, money saves you years, which is exactly what you’re saying. Having money gets you there faster.

You think two to three years, I think similar. Not that I was in any huge hurry, but I think it makes it a little bit of an easier path. You can hire more senior people there. You don’t have to live on beans and rice and cash out your 401(k).

Patrick: I think the counter argument too is that, I don’t know about you, but in the early days, if I think if I was able to convince people I was worthy of a $1 million seed round or a $500,000 seed round, I would have wasted the money. That’s another thing too.

It’s kind of like you pick your poison. Yeah, in hindsight, two to three years, will I ever do a bootstrap company again? It’s not an easy yes. Even though I have all this knowledge, it’s like, I don’t know.

The other thing that I don’t think we talked enough about is I think that there’s a massive trade off in terms of network when it comes to bootstrapping. Things like MicroConf, this podcast, some of your, I don’t know if you consider them competitors, so I’m not going to say them.

Rob: […].

Patrick: Yeah. They’re different. But I think that a VC, even an angel, when you raise money from them, not all of them are great. Even the average ones, if not the good ones, they’re incentivized to make you successful. You get invited to the events, you get invited to the retreats, you get invited to all of these things, and it’s kind of a reactionary thing that you have to do. Whereas with MicroConf and these types of things, you have to choose to look at the content.

There’s obviously so much content now that it’s easier to get that funnel going. I think that’s the thing that it can be very, very lonely as a founder in general. I think you’re even more alone as a bootstrap founder if you don’t actively choose to build your network.

The best advice I got was, actually someone told me, never to go to events, work on your product. The best advice I got was that stupid advice. You should go to every single event, unless you have a built-in network. I was like, okay, yeah, that doesn’t make sense, but let me see what happens. Then the network just paid back tenfold, which is great.

Rob: Right. I want to be clear. I’m certainly not saying funding is greater than bootstrapping. There are just trade offs that a lot of bootstrappers don’t think about. They think about the freedom or the simplicity side, but folks don’t consider. That’s where this podcast has been for bootstrapped and mostly bootstrap founders.

That’s how I say it these days, because I realized, probably 2013-ish, it was right on time. Customer.io raised their round. I said, woah, they’re funded now, because to me, it was bootstrapped or funded. They’re like, yeah, raised a quarter million, we’re not going to raise again.

I was like, wait, what? You can do that?  He called it fund-strapping, which I don’t call it. I was like, this is intriguing. That was where I started thinking like, funding for bootstrappers, this could be a thing.

Patrick: I like what you’ve done with Tiny and what Indie.vc, which is no more. Even some of these rep based financing products and these types of things, because I think what it does is it helps with, in my opinion, funding probably shouldn’t exist. I think there are amazing angel funds.

There’s amazing angels out there, but there’s a lot of crappy ones. Especially in Europe, if you’re a European founder listening to this, you’ve probably dealt with something like, great, that person put in $30,000, and they have 30% of my company, two board seats. This makes no sense from a US perspective. I think the evolution has been really interesting, but I’m probably not the best person to go deep on it.

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Very cool, man. It’s funny. I asked just a couple founders I know like, hey, what questions do you have for Patrick? I have this huge list. We’ll never get through them all, but I do want to cover a couple more. Someone asked, how many months did it take from the first contact with Paddle until it closed?

Patrick: Months. Yeah, way too long. I was talking to a founder yesterday. He sold to a PE firm whose whole shtick is they close in 10 days and I was like, holy cow. He’s like, yeah. Because now he’s working with this PE firm. Would you like a roll up? He’s like, yeah, that’s our thing. We close in 10 days. I don’t know about you, but I did not close in 10 days.

We went from conversations in October, November. We kicked off a process through early January, signed a term sheet.We had a number of options to sign. That was a 12-hour day of just ourselves, the 10 top people of ProfitWell sitting in a room all day.

I think this was kind of a unique way to do it. Basically, Facu, myself, who were kind of the main people involved in the deals and things like that, we presented the options. We walked away and let the team debate it for a couple hours. Then we came back and we said, whatever you choose, we’re going to fight the opposite. That kind of helped challenge.

We went through those 12 hours, signed Jan 15, and then diligence, contract negotiation. Paddle had to raise money to fund the deal. It was one of those things, where literally, January 20 something, the market starts to tumble. War in Ukraine starts to kick off, so all the stuff is happening.

