Competing as a boostrapped founder | dstill.ai shared chat

151: Entrepreneurial Strategies & Anti-Patterns for a Calm SaaS Business

Arvid Kahl: Peter Levels, for example, is raking in $80,000 in monthly recurring revenue, running businesses on top of generative AI projects that are less than a year old. But the niche is so much bigger, and bigger companies in the space have noticed. An app called Lensa implemented the same features that Peter and his fellow indie hacker frenemy Danny Postma had built for their AI avatar products. And that app quickly made a million dollars per day by just having massive distribution and pre-existing access to the phones and photos of their customers. Distribution matters, and it creates this ticking time bomb for indie hackers who don't have it yet. You can't go up against Adobe and similarly sized tech companies forever, particularly when they allocate whole teams of product and development people to build a competitor to your solopreneur business. Most tech businesses really have no moat when it comes to the underlying technology, particularly as we're all building on top of other people's platforms. But indie hackers have speed on their side, which makes a formidable argument for building time-limited businesses that capitalize on your speed and the sluggish responses from incumbents in the space. So when you build On top of a novel technology, consider that you're racing against the clock and structure your business accordingly. The business you're building isn't meant to be generational. It solves a problem that exists here and now. Projects like this often need to be monetized with one-time upfront payments or at least a limited time subscription.

Arvid Kahl: You don't need to be. You still create a valuable asset when you stick to serving and empowering your well-defined audience. It'll be much easier to build a product that works for many people if the group you built it for consists of people with the same challenges and expectations. And while this might create a ceiling for how many customers you can serve and how far you can grow, I think that building such a business is still a meaningful and rewarding way of building wealth. Because here's the thing with the other extreme. High-growth SaaS businesses, well, they're expensive to run. Or rather, they're expensive to get going. If you plan to completely dominate a market, and that's an ambition commonly shared by those growth-at-all-costs businesses, you will incur a lot of costs. Drowning your competitor's ads in a sea of your own ads, well, you will need to funnel substantial amounts of money into the pockets of Google and Facebook and the like. And that's not usually coming from your savings. The more you aim to build the next unicorn, the more likely you are to seek outside funding. And that is money that comes with its own ambitions. The moment you involve an outside investor playing the VC game, where only 1 in 100 portfolio companies is even expected to win it big, you will have to align your own expectations with those of your financial backers. And now, that's not necessarily a bad thing.

130: Entrepreneurial Anti-Patterns — What to Avoid When You're Starting a Business

(someone): And the more people want their slice, the smaller we perceive ours to be. But that's finite thinking. And entrepreneurship, while containing many finite parts, is in itself an infinite game on the whole. So let's take a look at the many ways in which competition can contribute to our entrepreneurial success. The first one is that competition is validation. In the financial services world, there's a saying, all public knowledge is already priced into any stock price. Unless you know something that others don't, you don't have an advantage. The market is already corrected for any potential advantage. And there are a lot of intelligent people in the business world. They see an opportunity just as clearly as you do, maybe even better, perhaps a little bit worse, but overall, you can expect that unless you are incredibly lucky, other people will have at least considered building a business in your space. They considered it, they did the math, and then they made a choice. And now let's consider a scenario. If hundreds of people took those steps and ended up not even trying to build a business, what does this say about the opportunity that you're currently looking at? It's pretty likely that people with more resources and more experience than you have chosen to ignore this business opportunity for some reason. And in this case, you might want to start wondering why they did that. Do you see something that they didn't see? Or do they see something that you don't see? Might you operate under an invalid assumption? And now consider the opposite. The same founders looked at the industry, the problem, and the opportunity, and many of them decided that it was worth it.

Arvid Kahl: So let's talk about the business strategies that don't work well for bootstrappers and indie hackers, what they are, why they don't work, and what to look for instead. Let's start with the number one fear of every entrepreneur, the copycat. We're all afraid that someone will take a look at our business and create a competing clone. This is the number one concern of everybody building in public right now. And occasionally, someone actually might set out to clone your business. But then, that competitor quite reliably and quickly fizzles out. Clones rarely, and almost never, grow into anything that would resemble a real business. I certainly don't recommend creating a clone of a successful business yourself, because you're setting yourself up for failure. That's primarily due to a few structural restrictions there. When you clone a business, you clone what you can see, and it's the tip of the iceberg. Your vision of their business is severely limited. For a SaaS business, for example, you can only see the front end of the product, the user interface. You have no idea what complexity lies on the server side of things or what processes need to be in place to solve the problem efficiently. And particularly if you're not an expert in the industry of the business you're cloning, you're taking a dangerous road.

