Episode 770 | Revenue vs. Profit, Asking for Permission, and Mike Tyson (A Rob Solo Adventure)

Rob Walling:
If you’re listening to this, you’re an aspiring entrepreneur, don’t do that. Hang around with people who get done. Hang around with people who ship. Hang around with people who say it can be done. And if you don’t know any, then find them on the internet. Listen to this podcast, read the books from people who are getting it done. Welcome back to another episode of Startups For the Rest Of Us. I’m your host, Rob Walling, and in this episode I have a handful of solo topics, one of which is a question I received on X Twitter about quoting revenue versus profit. Then I have a topic about giving up before you should, finding excuses why things can’t work. Then one about having taste and what you might have to do to achieve that taste and potentially another topic or two depending on timing. Before I dive in to the meat of the episode, MicroConf Growth Retreat in London is one month away. 

It will sell out. We’ve sold all our events out for the past couple of years. If you are in London or can get to London, May 14th through the 16th of 2025 for the small intimate event that’s going to foster deeper conversations. It’s going to be about 40 to 60 bootstrapped and mostly bootstrap founders. You should head to MicroConf dot com slash retreat and buy a ticket. It’s going to consist of morning work sessions, afternoon excursions, and all day hanging out with a bunch of motivated, bootstrapped, and mostly bootstrap founders. That’s MicroConf dot com slash retreat. In addition, I wanted to mention the m and a brokerage that I recommend for folks doing two to 20 million in a R SaaS companies in particular, it’s discretion capital. That’s discretion capital.com. You’ve heard the founder and principle of Discretion Capital on this very show and our vol set. 

My co-founder with TinySeed heads up discretion, capital. So if you are considering selling, and frankly if you’re north of a million a RR and you’re thinking, Hey, I want to sell when I get to 2 million or more, that’s when you should reach out a r@discretioncapital.com or you can head to discretion capital.com. They’ve had incredible exits. They only do the sell side of m and a advisory so they don’t help buyers find you. They support founders as they go through their exit. And with that, let’s dive into my first topic of the day. This is a conversation on X Twitter where starts with a tweet from Stefano Montero and he says, everyone’s talking about MRR and a RR, but what’s the point of sharing those numbers if costs aren’t even considered? You can hit 20 KMRR with $10,000 in expenses or 12,000 MRR with just 1000. 

Am I the only one who finds this weird and Ash? Deb says, I would love for Rob Walling to address this. I know it would be epic. I’m not sure it’s going to be epic, but I at least like to weigh in on this. So I’ve bristled at this whole sharing revenue in public thing. Anyways, I think it’s not building in public. It’s a lot of bragging in public, and I really do feel like a lot of sharing revenue. It’s either marketing or bragging or a lot of it’s fake and folks have pointed that out and shown how people fake their screenshots. So you have to kind of take all of that with a grain of salt anyways. But the other thing that has bothered me is I’ve heard folks who are not building SaaS. Let’s say they’re building a brick and mortar or e-commerce or a consulting firm for example, and they’re like, we hit, we’re a seven figure e-commerce business, a 1 million, $2 million e-comm business. 

And you compare that to the MRR or the a RR of SaaS, and it’s a very, very different business where cost of goods sold in SaaS can be 5%, 7%. You think about the hosting cost and whatever else you would throw in COGS and your cogs. If you’re selling through, let’s say Amazon could be what, 50%, 70% if you include all the Amazon referral fees and the FBA fulfillment fees and your storage and whatever else. Obviously if you’re selling direct, there’s a reason that DTC has become such a thing because cogs in e-commerce, it really makes it a completely different business. Having a $2 million e-comm business selling a widget versus a $2 million a RR SaaS company, it’s just night and day, both in terms of the profit you can pull out of it, but also for the exit multiple, that $2 million a RR SaaS company might sell for $10 million. 

