Episode 631 | Re-writing Your Codebase, Stair Stepping, and Difficult Founder Decisions

Rob Walling:
So what I did is I emailed Einar Vollset, who, as many of you have heard on the show, has a lot of experience with in particular SaaS M&A, and his response to that question was, and I quote, “Ha ha ha ha ha ha ha ha ha. This is the dumbest (beep) thing I’ve ever heard in my entire (beep) life. Ha ha ha ha ha ha ha.”
Welcome back to Startups For the Rest of Us, I’m Rob Walling, and this week I was going to walk through some Rob solo adventure topics, but I realized that we have such a backlog of questions, and actually several of the questions are kind of Rob solo adventure type topics, asking questions about broader strategic things rather than just detailed tactics, so I am excited to answer several of those. There are many video questions and audio questions, and if you don’t catch the video snippet that we throw up on Twitter each week, you should follow @startupspod on Twitter, because oftentimes you can see the question asker and then see a bit of my response.
Before we dive in to listener questions, I really wanted to thank everyone who has posted a rating into iTunes, a five star rating or review. We passed 1000 ratings, and I’m stoked. 1024 as of a couple hours ago, and reviews ranging from, “Great content every week. Thanks, Rob, for putting out a great show.” To Toms Carb who used the phrase, “Startups For the Rest of Us is truly an MBA on my iPhone. Tuesday mornings are incomplete if I don’t listen to the latest episode.” And lastly, this one from Mark 79 I really like, he said, “Pretty much all the episodes are timeless, so even though a show might be a few years old, the information is still relevant.”
Thanks so much for helping me on this drive to get north of 1000 ratings. We have now joined a select few podcasts that have that many ratings and reviews in the iTunes Apple Podcast store. I know they keep changing the name. And for the record, we have 1024 worldwide ratings and 498 worldwide reviews. So I’m guessing within the next few weeks here we will also cross the 500 mark there. So thanks again for that.
As this episode airs, I am in Atlanta talking to Ben Chestnut at our MicroConf Local. We are going to be in Austin next month. If you’re interested in checking it out, head to microconf.com/locals. And with that, let’s dive into our listener questions.
This first question is anonymous and you’re going to have to forgive me as I think I will probably have uncontrollable laughter at a certain point during this one, and there are some swear words as well, and those will be bleeped per usual. But I received an anonymous question from a longtime listener with the subject line, “Rewriting Our Code Base for Possible Future Sale.” And the question reads, “We have a small dev team at the startup I work for. We have several million in funding and we are growing relatively quickly. Our web app and our tech get rave reviews from our demos and our users. We know it’s scalable and it’s built on one of the standard stacks.” He tells me which stack it is, but I will tell you it’s either Django with Python, Ruby on Rails, PHP Laravel, it’s one of the standard startup stacks that you would expect.
He continues, “Our new CEO is worried that being built on our current stack instead of something that’s more corporate, that our multiplier might be lower for a future exit.” And when he says something more corporate think .NET or Java, something that’s not as common in the startup space.
He continues, “He’s considering building version three of the software from scratch in a more corporate stack instead of continuing, developing, and adding features to our current product. We’ve talked to him about all the startups, deca billion dollar startups, that are literally built on our exact stack and how popular it is, how common it is, and how easy it is to find developers for the stack. Is there any validity that changing our stack in part or full will get us to a higher multiple at a future exit?”
When I received this question, my first response was, “I’ve never heard of that. That sounds very odd.” And I was almost upset by it, because it sounds like someone who maybe doesn’t know what they’re talking about or has a really unique frame of mind. Maybe they have not been in the startup space and they’ve only been in the Fortune 500 space, where perhaps tech would be weighted differently or something. But I was like, “Yeah, this seems like not a good idea.”
So what I did is I emailed Einar Vollset, who, as many of you have heard on the show, has a lot of experience with in particular SaaS M&A, and his response to that question was, and I quote, “Ha ha ha ha ha ha ha ha ha. This is the dumbest (beep) thing I’ve ever heard in my entire (beep) life. Ha ha ha ha ha ha ha.”
And then I was sitting there like, “Okay, so he has confirmed my thoughts on this and that’s good. It’s good to get a second opinion.” Four minutes later I receive another email from Einar that says, “Man, I’m still laughing.” And so then we went back and forth a bit about it. But the last thing, and the one caveat to it, is Einar said, “The only smidge of truth in this is if a particular acquirer already had a team that is qualified in a particular tech stack and your product is built in that tech stack. But really it doesn’t matter for the size deal this would probably be, and how the heck would you know what a specific acquirer is into years from now? Cargo Cult Management. I’d be worried about the CEO cratering the company to be honest.”