(someone): And now consider the opposite. The same founders looked at the industry, the problem, and the opportunity, and many of them decided that it was worth it. That is a good sign. Other founders going for something is an excellent sign. It's validation, mainly if they succeed in building a business in the space, of course, but it shows, among many other things, that there is a budget among the people in the industry for a solution. If the space can sustain a few businesses, it can likely also sustain yours. Now, not all competition is equal, right? Sometimes competition isn't even a business. The usage of generic tools like Excel or Google Sheets can be a good indicator of a critical problem that people would pay to have solved. So don't just look for competing businesses. Look for competitive alternatives. That would be the name for it. But one fact really remains irrevocable here. If there is not a single business or product in the space you're looking into, you might be looking at an industry that won't sustain your business. The presence of competitors or competitive alternatives, any of them, indicates that you might have a shot. Now let's look at competition as it drives distinction. There's another saying, this time in the software-as-a-service space. If people build their own crude solutions using spreadsheets, like Excel or Google Sheets, it's a SaaS opportunity. In other terms, spreadsheets are super generic tools applied to super specific use cases. They're ripe to be unbundled.

Arvid Kahl: I wouldn't say that VC-funded businesses are all the same, but at least the goals of a VC-funded business are pretty much equal no matter where you look. You try to maximize shareholder value. For a bootstrap business, that is not necessarily the case, and the personal situation of the founder is so much more involved in a bootstrap business. You may have put in a couple tens of thousands of dollars of your own money if you had to jumpstart the business. You may have put in nothing because, like in our case with Feedback Panda, the business itself was profitable within a couple of weeks after launching it. Or in some cases, you may have already extracted a lot of money from the business and not reinvested it in the business because it's just going so well. And in this kind of situation where every single bootstrap business is looking very different, even from the profit and loss sheet, the kinds of technology you use, the kind of skill you have to augment your business with by going out there and having contractors do the work for you because you're just one person you can't hire because you don't make enough, but you certainly can pay people by the hour. All these things are so different that you will not really find easy ways of calculating the valuation of your business. That means that if you hear people say oh we sold for a hundred thousand dollars and then you hear people say oh we sold for a million, they might have actually run a company with the same MRR. and they may have run a business that has been in the market for the same time and they may have the same amount of customers, but the internal dynamics of those businesses are so different that the valuations will look different.

90: Competition Isn't Always a Business

221: Why Entrepreneurs are Choosing 'Short-Lived Businesses' Over 'Forever Businesses

(someone): Hello, everyone. Welcome to the Bootstrap Founder Podcast. My name is Havid K. and I talk about how you can start, run and sell a bootstrap business. This episode is called Competition isn't always a business. Let's get started. When founders do market research, they're well advised to look for competition. But many entrepreneurs have a very limited understanding of what competition actually means, and therefore they overlook many interesting, but often critical, competitors in their chosen markets. It usually goes like this. The founder spots a niche in the market they're interested in. Then they start looking into the viability of building a business. And one of the first things they look for is competition. And to many founders that means businesses just like the one they're planning to build. A founder of a software-as-a-service business looks for other SaaS companies offering similar things. A writer looks for other books on the subject, you know, and so on. They're looking for the things they know, the solutions that come to mind most readily. But that's not enough. I was introduced to the concept of competitive alternatives by reading April Dunford's book, Obviously Awesome. In her book on positioning, she points out that not all competitors will look like you. And you shouldn't be looking at similar solutions, but all the things that people use to solve the underlying problems. Let's say you're building a SaaS for online English teachers who need to write student feedback multiple times a day.