Thankfully, one of the advantages of going with KKR for the fundraise was that they’ve been investing since the 70s or 80s, so they’ve kind of seen everything. They weren’t fazed. There were other funds that they’ve only been around for 8-10 years, so they were like, oh, my God, freaking out with a downturn or potential downturn that’s happened.

We closed. Signed April 8th. We did a split sign and close, cleaned up a bunch of stuff, had everyone sign stuff, and then we closed two weeks after that, basically. The best thing, if anyone goes through this, even if it’s an aqua-hire or something, we all then went to London for the all company summit. Within weeks, everyone was together, ProfitWell folks, Paddle folks.

I would say even if you’re a small team, even if you’re a couple people, go to the HQ, go to wherever your team’s going to be, and go there for a couple of weeks. I stayed for about a month and a half just to be in the office and stuff like that. They have a remote culture, but it was still good for the people who came into the office. Yeah, it was a long timeline.

It was extremely stressful. If I didn’t respond to your email, your tweets, or something during that time, that’s why, because every single day was a new fire. But it would be all existential. It’d be like, oh crap, there’s this thing. Oh, are they asking this because it’s bad or they’re asking this because it’s a problem? Oh, no, they’re just asking. Great.

You have these constant emotional resonances, because I had never been through this before. I had a couple of Sherpas help me out. Some people had gone through deals, but it was still really tough just because it was a lot.

Rob: Yeah, it’s always longer than you want it to be. It’s always more stressful. I don’t know how many times you hear that it’s really stressful from people who’ve gone through it. I certainly was not prepared for the level of pressure and anxiety that I endured, lack of sleep, and all the things. Every day I woke up and I was like, well, today’s the day it all falls apart. That’s what I kept saying.

Patrick: That’s the thing, too. Let’s say they have the money, which was not necessarily the thing for us. Let’s say they have the money, even then, there were 86 lawyers, so this lawyer for their thing is saying that this is wrong. Well, is the business person over they’re going to go, well, we’re now over the scales?

They’re going to find bad stuff. It is just how it works, because they either think things differently or you didn’t clean this stuff up, because why would you? You’re not a venture-backed company, you don’t need to clean some of this stuff up.

That was definitely a nerve wracking thing. Now that I’ve gone through it, I’m like, great, I want to do this more because now I went through all the tinglies already, so now I can do better. But yeah, it’s interesting.

Rob: I also think you hit a point. I don’t want to speak for you, but everything since then, for me, has been way easier. Even though now with TinySeed, we’re dealing with tens of millions of dollars, we’re doing these events, we’ve had stuff go well and some stuff not go well. COVID hit MicroConf, that was devastating, I have gone through more actual stressful moments since selling Drip.

I’m like Zen. I’m like a stoic. I think there’s a couple things with that. When the volume turned up to 11 for four to eight months, it sounds like it was eight months for you, I think you just have to adapt at a certain point, or you crumble.

I think the other thing is, for me, having money in the bank, I’m always like, yup, worst case, I’ll still be okay. There’s a certain level of comfort that I think we’ve never experienced in our lives if you grew up working class, whatever, if you didn’t grow up with money. 

Patrick: First, I think building a business and sticking with it is the best self-help program ever. I don’t know about you. I don’t want to speak for you, but thinking of my emotional maturity when I started the business to my emotional maturity now, it’s insane. I wouldn’t have got it without starting a company and getting kicked in the face every day for years.

I think the other thing is that’s something that’s interesting about knowing thyself as a founder and know thyself of what you want, because the stuff sucks. If you push and you’re resilient, on the other end, there might not be a pot of gold, unfortunately. But there is going to be like, holy cow, I learned so much. Your emotional resonance on so many things just comes down.

It’s funny you say that. I know, that sounds like a very champagne problem about sleeping, or you didn’t say sleeping better at night, but like, okay, I’m going to be okay with cash in the bank, but this is also why I don’t think you should do what we did. I think you should take money out of the business.

You should schedule it. You should literally like, once we hit this milestone, I’m going to take the next X thousand dollars out of the business, or I’m going to do this, I’m going to schedule this race. There were years where I was making $50,000 a year. I shouldn’t have done that.

I just shouldn’t have done it. What was happening is, as we got closer to this point, my risk aversion was going out of control, because all of a sudden, I have a paid off house, but I have $15,000 in the bank. You know what I mean? That’s a very different feeling.