So obviously Einar has really strong opinions about it. I also had that inclination. I think he actually put it more eloquently than I did. But I wanted to bring this up because there’s two points to this. Number one, I think we should all be reminded that our frame of reference in the startup space, if we were to move into the Fortune 500 space can often be off for a bit. And this is actually why it’s hard to transition someone, let’s say a project manager or a marketing manager or even a developer at a huge company, 1000, 10,000, 50,000 person company, and pull them into a startup. Because it takes three months, six months, of just undoing what I’ll say are perhaps adaptive habits for being at a large company and really bad habits for being at a startup. Taking way too long to ship things, thinking about things too much, waiting for everybody’s permission, politicizing things. There’s all these things that happen at these big companies almost inevitably.
Vice versa, if you work at a startup and you get a job for a Fortune 500, Fortune 1000 company, it can be really challenging for you to try to fit in because the culture is so dramatically different and the pace and there’s a lot of differences there. So I think this is a good reminder of just how different companies function and how drastic the differences can be in the thinking between someone who maybe had run a half a billion dollar, billion dollar company, and who’s coming to run a handful of million dollar company.
But then the other point I want you to take away, of course, is, unless you’re written in a really odd stack that no one can find developers for, no one’s heard of, usually an exit is not going to depend on your tech stack. Again, if you’re using one of the standard tech stacks, it’s not going to be a big deal.
Now, I will say that when I acquired HitTail back in 2011, it was written in classic ASP, which essentially was a deprecated language and it was very hard to find developers for, and I did rewrite that in Ruby on Rails. And I think I would’ve had a very hard time selling that because it was such an old stack. It was old, it was crufty, it had a lot of issues, so rewriting it in Rails was a decision. Now, I didn’t rewrite it in Rails to fix technical glitches or the code is crufty or anything like that. If it had been Rails, I would’ve left it in Ruby. But the fact that ASP classic, which had, what, come out in ’99 or ’98 or something, and really had been superseded by .NET in 2001/2, I mean at that point it was a decade deprecated language and it would’ve been even worse when I went to later sell it in 2015. So those are some thoughts on rewriting your code base for a potential future sale.
The second topic is one that I saw some folks chattering about on Twitter, and it’s around founder salaries. And there was a comparison between companies that had raised a lot of funding and bootstrap companies. And there were companies that had raised, let’s say, 10 million, 30 million, 40 million, and the founder/CEO was making several hundred thousand, two, three, $400,000, and then someone had bootstrapped a company to a million or two million and they said that they were taking home more money than that founder. Which is probably true. I mean, this is no secret. We know that if you solo bootstrap or do a highly efficient SaaS company and you get it to a million, million and a half, in annual recurring revenue, there’s a ton of profit to be pulled off that and that’s an amazing business.
But the thing that it got me thinking about as folks were discussing it is this balance between near term and future earnings. And Derrick Reimer and I talked about this a few episodes ago where I asked him, “How do you think about this? Because you could take a pretty substantial salary out of your company.” In fact, he’s a TinySeed back company. He could take a quarter million dollars a year without paying TinySeed to anything, because that’s our salary cap. Anything above that, then he would pay us our prorata share of dividends. But I said, “You could take a quarter million out a year. I know that you are not. Why not? Why not just take that out?” In fact, he could take out more than the CEO who raised $50 million and then be happy that he had done that this year and next year. And his response was, “But I can use that money to grow my company and I’d rather grow it faster.”
And it comes back to that multiple of, if I add 1K MRR, that is 12K ARR. And if you think about an exit multiple, if you ever sell, and I’ll just say again, everyone sells, then take an exit multiple of say five times ARR and you’re looking at $60,000 for every 1K of MRR that you add, and usually more money if you’re smart and you’re executing well and you’re a knowledgeable founder and you have that hard work, luck, and skill, usually more money in your bank account means you can grow faster, or you can at least attempt to grow faster. And so the less money you take out, the faster that growth, and so you are actually thinking ahead.