It might sell for 5, 6, 7 times a RR and an e-commerce business might sell for what are the multiples three to five x net profit? I’m kind of guessing at that, but you get the idea it’s night and day. So that has always bothered me when folks kind of compare apples to oranges and claim they’re the same. And look, I’m not, am I talking down about E-com businesses? Absolutely not. Great business, hard to do. Mad props to you if you’ve done that, but I just want to call out the building an agency to 2 million in revenue versus a SaaS versus e-comm. It’s just night and day. And a big part of that is the cost of goods sold, and it’s also the value, the exit multiple and the exit enterprise value that you can get for it. But with that, let’s shift to this example that Stefano was talking about where you can hit 20 KMRR with 10 K in expenses, and so therefore you’re making 10 K net profit a month or 12 KMR with is one K, so therefore you’re making 11 K profit a month. 

So it’s lower MRR. Historically, the cost to run SaaS pre AI has been very low. And in fact, if you’re not offering SMS or have a big AI component or big expense or some type of underlying API cost that you are relying on, that really drives up your expenses, then historically SaaS has just been really cheap. It’s just been cheap to run. And so in general, when you say, I have a 20 KMRI SaaS company, most people think, yeah, I bet. And I bet their costs, not the cost of developers and all the other stuff around it, but just the cost to host it is probably five, 10, 15% of that number. Now that has kind of changed lately, and there are a bunch of different ways to not even game this, but just to kind of leave things out and top line revenue just sounds more interesting, doesn’t it? 

And in fact, a R sounds more interesting because it’s times 12. And so saying why say 20 KMRR when you can say, I’m at 240 KARR, I’m at a quarter million dollars because this is just a top line number to kind of brag slash market slash what’s the other purpose of it? So I think Stefano says, am I the one who finds this weird? I don’t know that it’s weird. As much as it’s consider the reason that people are sharing these numbers, they don’t actually want you to know all the things about their business. They don’t want to tell you why they’re successful. I’m guessing they’re not going to tell you which marketing approaches are actually working or how they actually got there. They’re not going to give you the secret sauce. They’re not going to tell you how to compete with them. They’re just giving a headline number. 

So I don’t find it weird at all because it’s basically cherry picking a number that sounds big and that sounds impressive, and that sounds good. And so I guess in my opinion, it’s like if people are going to share revenue, should they share expenses to? I think so. Why not? I think that’s the full picture, but I think the reason a lot of people don’t is number one, it’s probably a little bit more info than folks want to share. Probably makes folks look not as impressive when you’re running a 20 KMR SaaS and you have 19 K of expenses. That doesn’t sound interesting versus the 20 KMR SaaS. Sounds neat. In addition, historically, as I’ve said, if you were to say you had 20 KMRR sas, we can all kind of assume the expenses. And that hasn’t really been an issue until the last few years. 

So thanks niosh for calling that out. Hope that was interesting. For my next topic, I want to tell you a story about a friend of mine that had a friend he had gone to college with and was still hanging out. And this was a few years after all of us had graduated. And so I’m hanging out with this friend of mine and his mutual friends, and one of them had just graduated from film school, and I don’t know if he’d gotten a bachelor’s or a master’s, but we all lived in Pasadena. So we were in Los Angeles, and we knew a lot of folks trying to break into the entertainment industry. And this friend of a friend who I hung out with a few times but didn’t know that well, wanted to be a director, and that’s what he had studied in film school. And I was intrigued by this because at the time I was playing a lot of music and I was in, well, a band or two during that time, which thankfully was really pre Spotify and YouTube. 

So there’s no existence of any video or songs on the internet that you can find. But I was intrigued by it because I’ve just always been fascinated with what it takes to break into the entertainment industry and frankly, what it takes to do interesting hard things. You hear me talk a lot on this show about Paul McCartney or Bruce Lee or Albert Einstein, kind of these realms of genius and the realms of doing, I’ll say it’s like creativity plus maybe some science plus just to me, just it’s magical to put something into the world, whether that is a song or whether it’s a book or it’s a film, whether it’s a theory. So I was intrigued by this guy’s story and I was saying, have you directed anything? Right? And we were all young. We, let’s say we were 25 years old, and he said, no, I graduated and I made my reel. 