A paid off house felt great, but also like, yes, we have a bootstrap business, but you get into your own head. I think you should take money off the table. That might be a justification to raise a round at some point as well. It’s just to take some money off the table and go from there as well.

Rob: Right. That is absolutely something that I think founders should consider once they’re north of $1.5 million, $2 million ARR. Right now, the valuations are not amazing because of the market, but historically.

Patrick: Wait six months if you can.

Rob: Yeah, wait six months. We’ve started talking to a few founders through the TinySeed syndicate who want to raise secondary. We’re like, yeah, it’s a nice opportunity, I think. I totally agree. I remember back when Rand Fishkin was running Moz and he tweeted, we are about to raise another round.

I think they’re doing $35 million ARR. He says, my assets are typical brands, super transparent. He’s like, I have $10,000 in the bank, a rented apartment, and a car. He’s like, should I take secondary? I feel guilty doing it. Everyone’s like, are you serious, bro? Take $250,000, take half a million, take six sum of numbers.

Patrick: It’s crazy. The guilt is so weird. It’s so weird. I grew up poor, working class. I had a union dad, so everything having to do with corporations, and management was evil, so this ironic career I have. It was fascinating, because even thinking about secondary, even thinking about profit distributions, even thinking about a raise, we had to put it into the plan.

That’s why I suggest that, because every time we’d come up to it, we’d be like, ah, maybe we should just hire that next salesperson or that next engineer. I was talking to you before the call, we exited. But because I’m intending to be there for a long time and a lot of the team is as well, it feels kind of dirty. I genuinely feel like, oh, can I tweet about money? Can I tweet that I’m at the St. Regis for a vacation now? Can I do those types of things?

I don’t know. I’m getting warmer to it, because I think that it’s just reality. You got to live your truth and show people you’re not an asshole. But even since the announcement, there were some people treating me weird. There’s this vendor that I love and who was great, but now that this has exited, we hung out and he’s treating me as I would imagine. He’s saying some weird stuff and I was like, dude, it’s just the same, which is such a weird concept.

I’ve already been hit up by a family for money. It’s just kind of crazy, but not in a gross way. It wasn’t in a gross way, but they probably wouldn’t have done it unless this happened. Again, it was a very well-intentioned way, but now there are all these interesting things you have to deal with.

Rob: It’s a trip. That happened to me too, actually. Someone pretty close to me and my family hit me up for money right after and I was like, wow, this is so weird. This doesn’t feel good.

Patrick: When I told Jenny, I was like, hey, we should just make a philosophy. Because if we agree we’re not going to do it, it’s easy enough just to be like, well, we’ve decided unless there is always room for you, food, whatever you need. It wasn’t because of someone being destitute or anything like that. It was more of an opportunity based thing.

In terms of investing in family and stuff, it was like very, okay, well, we have to see this person at Christmas. Even if we’re fine, we don’t want them to be weird. We’re still in the middle of talking about it, but it’s kind of wild.

Rob: As you said, it’s a champagne problem, but it is still an issue that you have to deal with.

Patrick: Yeah, totally.

Rob: I want to ask you a couple of questions about Paddle. You’re now part of Paddle, which is payment processing. You didn’t name competitors, so I like that one. Your competitors? I mean, come on. We know who the payment processes are in our space, Stripe, Braintree, or who I would think about.

What do you think about competing with Stripe specifically? It feels like everyone likes them. They ship a lot. They’re high quality.

Patrick: Wait, Stripe’s got a great brand? What are you talking about? Yeah. To take a step back, and this gets into some finickiness about definitions. Paddle is not a payment processor, Paddle is payment infrastructure. I know that’s like, what the hell does that mean?

Basically, the way to think about it is, let me think of a metaphor here. Stripe creates the roads. Stripe also creates the trucks and logistics through Stripe billing. Stripe has the roads. They have billing with the trucks. The thing, though, is Stripe’s truck is really good up until a certain point, like probably a million in ARR. Some people go well beyond that, but there’s a reason.

I can say this from a data perspective. Everyone’s going to think I’m biased now, but we saw this in the data beforehand. You can find me talking about it before the acquisition or before we even talked to Paddle. But right around a million ARR, we would always get hit up by people from ProfitWell and be like, hey, we’re outgrowing Stripe, we want some of this, who should we go to? We would send them this article that has 21 different subscription management systems on it, Recurly, Chargebee, the whole gambit.