I think of it like Warren Buffett used to say, and I’m paraphrasing, “I’m not cheap, but when I look at a dollar today, I know that I can turn that into 50 or 100 dollars a decade or two from now.” Because I know compound interest and I know compound returns specifically of investing in the stocks in the companies he buys.
And I’ll admit, I think about SaaS the same way. I think about startups the same way. That taking a dollar out of your company today is potentially reducing the growth, and it’s potentially taking an extra five, 10, $15,000 out of your company today, let’s say you could turn that into 1K, MRR. And I know there could be a whole conversation around, well, can you? And is it repeatable? Blah blah, blah. Let’s just say some dollar amount, 20, 30, $40,000, it’s another hire. Do we think they can add 1K of monthly recurring revenue if you hire a marketing person or a sales person or another developer or whatever it is, and instead of taking that out, you invest into that. Well that 1K, again, is 60K to your net worth, but it takes a few years to get there and it takes an exit and it takes other things to happen.
Now, there’s a balance here, because you can also be too far on the side of I’m basically going to live in poverty. I’m going to make 30K a year trying to live in San Francisco because I want to reinvest everything. That’s not healthy either. And so I think paying yourself a salary where you are totally comfortable and where you can pay those bills and you feel fine about it. But having that balance of, again, I’ve had lifestyle businesses where I just maximized the cash I pulled out of them. I would pull out 80% of the revenue as net profit. And it was amazing. These businesses were great and they were great cashflow businesses. But I didn’t mistake them for the longterm play that was eventually going to have my goal, which was to have enough money in the bank that I could work on anything I wanted to anytime and beholden to no one, including Google rankings and all the things that even when you have a profitable startup can get in your way of maintaining its profitability.

Bhavesh:
Hey Rob, quick question regarding stair step approach. If part of the marketing strategy that I’ve got includes writing blogs, I’ve figured out that I could potentially use these content to create a course to my target audience. Would that be a stair step approach or product that I could start using while doing the marketing? Or would that be something well off tangent that I shouldn’t be looking at? Really appreciate it if you could answer this question. Thank you.

Rob Walling:
Thanks for the question, Bhavesh. This is a really good one. The answer is, absolutely. And in fact, in the original version of the stair step that I presented at the Dynamite Circle’s BKK event in Bangkok back in 2014, it was a live presentation, step one, it included eBooks, courses, it included software, like downloadable software and AppSource software and simple things that you could use to get a foothold and learn how to make money on the side and then stack that up for step two.
And then step three was recurring revenue. This was not SaaS focused because, see, the Dynamite Circle is a mix of folks doing eCommerce, there’s Amazon FBA, there’s content sites, there’s productized services, there’s consulting freelancing, and there’s software and SaaS as well. And so when I presented it, I generalized it to that audience and info courses, as you’re saying, were on step one.
And then if you go to look at kind of what’s the seminal blog post for this now, when I actually wrote it up, it does focus on software and then stepping up to SaaS, because that’s really how I think about the world. That’s my more specific view of it. But I have been noodling for a while on taking the stair step method of bootstrapping and basically translating it to the stair step method of entrepreneurship. And it’s a little different, entrepreneurship’s higher level, and that would include this type of thing. And I also think that would include freelancing, maybe productized services, kind of stepping up there. So it’s a great question and the answer in my experience is unequivocally yes. I’ve done this myself, where I had my first book, Start Small, Stay Small, I had a couple online courses, I had a membership website, that was all happening as I had these other step one software products. And then I used those to lever up into SaaS, and from there the rest is history, so to speak.
And I’ve seen other folks doing this, so I think it’s a good skillset, and I think it builds exactly what the stair step is intended to do, which it brings you some revenue, brings you some experience, it brings you some skills, it brings you some confidence, it brings you maybe a bit of an audience and a bit of a network. And all of these things make it so much easier to then launch that subsequent product. So thanks for the question, Bhavesh. I hope that was helpful.
Our next question is also from Bhavesh sent just a couple weeks later.

Bhavesh:
Hey, Rob. I’ve just got a question regarding your stair step approach. Looking at the current situation, do you think from your experience that I can sell a Zapier type connection between several products to produce my value proposition to my market? Because at the moment, the potential users, or future users, are connecting several products together manually using Excel, or without anything, or using Zapier, because that’s what we are currently doing in our business. And my MVP is going to be just an API integration between several applications such as Zero.

Rob Walling:
The recording had a bit of an issue towards the end of his voicemail, so we did have to chop it off, unfortunately, almost mid sentence. But I think we got the gist of the question.