5. The Power of the Niche

Arvid Kahl: The idea is to build enough small projects to own your time. And once you're at that point, you shoot for the bigger goals. And even then, you might need to start and exit a few software businesses until you get to the big business that you dreamt of building forever. The thing, the big thing that you really want to build. The important feature of this stair-stepping approach is that risk is managed effectively. It's well distributed. If one of your small business ventures doesn't work out, You can move on to the next without losing everything. If your plug-in idea doesn't work for ChatGPT or WordPress, well, you come up with something new. And if your first standalone SaaS business struggles, you can put your efforts into your earlier, smaller projects that are still generating revenue. It's de-risking the process. The name of this is aptly chosen, right? If you hit a challenge, you just have to take a single step back to be able to keep working. Now, contrast that with the go-big-or-go-home version of building a business, trying to build this massive business from the get-go. I call this ever-resting, because it kind of feels like you try to summit these challenging peaks without ever really having climbed even a small hill in your neighborhood. Too many founders think that they have to imitate these unicorn startups to be real founders, but this approach involves significantly more risk.

151: Entrepreneurial Strategies & Anti-Patterns for a Calm SaaS Business

Arvid Kahl: Like for the longest time, we had zero competition when it comes to paid products. And I want to point out another thing, because that's also what I wrote about and what I just talked about. There's a difference between competition and competitive alternatives. April Dunford writes about this and talks about this in her content and books on positioning. But it's very important to understand that a post-it note is a competitor, or at least a competitive alternative to what you're offering. If people can use a sheet of paper and write down stuff and get the job done, that is competition. It is not a competitor in the classical sense. But it is a way for people to solve the problem. And if your product, if your service needs to be better than the alternative, products in the market, Excel and a sheet of paper and post-its are already there. So you need to be at least better than that and to be better than the systems that people have concocted using these kind of things, these kind of tools. So it's important to understand that if you look at what exists in your niche to find the problems and the existing tools that people use to solve them, Don't shy away from having people explain how they do it without using the kinds of technology that you offer, because there's a lot of insight and understanding how people have currently set up the way to solve their problems, particularly in industries that are not as tech-friendly as the ones you may be exposed to. To your developer, you might think, oh, yeah, well, everybody uses digital tools to solve their problems because that's the way you do it.

173: Build a Defensible Indie Business

Arvid Kahl: Let's start with the copycat. Some people take the iterate on an existing idea way too literally and effectively clone the business. They copy the landing page, build a perfect mirror image of the product, slap on another name and a logo, and then they believe they are now entitled to a share of the market. Well, that's not going to happen, or at least it won't last for long. The problem with this approach is that you're creating a lossy copy, just like a carbon copy machine would. You replicate the surface, the public-facing features and designs, but you have no access to the underlying technology. And I don't mean the server code. I mean the process, the decisions, and the understanding that went into creating the product. If you clone a business, you clone its shell, but you'll never be able to clone its founders' insights, their drive, and their motivation. If you don't have that knowledge, your copy will always be incredibly shallow. And without differentiation and a deep understanding of the market that you serve, you will play catch-up forever. Your competitor will always be ahead of you, and you'll never build the best-in-class product that your customers actually want and deserve. So avoid copying things outright. There is more value in understanding the reasoning and research that went into creating features and marketing copy than just using it verbatim.

Arvid Kahl: Many small founders sell their businesses because they want to get rid of them, and that attracts bargain hunters. It's easy to negotiate a founder down when they feel pressure to sell a business that's not very stable or profitable in the first place. Being able to show that potential competitors have to climb a rather sizable barrier to entry into your market, that will net you a significant premium when it's valuation time. The absence of such a mode around your entrepreneurial castle, so to speak, well, that will push the price down. You can't ask for much in that situation. And while buyers will still acquire profitable businesses without this oversized advantage, it's usually a good idea to consider how you can set up that mode around your business. It'll make things so much easier. Warren Buffett is the person who coined this term, the moat, and he used it to describe a company's competitive advantage. And in the context of software businesses, a moat might be a patent, proprietary technology, a network effect, or a brand, a couple of things come to mind. Whatever form it takes, the moat helps to protect the business from its competitors and allowing it to maintain its market position and to continue to generate revenue. That's the idea. Intellectual property is the most obvious example of this. If you have a patent on any particular technology, any competitor will have to find an alternative way to solve their problem or negotiate a licensing fee with you. Unfortunately, this works so much better in the world of physical products than it does for software entrepreneurs.