The way to kind of think about the metaphor is Paddle is not just the truck, but kind of like the logistics network. What I mean by that is, let’s say you’re a founder and you’re selling a particular product, and you want to start selling in Eastern Europe, Western Europe, Venezuela, Brazil, or whatever it is. What Paddle does is it stitches together all of that infrastructure so that you just have one interface. They handle all of the taxes, they handle everything.

The difference really is you plug it in. What people don’t realize is that we’re a customer of Stripe. We’re one of Stripe’s top 200 customers, Paddle. We’re a customer of checkout.com. We’re a customer of Adyen. We’re a customer of a bunch of these different payment processors.

What we do is we sit on top of that. We basically route the payments to whoever has the best payment acceptance, whoever has the best for that particular country, because Stripe is not as great in Brazil as some of the other ones are, et cetera.

What’s kind of cool is because it’s called a merchant of record, basically, all of the different payments go through Paddle, so they handle the taxes. Essentially, you don’t have to pay a tax bill for your sales. Those taxes are just kind of taken care of.

It’s a little bit more nuanced. I think of it as a middle layer rather than an infrastructure product. This is kind of what fits in the thesis. Paddle does it for you when it comes to taxes, currencies, and those types of things.

ProfitWell was very geared towards like, we do it for you when it comes to retention. We do half of it for you when it comes to pricing. How can we continue this kind of do it for a metaphor or do it for your mission of running and growing your business, basically? The vision is when you plug Paddle in, a dollar that goes in should be worth a lot more on the way out just by the nature of using the software. That’s kind of how we think about it, if that makes sense.

It’s a little bit more nuanced, like, is there a crossover with Stripe? Absolutely. Is there a crossover with Chargebee? Yeah, but we have customers who use all of these things, because it’s a little bit of a different nuanced space in the stack, if that makes sense.

Rob: It does. Especially as you get larger, these things get more complicated. Tracking metrics and paying sales tax. Every other week in TinySeed, there’s a question about either VAT or if you’re a UK limited company, because we have an EU fund now.

Should I be thinking about paying sales tax in the US? Then there’s the US companies saying like, well, what is France going to do, come after me? There’s all that, and then there’s the VAT as a whole other different story. Yeah, I get the nuance. I think I now understand more about Paddle than I did, because I had assumed that they were much more similar competitors to Stripe.

Patrick: I think they get you a pair to Stripe in the indie community a lot. Because if you’re a European company, you go typically with Paddle because you know how complicated the tax stuff is. If you’re in the US, you’re just starting in the US. You don’t really realize, when you start sending in Europe and you get a letter, a tax letter and you’re like, wait, what? You get that as a kind of reaction.

I don’t know. It’s interesting, because this do-it-for-you concept, I think, is where most softwares going to go in the next couple of decades, not with AI and everything like that. I just think the UX is getting to the stack in the right place, like the priority stack.

For example, I didn’t realize this before even talking to Paddle. Let’s say something goes wrong with Prague having its own tax authority inside the Czech Republic, inside the state that Prague’s in, it’s just so complicated. If there’s a problem there, you don’t get the letter. Paddle gets the letter, which is kind of interesting.

There’s a whole team of risk and a whole team of lawyers at Paddle that just handles this stuff for you. I didn’t even realize that, because most of our sales are in the US and things like that. It’s just kind of fascinating how complicated this problem is.

I think that Paddle has suffered from that, too, because it’s a little bit of a black box. People look at Stripe, they’re 2.9%, Paddle, 5%. They’re like, oh, they’re the same thing. Why is it more expensive? Well, it’s more expensive, because Paddle goes to jail, you don’t go to jail. They’re handling all this stuff, so it’s really interesting.

Rob: Yeah. It’s kind of like PEO the first time I heard of that for hiring. They are the organization of records or something. I don’t even remember what the term is, but your employees are actually employees of that PEO. Therefore, you can get group health insurance, and then they handle a bunch of compliance. I think it’s similar. I don’t want to compare directly to that because all the PEO suck.

Patrick: Yeah, it’s a little more complicated.

