Two things that kill bootstrapped companies
There are two big risks founders face when starting something new:
- Working on the wrong idea and burning out.
- Burning out while working on the right idea.
You could be working on something the market doesn’t want. Every day you work on it, you’re wasting your time. You’re investing in a product that’s never going to be viable.
On the flip-side, you might be on the right track. In which case, you’ll need the endurance to go the difference.
The challenge (of course!) is knowing if you’re on the right path.
Ben Carlson, a financial advisor, wrote about how hard it is to pick winners in the stock market:
“Amazon has seen enormous gains since its infancy. And if you had only invested $10,000, you would be a millionaire many times over. So why didn’t you? First of all, picking these winners is hard. No one ever says: ‘If I had just invested $10,000 in General Electric 5 years ago, my investment would be worth $6,250.'”
The point being, there’s no empirical method for finding a winning idea. What worked for Basecamp’s Jason Fried probably won’t work for us.
As I’ve mentioned before, a lot of this has to do with the context we find ourselves in now.
Seth Godin notes that:
“The 1969 or 1972 NBA All-Stars wouldn’t have a chance against the 2016 NBA All-Stars. Why? Are babies suddenly being born with different genes? No, now there’s way more upside in being a pro basketball player than there used to be. So more people devote their time to becoming basketball players. If the market is there, people spend more time and energy to get good at it.”
The same is true in the startup industry. It’s definitely harder now. Zach Holman, of GitHub fame, recently tweeted:
“No one wants to admit it, but the old “your product must be 10x better than existing solutions” trope is dead. Tech’s baseline is too high: the big players are too entrenched, and you’d be lucky to see 1.5-2x improvements these days. I think this is one of the most hostile times for startups that we’ve had, really. Products are better, and competition is enormous.”
We’re not in the SaaS class of 2004. It’s 2018. When Teamwork launched in 2007, there were only a handful of competitors. Because of this, they were able to differentiate themselves from Basecamp. But now? There are likely thousands of project management apps.
These SaaS veterans, if they’ve been smart, have iterated on their product multiple times. They have strong cash flows and deep pockets. They have thousands of backlinks and good SEO.
So the game has changed, and if we’re going to play, we need to recognize that.
Alright, back to the main topic. So really, we’re trying to answer this question:
How do you know you’re working on the right idea?
In an interview, Richard Branson talks about how he starts a new idea:
“When we start a business from scratch, we put our toe in the water. If the water doesn’t feel too cold, then we start building it slowly. But if it doesn’t feel right, we knock it on the head pretty quickly.”
To translate: start working on an idea, and see how it feels. If it feels right, keep going. If it doesn’t feel right, get out quick.
On the one hand, it’s hard to know how you feel when you’re deep in a project, and you can’t see the forest through the trees.
But, there is some value to having an instinct about what makes a good idea, and when you should move on.
In a passionate Facebook post, Dan Norris (founder of WPCurve) says:
“We are taught to never give up and to work hard. But the truth is, giving up is one of the most difficult and essential skills for entrepreneurs. And it doesn’t get the attention it deserves.”
He goes on to describe his experience as an entrepreneur:
- He ran an agency for 7 years, earning minimum wage and working 12 hours days. He was working hard, but it was a bad business. After all those years, he “made the difficult decision to give up and start something else.”
- Next, he built his first software business (Inform.ly). He invested all of his money into the project. 12 months later, he’d burned through all his savings. He had to close it down.
- After that, in a last-ditch effort, he started WP Curve. It became a profitable business and later sold to GoDaddy.
He later reflected:
“Running WP Curve was never about hard work. I worked part-time on the business, and I earned 5X as much as I’d ever earned before. It grew 10% a month for 2 years with very little effort. That’s what happens with good businesses: they grow. Momentum does the ‘hard work’ for you. “
Derek Sivers said something similar about CD Baby:
“I’d finally created something people wanted. It was like I’d written a hit song. Once you have a hit, all the locked doors open wide. People love it so much it seems to promote itself. Don’t persistently do what’s not working.”
Now, we have to be careful here, because there’s nuance to what “momentum” looks like. But here are some ideas:
Signs you’re on the right track:
- You have paying customers!
- The number of paying customers is growing every month.
- Customers are actively seeking you out. If they’re going out of their way to find your product, that’s a good sign!
- You shouldn’t have to push too hard for sales. If each transaction requires an enormous amount of effort, that’s a bad sign.
- Revenue is growing every month. In a SaaS, you’re looking for growth in monthly recurring revenue. In the early days, you can achieve 20-40% monthly growth (because your numbers are small!) Once you have momentum, many SaaS businesses are aiming for ~15% growth.
- Customers tell other people about your product. Are they sharing your product on Twitter, in Slack groups, and in business meetings? “Word of mouth is the best marketing there is” – Ryan Holiday.
- Customers are giving you good reviews. Are they raving about your product, and how good it is? Or, is it quiet?
Did I miss anything? Reply on Twitter and let me know!
PS: one of the ways I make a living (while I build Transistor.fm with Jon) is selling my courses.
I’ve put together a “bootstrapper’s bundle” with 10 of my best courses for the price of 2.
Sale ends soon
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