221: Why Entrepreneurs are Choosing 'Short-Lived Businesses' Over 'Forever Businesses

151: Entrepreneurial Strategies & Anti-Patterns for a Calm SaaS Business

Arvid Kahl: You'll make all product decisions in accordance with this selected model. A comp SaaS business should also be based on a conscious idea relevance choice. Preferably, a comp founder defers their business idea until they have validated the market they want to serve, the criticality of the problem they've discovered, and the feasibility of the solution that they envision. Any product work waits until these validation steps have been taken. And the best way of staying in touch with their target market is to join their communities. Embedding yourself amongst those who you plan to serve and empower will give you a constant stream of insights, preferences, and themes that ensure your assumptions are always close to the perceived reality of your prospects. And that's it for today. Thank you for listening to the Bootstrap Foundry podcast. You can find me on Twitter at avidkarl, A-R-V-I-D-K-A-H-L. You'll find my books, Zero to Sold and The Embedded Entrepreneur, and my Twitter course, find your following there as well. If you want to support me and the Bootstrap Foundry podcast, please leave a rating and a review by going to ratethispodcast.com slash foundry. Thank you very much for listening and have a wonderful day. Bye-bye.

(someone): you

104: Copycats and Endurance

36: Being Small Is a Benefit: How to Leverage Being a Bootstrapper

Arvid Kahl: But here's the silver lining. Most copycat stories start scary, but have a happy ending. So why are copycats not the end of the world? I want to spend some time today just looking into several factors that have been proven to be true repeatedly, one failed copycat at a time. And it all starts with copycats copying the outside, the interface, the product, but never the business. And that is true for SaaS businesses and other service-based businesses. If we look into e-commerce, it gets different because there's really no founder brand involved. There's no brand, no business brand involved. It's just about products and the bottom line. So that is not what I'm talking about when I talk about copycats. I'm talking about copycats in the context of SaaS businesses that have a more complicated business with a deceptively simple product or a product that is not the full business, just as a difference. Because when we talk about copycats in this context, they may just make a shallow copy, a lossy copy. They make a copy of your product, but they cannot copy the processes of your business. If you have a direct-to-customer e-commerce business, and they make a copy of the product, there is infrastructure in place that allows them to completely circumvent inventing process, because e-commerce process is well-defined. People know exactly how logistics work.

130: Entrepreneurial Anti-Patterns — What to Avoid When You're Starting a Business

(someone): You don't have a gigantic safety cushion and utopian exits and those bonuses when you leave the business like you would have in the corporate world. If your business fails, so will you. By showing how you deal with problems and reliably overcome them, you're projecting confidence and that you're in it for the long run. Bootstrappers are also laser-focused experts. One consequence of having access to very little capital and no employees, in the beginning in particular, is that a bootstrap business usually solves one thing really well and nothing else. For that, the founders have to be or become experts in their fields. And when your prospects see your business, they don't see a giant corporation with dozens of unrelated products that they're trying to force on every possible customer, whether they need it or not. They see a purpose-built business that's working tirelessly on offering a product that solves a critical problem for a well-defined audience with a founder that knows what they're doing. And you can leverage this laser focus expertise by showing your expertise in writing. Have a blog, write regularly, and write about what you know. Be a voice in your niche audience, and your niche audience, the people in there, will follow you. Get interviewed on podcasts if you can. Nothing shows your expertise level more than a fruitful discussion with another expert in the industry you serve. Promote the episodes when they get released with your audience through the channels that you would normally do your marketing with. That can actually lead to a much, much higher level of confidence in you and your business. Another important point here is that bootstrappers are steering the ship.