Rob: Yeah, but that’s what it is when you get into this stuff. I know you have a hard stop in two minutes, so I just want to ask you one last question. I know you moved to Puerto Rico. Is it true that if you live there enough days during the year, you can backdate your residency to the beginning of the year, and then you can avoid, I’m assuming, income tax or long-term cap gains?

Patrick: Yes, I moved to Puerto Rico. Being a Midwesterner who grew up poor, I am very embarrassed to talk about this, but I think it is important. It is a tax haven. There’s a couple of things. Would I be in Puerto Rico without the tax incentive? Probably not.

Jenny and I were looking at potentially going to essentially a warmer place, because we’d always lived in Boston or Utah, so colder places or typically colder places. We wanted to kind of consider somewhere it was warmer. As this deal was going, we’re like, while Paddle’s remote, it might be the opportunity to go for it, that type of thing.

I heard about Act 60, it’s what it’s called. We came here and the first thing I’ll say is, every single person who has come here solely for the tax benefit, ends up leaving. Every single person I meet that’s leaving, they’re not really expats because it’s in the US, but there’s a lot of people who end up leaving.

We got this apartment from a group of two people who are leaving. I was like, oh, you’re leaving before the requirements? They’re like, yeah. They were only here for taxes.

We came here and we’re like, okay, taxes, it’s not nothing, but could we live here? Could we see ourselves here? We’re going to have kids soon, all that kind of stuff. We checked all the boxes and we’re like, yeah, and there’s a tax incentive.

Long story short, to answer your question, I am going to be paying taxes. Don’t worry. I’m going to be paying a significant tax bill. It’s not like I’m going to zero or anything like that. Yeah, you get long term cap gains for the value of the equity while you’re here.

There was a value before I moved here. Then there was a sale that increased the value while I was here, so there’s some of that that’s going to be tax free, and then my stock going forward will theoretically be tax free if I meet the requirements, which the first year is tough. It’s 183 days and I realized and started to count my days, I was never in a place for 183 days previously.

There are some other requirements. You have to buy a property, and there are some donation requirements, and stuff like that. I will say if you are considering this at all, there is another portion of this that if you have basically a service business or even a software business, there is another tax act that basically you get 4% income tax, and there are some other incentives to it.

What I will say is talk to a lot of lawyers. Feel free to contact me, because the first lawyer I talked to, everything was yes. Every question I asked, well, what about this? He was just trying to get through and get his $5000 basically to file, because it is a lot more complicated than you think. You’re probably going to end up paying taxes if you’re going through a sale. It’s not like a homerun, but it is very advantageous for folks who are founders and stuff like that.

Rob: Sir, thanks again so much for coming on the show.

Patrick: And on tax havens.

Rob: And on tax as well. I think if a bootstrapper or anyone selling a company hasn’t heard of it and it becomes intriguing, I think it’s nice to spread the love.

Patrick: Totally.

Rob: You are at @patticus on Twitter. You are now the CSO of Paddle.

Patrick: I already changed it.

Rob: That’s pretty cool. I saw that on Twitter, and it says formerly ProfitWell.

Patrick: Chief Strategy Officer. As Matt from Summit says, it is the black card of executive roles, apparently. I have no direct reports. I gave up my last direct report last week. It’s crazy.

Everyone, if you’re early in your business, you’re like, why would you ever want that? It’s like, well, just keep managing people. It’s hard. Yeah, it’s really hard. Awesome, brother. I appreciate you, man. I will say it.

The MicroConf community and you, personally, just been so huge in teaching me so much. Just thanks for doing all that, because would I be here without it? I don’t know, but definitely, it would have been a harder path. I appreciate you, man. I appreciate all the stuff you do.

Rob: Thanks so much, man. I really, really do appreciate it.

It’s quite a story. It’s a real testament to bootstrapping that someone can build a company and exit. At this level, I’ve ceased being surprised by these exits. You see, Mailchimp is $12 billion. There are many bootstrapped companies and mostly bootstrapped companies that are having these seven, eight, and nine figure exits.

As I said, it’s a real testament to the capital efficiency of being able to grow a company like this without having to raise massive amounts of funding. It’s a testament to the subscription model of SaaS. I call it the business cheat code that we get for free, because recurring revenue is so incredibly powerful, and it’s so valuable as a driver of enterprise value. 

Thanks again for joining me this week. This is Rob Walling signing off from episode 611. I’ll be back in your ears again next Tuesday morning.