I think he made a short film and maybe made a sizzle reel, and he had circulated it to folks and he didn’t get any traction. And I said, ah, cool. What are you doing next? And he’s like, nah, nothing. And I was like, what do you mean nothing? And he said, well, that’s all I can do. And I was like, what do you mean that’s all you can do? This doesn’t sound like all you could do at all. And this might’ve been, let’s say 2005 to level set. And so as I’m saying that, I was definitely not 25. I was a few years older than that. So let’s say we’re in our late twenties, early thirties. And I remember asking him to the point where I think I kind of annoyed him, but to me I was like, if you want to break in, you can’t just say that’s it. 

It’s like the third or fourth web app that I launched back in. This is before SaaS, it was web application or an application service provider back in 2003 and four and five and six. The third or fourth one didn’t work. And I could have been like, yeah, this just doesn’t work. You can’t bootstrap software products. It doesn’t exist. It can’t be done. But instead, I was like, I figure if anyone can do it, I’ll be the first. I’ll keep trying until it works. And I was kind of trying to encourage this guy. I really just, I was so puzzled by his lack of faith that he could pull it off. And I said, well, what about just getting a job maybe as an assistant director? And he was like, no, if you’re an assistant director, you get pigeonholed as an assistant director. And no assistant director ever becomes a real director. 

And I don’t know if that’s true or not, but that was his attitude and everything I came up with, he had a reason why it wouldn’t work. And that’s the thing that was fascinating to me was it was this 20 or 30 minute conversation where I bet he remembers me being super freaking annoying because I wasn’t putting pressure on him to do anything, but I just didn’t understand how he would possibly give up on this dream, how he would go to four years of film school. And again, maybe he got a master’s, so maybe it was six years, I don’t remember, but a lot of years. And I knew that he wanted to do it, and he was talking about how much he wanted to do it. So I knew it wasn’t just some fleeting fancy that he really didn’t care about. He really wanted to do it. 

And I was like, what do you mean you’re not doing anything? It was so interesting. And the other thing was all the reasons he had for why all of my ideas wouldn’t work. And you know what? Maybe my ideas wouldn’t have worked. I didn’t know crap about the film industry, but I had other ideas like, Hey, start a blog. Start something online. I mean, this is before podcast, really, but it just seemed like the asking for permission, waiting to be selected, waiting to be anointed attitude, just it wasn’t going to fly. And that’s what I like about bootstrapping in general, right, is you don’t have to ask for permission. You look at Kevin Smith, you look at Robert Rodriguez, you look at a bunch of the gorilla filmmakers in the nineties and early two thousands who they didn’t ask for permission from big Hollywood studios or from an investor. 

They just went out and they made a movie. Similarly, when I wrote my first book, start Small, stay Small, I didn’t go begging publishers for permission to write a book and say, anoint me, pick me, choose me. I just fucking wrote a book and I self-published it, and I expected I would sell a few hundred copies. And lo and behold, here we are 15 years later and it happens to have sold 30,000, 35,000 copies. That’s not the point. The point is that I shipped it anyways. I shipped that book into the world and didn’t wait for permission. Now making a full length feature film in oh five, obviously you can’t just do this on your own, but here I am 20 years later still remembering that conversation because I was so impacted by the helplessness and the defeatism and the attitude that there was just no way to get this done. 

The lack of belief and that mental model is the one that I hear from some aspiring entrepreneurs who will probably never make it, because if you don’t believe you can do it, and you figure out reasons why it’s not going to work, and you rely on those, now I can call out when we have a new effort, we’re going to launch a new thing. I think about how it can fail. But what I don’t do is say, well, that’s what’s going to happen, and throw up my hands and not do anything. That’s the difference, right? Is if you put something into the world and it fails, at least you shipped something. But this friend of a friend was so memorably defeated before he’d really done anything that it stuck with me all these years later. So if you’re listening to this, you’re an aspiring entrepreneur, don’t do that. 

Hang around with people who get done. Hang around with people who ship. Hang around with people who say it can be done. And if you don’t know any, then find them on the internet. Listen to this podcast, read the books from people who are getting it done. Follow people who ship. You have Jason Cohen, you have Ruben Gomez, we have Heat and Shaw, we have Stelli. Fts been on the show. Any of those folks, you can just listen to the way they think about if there’s a roadblock, I’m going to turn it into a speed bump. That really is the analogy here, isn’t it? This person was turning speed bumps into roadblocks, and if you want to be successful as an entrepreneur, you need to learn to do the exact opposite. My third topic today is about George Lucas, and it’s about his vision and his taste in visual effects in film and also in sound was so far ahead of the industry standard that he had to invent new things. 