This is a good question. And the idea is creating a Zapier type connection, which is really just integration. It’s integration points between several different tools. And his question really is, can he sell a Zapier type connection between multiple apps? And this is just selling an integration, and the answer is absolutely. How many apps in maybe the Shopify app store, the Zero app store, the Salesforce app store, the insert name of platform here app store are really just piping data from the app itself into other platforms? And maybe it’s only into one, or maybe it’s into multiple, they’re just connectors, and those things sell for either a monthly subscription, sometimes a one time fee.
I think this is an interesting idea if you’re building it specifically for a specific niche, perhaps one that you’re familiar with, or maybe you’re working in that space yourself and you’ve seen this need, because if I go to the same app store, I’m not going to see the need if I don’t have the day to day operational need for this type of thing. And so Bhavesh mentioned a couple tools that he’s trying to tie together, and it was… What was it? Like Zero, which is accounting software and then time tracking and something else I actually forgot already. But you can get the idea that maybe Zapier integrations don’t exist between those three. Or maybe Zapier integrations can be a little finicky and a little brittle, and having basically a first class integration that hits the APIs and is just a single click to enable in my Zero or my project management app, and would I pay $15, $50 a month for something like this if it was a desperate need and I needed it to be super reliable? I would.
And as a result, this becomes a pretty interesting step one business, that if you recall the stair step, the step one businesses are usually smaller. Usually you don’t need to do a ton of marketing, because they already have the traffic and the lead flow coming in from the app store rankings. And these are apps that have platform risk and they are pretty much impossible, virtually impossible, to scale into the millions in revenue. But that’s not what a step one business is for. A step one business is for you to learn that experience and get the skills and all that that I mentioned earlier.
So yeah, I think this is super interesting. And I think the neat part about something like this is you could feasibly try to wire it up in Zapier initially, and the MVP could almost be a no code MVP. But if you are a developer, tying a few APIs together isn’t that hard. It’s not having to build the UX and build all that in. Basically just being able to roll some code around and deploy it and test it out yourself and then start charging people is pretty intriguing. So, thanks again for the question. Bhavesh. I hope that was helpful.
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Justin:
Hey, Rob, this is Justin from Fort Worth, Texas. Longtime listener. I had a quick question regarding the tension that can sometimes arise between your founder mindset and your engineer mindset. As a technical founder, we’re both responsible for the business side and the product, but also for building the technical infrastructure that’s going to support that product and the future growth of that product.
I initially built my SaaS app in Python and Django and specifically did that for the productivity gains that I get out of a language like Python. But as we are moving from proof of concept and beta into the actual product release and we’re getting paying customers on board, my initial thoughts start turning from product to scalability. How do I make it faster? How do I make it more scalable? And I’m constantly having to weigh these thoughts on prioritizing product important features and things that are going to move the product forward versus tech debt that’s on the backend that needs to be fixed. I’ve even thought about rewriting the app in something more performant.
I tend to push those aside, but I’m curious if you ever dealt with that as you were building out your products and how you fought against that to make sure that you’re making the right decisions at the right time. Tech debt’s always going to stack up, we’re always going to deal with it, but oftentimes there’s product things that might be more important. So I’m curious if you ever had to deal with that and what the process was to work through what are the right decisions to make at the right time. Awesome. Well, I appreciate your time and hope you have a great week. See you.

Rob Walling:
All right, Justin, thanks for that. This is absolutely a question every SaaS founder, every software founder, has to answer, and it’s one that I dealt with many times over the years. And pretty much almost without exception, every SaaS founder I talk to, whether I’m investing, advising, or just giving one off advice to, one of the biggest pain points of their job as founder is not enough time. “I can’t do everything. How do I know what to spend time working on? Should I market, should I sell, should I develop?” And I do have this framework around leaning into uncertainty that is like, “What should I be working on in general across the business?” And it’s that you should work on the uncertain things as the founder until you figure them out, and then you should hire folks to do the things that are more certain.
I’ve talked about that on the podcast in the past, I actually wrote a section of my book that is actually getting, I don’t want to say close to being done, because let’s be honest, you finish a book and then like five months later you have all the stuff to actually print the book. You got to get layout and designs and all this other stuff.