He had to start entirely new companies and build new technologies in order to achieve his own vision or to live up to his taste of what visual and audio should be in films. If you don’t know his story, he wasn’t just a director. He wanted to do incredible visual effects, and he started his own effects studio because there was no other effects studio that could do it. It’s ILM, it’s Industrial Light and Magic. They spun off Pixar at a certain point, but I think it was before it was called Pixar. It was called the Graphics Group Inside ILM, and I believe George Lucas was running into money issues, and so sold it off to Steve Jobs basically. And that’s a whole other story, but the idea that if you are a film director and you are a writer and you are an artist in film and you want to start your own effects company like that is very, very rare. 

But Lucas had this vision and this taste that no one else could achieve, and so he had to start his own. And then of course, ILM, now it’s its own company and it does a ton of visual effects work in a lot of films, and they’re known as one of the best in the world. And similarly, not sure if you know this, but TA XX surround sound is something that George Lucas designed himself. He designed the whole thing because theater sound sucked. And his first student film is called THX 1 1 3 8. And so when it came time to name this technology for sound, he called it THX. And the interesting part of this is not how much of a Renaissance man he is because pretty impressive, but it’s that it’s exact opposite of the roadblocks into speed bump story. I just told George Lucas is making these films and he’s saying, I want the visual effects to be better. 

I want the sound in the theaters to be better. And instead of throwing his hands up and saying, well, it’s just too expensive, it’s just too hard. He just said, let’s figure it out. I’m sure he said more than that. I’m sure he had a lot of help. I’m not going to act like he himself designed all the visual effects because he didn’t, but he hired great people and motivated them. And I’m sure he didn’t design all of THX. I’m sure he had some amazing engineers there, but he had the vision and the taste to get them there. And while it’s interesting that I think George Lucas is a terrible film writer, if you look at all the movie, all the Star Wars films he wrote, they’re way worse than the ones that other people wrote, right? So Empire Strikes Back, not written by him, not directed by him. 

It’s my favorite of the first trilogy. And in fact, it may be, is it my favorite Star Wars film? I dunno. I really like Rogue One. I’m going to be honest. I could go down a whole rabbit hole there. I won’t. But realistically, George Lucas had a vision for Star Wars and really is not that great of a writer, and I don’t think he’s that great of a director either, but he did know what he wanted. He had a vision for amazing visual effects and amazing sound, and I love stories like this of entrepreneurial artists. If you think about it, that’s what he was is an artist who’s making film and does not feel the constraint of kind of the box that you’re in in the 1970s and early eighties. Where do you remember theaters back then? The sound wasn’t good. The visual effects weren’t great. 

Look at every sci-fi film that came out in 1976 and then in 77 before Star Wars. They’re catastrophically bad. The effects are terrible. I think Logan’s run might be one of ’em. And there’s a couple others that I’ve watched, and they really, yeah, they’re really not great in terms of the visual effects, and he was so far ahead of his time that he couldn’t just rely on off the shelf technology to do this. So as you’re thinking about building your startup, about building your career, about being a founder and an entrepreneur, I hope today you take away that you don’t have to feel the constraint of the modern technology. You don’t have to feel the constraints that an LLM puts on you or that a tech stack puts on you, but that as you develop your vision and your taste, and if it’s ahead of the tech that’s around you, that in the long term you might be able to turn these roadblocks into speed bumps. 

My last topic for the day is Mike Tyson’s training routine. Back when he was a heavyweight fighter, he would get up at 4:00 AM for a five mile jog, then he would, over the course of a day, he would do 2000 situps, 500 pushups, 500 dips, 500 trucks, and about 30 minutes of neck bridges. He repeated this six days a week. There are sites all over the internet talking about Mike Tyson’s intense training regimen. And as I read this, I thought to myself, if I did the exact same regimen, assuming that I could, or that I could have in my twenties, I still would not have been the heavyweight champion of the world because it’s not just about hard work. He was putting in the hard work, but it is about some luck and some skill. When Mike Tyson obviously had, I don’t know, he had a build that I do not have, and maybe you’d say, well, it’s lucky he had the genetics to have these massive biceps, and if he and I did the exact same workouts, our biceps would be different sizes. 

And he had muscle fibers that twitch in a different way so that he could put a lot of power into a punch and he could move very quickly. So whether we put that into skills that I’m sure he developed over time or the luck of just being built a little bit differently, I ran track in high school and college, so I ran for nine years and I ran with folks where we would do the same workout every day. And for some folks I wound up being a lot faster than them. And for other folks, they were a lot faster than me. And so it’s not all about the hard work. That’s the thing that I think about when I read something like this, is that it takes several things to be amazingly successful. It’s a combination and that to be the best in the world, if Mike Tyson hadn’t done this daily workout routine, his genetics, his skills, whatever else he brought to the table, I don’t think it would’ve got him there. 

I think that’s the thing. To be world class in something, you need all of it. You need the work ethic. You need to put in the time, you need to develop the skills, and you need potentially a leg up from the start. But here’s the interesting thing. To be a startup founder and to build a business to 10 KA month, a hundred KA month, 500 KA month, you don’t need to be the best in the world. You are not competing against everyone else trying to do it where there’s only one winner, like being a heavyweight champion. That’s the beauty of what we do as startup founders, is to try to be one of the best film directors in the world, or to try to be an artist who can support themselves on their art. These are really hard things to do to try to be a musician, to try to be Taylor Swift or Beyonce or another superstar. 

There are very, very few of them, even to be any kind of professional athlete. There are what hundreds of professional NBA players in the world, hundreds of professional, I say major league baseball players, not professional, obviously the minor leagues, but there just aren’t that many. But how many thousands or tens of thousands of successful entrepreneurs and startup founders are there compared to those other numbers? This is where we get a little bit of a pass where hard work is what you can control, and I think you should put in a ton of that. Skills are things that you can develop, and I think you should put in a ton of those. But from the start, we can all start at varying places in terms of our natural ability, your working memory, your ability to focus. How many entrepreneurs do we know who have a DHD or struggle with depression or anxiety or all other types of neurotypical issues and are able to make it work. 

And in some cases, those can be part of what works for them. Those can be superpowers in this game of getting a startup off the ground and building an incredible company. This is one of the reasons why I love entrepreneurship is I think so many of us can be successful at this. It’s not just one heavyweight champion of the world where you have to be at the peak of the peak or folks who are competing in the Olympics. You have to hit things just at the right time, and you have to be incredibly gifted and talented and build incredible skills and train for a lifetime and hope that that one day or that one week at the Olympics, that you’re able to get that gold medal. And what I really like about entrepreneurship is it usually doesn’t come down to just one moment like that. 

And you don’t have to be the best in the world to build generational wealth or have an incredible life building a company that changes your entire life and the trajectory of your family. You can come from poverty, you can come from solidly working class. You can come from a country or a background where no one would ever guess that you would find success. And yet we see it over and over in the stories, in the interviews on whether on this podcast or this week in startups or any startup podcast that you listen to. This is what I love about entrepreneurship and specifically what I love about bootstrapping and self-funding and being able to do it without anyone’s permission. You don’t have to wait for a publisher to anoint you. You don’t have to wait for a film studio to say you’re a director. We loved your sizzle reel, and now you can direct our film. 

You don’t have to ask for permission. That’s one of the reasons why we do this, and that’s one of the reasons why I’ve shipped this podcast for the last 15 years, written five books, started six companies, why I’ve started an accelerator for Mostly Bootstrap SaaS, why I run MicroConf, the community for SaaS founders, because I believe that software entrepreneurship has and will continue to change the lives of a lot of people. My mission in life and the mission of everything I do these days, this entire ecosystem across the podcast and the companies and the books, is to multiply the world’s population of independent self-sustaining startups. And no matter where you come from or what you’re working on, I’m glad you’re here. You belong here. Let’s do this. Thanks for listening to this solo adventure. Hope you enjoyed our time together today. This is Rob Walling signing off from episode 770.