But all that said, that’s not really the question that you’re asking. You’re not asking me, “Which parts of the business should I work on,” you’re just asking about playing engineering versus everything else, I think. There’s engineering, which is fixing technical debt, improving performance scalability, then there’s engineering that is building new features, and then there’s everything else. There’s doing sales and marketing and support and all that.
Usually support and customer success tend to be easier because you get a support email, you respond to it. And if you have someone to onboard, you do it. The harder ones are like, “Should I switch over to marketing today or should I work on the product or should I fix tech debt?” And it’s always a tough balance and that’s why being especially a solo founder is pretty tough. And that’s why especially being a solo founder without funding to hire your co-founder, in essence, or to hire someone who can do this other stuff, is even harder. And again, this is why the stair step is such a popular framework, because if you do that, you eliminate a huge piece of your decision making, because at that point you’re either building or supporting.
I mean, that’s kind of it. You build a Shopify plugin, you’re not out marketing that thing, not unless you want it to get past a certain point, but usually it’s in the app store and you’re just getting that traffic coming in. Same with wordpress.org, it’s much less of a going concern than once you have a full blown SaaS app. So a single founder, bootstrapped, first time SaaS founder, is really hard. Nights and weekends especially add to that really, really, really hard.
And this is why I would advise, again, Justin, I know you’re already working on something, so keep doing that, you’re in the middle of a product, but the idea of the stair step and of the step one and step two is to eliminate part of this really difficult time. And that’s also the idea behind raising some funding. And you know that I have not been anti-funding and I’ve not been pro-funding, I just view funding… It’s like saying, “Rob, are you anti-hammers?” And it’s like, “Well, no. When I need a hammer to do a job, I go grab my hammer and I pound in the nail. But I also don’t use it to screw in a screw, because it’s not made for that.”
Funding is a tool, that’s it, so why would I be anti or pro? Know what you’re getting into, use the right tool for the right job, know the trade offs that you have to make with it. But that is why indie funding, TinySeed type funding sources, have become so much more popular for bootstrappers, because you are at a point where it’s really hard and there’s just no two ways about that. And in that situation, it’s a lot of hard decisions with incomplete information, as I like to say.
But to answer your question more specifically, what I’ve seen as folks start to scale and they’re trying to balance, let’s just say, technical debt versus feature building, I will often see either if they’re using sprint models, then one out of every four, one out of every eight sprints is dedicated purely to technical debt and cleanup, or it’s 20%, or some number that you feel comfortable with, of the time is spent cleaning up technical debt as you go forward. So if you’re not doing sprints, it’s one day a week or if you have four developers, five developers, one of them rotates around and just does all technical debt stuff.
80/20 is a reasonable thing to think about. Some teams want to get rid of more technical debt and some don’t care as much about it. So that’s more on the engineering side. If, as a single founder, I was weighing engineering versus marketing, I mean, I think as engineers we want to lean into the stuff we’re comfortable with and we love doing, and of course that’s building product. That’s why we start startups is to build product, and so I think you need to really resist that urge. I think you need to be very mindful that marketing and sales are going to be something that your psyche naturally pulls you away from. Your lizard brain is going to constantly say more code, more code, more code, code works, code makes the business successful. And that’s not necessarily true. It can be, but for the most part, driving more leads, optimizing those funnels, talking to people, making sales and onboarding are what’s going to actually grow the business, and the code is the product that allows the business to exist.
Don’t get me wrong, it provides tons of value to your customer. Obviously, as a product person myself, I don’t minimize the value of the product itself or of the code, but it is just the common trope, and I see it over and over with folks who are just overbuilding and spending way too much perfecting, and they redesigned their homepage and they rewrite their copy and then they have another redesign, and then they redesign in the app because they didn’t like it. And you know what, I’m just going to scrap this in rewrite the whole code base, and then I’m a year and a half later it’s like, why haven’t you just sold? Why haven’t you just sold? Just marketed? Get more people into the app and start growing your MRR. I appreciate the question Justin, it’s a fun one to think through and I hope that was helpful.
So that’s it for today. I hope you enjoyed as I ran through these listener questions. We have a pretty decent backlog, although several of these, since they were video or audio, jumped straight to the top of the stack. It looks like there’s about a dozen text questions and about two or three video questions right now. If you want to ask a question, go to startupsfortherestofus.com and click the link at the top of the page that says ask a question and you could submit one in any format there. Or you can email straight to questions@startupsfortherestofus.com.
This is Rob Walling signing off from episode 631. Thanks so much for joining me this week.