90: Competition Isn't Always a Business

(someone): Hello everyone, welcome to the Bootstrap Foundry podcast. My name is Arvid Kahl and I talk about how you can start, run and sell the bootstrap business. This episode is called why competition is good for business. Let's get started. The final of the women's 800m race was a spectacular event at the Tokyo Olympics this year. In the last few seconds of that race, A-Thing Mo, a US athlete, was more than 5 meters ahead of the runner chasing her over the finish line. Mo was incredibly fast and dominated the field from the start. And when all runners had finished the race, something amazing became apparent. Almost all of them had run personal bests or other records. And Mo charging ahead and pulling away from the other runners hadn't discouraged them. They had performed even better than ever before. They were so inspired to catch up with the leader that they all exceeded their previous times. The struggle of the race brought out the very best in them. You could see it very clearly in that Olympic final. Competition can be incredibly powerful and motivating, particularly when you are outperformed by your competition. It can make you perform better than you ever thought you could before. And I believe this is equally true for entrepreneurs. We thrive through competition. And this is not obvious. Usually competition is a scary thing. We feel like competitors, they can take away something from us and we want to get our piece of the pie. And the more people want their slice, the smaller we perceive ours to be. But that's finite thinking.

221: Why Entrepreneurs are Choosing 'Short-Lived Businesses' Over 'Forever Businesses

(someone): And you shouldn't be looking at similar solutions, but all the things that people use to solve the underlying problems. Let's say you're building a SaaS for online English teachers who need to write student feedback multiple times a day. You join the communities, and you learn that there are two existing competing SaaS products in the market, serving a couple of thousand teachers from two or three particular online schools. Most founders stop there. They see the competition and they decide what to build from looking at these two existing products. Why am I talking about online teachers? Well, that's because we did this research before we built Feedback Panda, an online teacher productivity SaaS that my partner Daniela and I bootstrapped to $55,000 monthly recurring revenue before we sold the business back in 2019. We tried very hard to make sure to know all competitive alternatives in the market before we committed to building a business in it. In terms of actual competitors, we saw a few common bank products that had products that looked like they were from the 90s, like the interfaces were hilariously old. Anything would have been better than those. But leaving it at this would have been a fatal assumption for us. So let's examine the landscape of actual competitive alternatives in the online teaching space as our research allowed us to discover McDonough, just as an example of how this can be done. Here's the most threatening competitor that we found. Spreadsheets. That's right. Good old boring Excel and Google Sheets. Teachers will have created clunky but somewhat workable self-built solutions to be more efficient. That's what we found. And after all these tools, particularly the Google tools, they were free and they still are.

What are the unique advantages of bootstrapped businesses compared to VC backed businesses?

Bootstrapped businesses have unique advantages compared to VC-backed businesses:

Agility and speed: Bootstrapped founders have the ability to make quick decisions and adapt their strategies without the constraints of external investors . This allows them to respond rapidly to market changes and emerging opportunities.
Personal connection and customer service: Bootstrapped founders are often more hands-on and directly engaged with their customers . This creates a personal connection and allows for more personalized customer service. Responding to customer needs and providing excellent support can build strong customer loyalty and word-of-mouth referrals.
Focus on niche markets: Bootstrapped businesses can focus on serving niche markets . By catering to a specific audience with tailored products or services, they can address their precise needs and stand out from larger competitors.
Independence and control: Bootstrapped founders have full control and ownership of their businesses . They are not beholden to external investors or their demands, allowing them to make decisions that align with their vision and values.
Longer-term perspective: Bootstrapped businesses can prioritize long-term sustainability and profitability over short-term growth . They can focus on building a solid foundation and achieving profitability without the pressure to scale quickly or generate high valuations for future funding rounds.

It's important to note that both bootstrapped and VC-backed businesses have their own advantages and disadvantages. The approach that works best depends on the specific context and goals of the business.

36: Being Small Is a Benefit: How to Leverage Being a Bootstrapper

(someone): And you can leverage that by just prominently showing the person behind the business directly on your landing page or in an about page, in your emails. Just make the business about yourself. Use your personal brand and motivation to be more relatable. Share the origin story of the business, both through your business communication and outside of it, in interviews and on social media. People love narratives. That's how people understand the world. And nothing is more attractive than a Rags to Riches underdog story in the making that they can be part of. When interacting with your customers, use a real life picture for your user avatar and use your full name. Engage with people on a personal level as the engaged founder, not the distant business owner. And then just use your agility and your nimbleness as a bootstrapper to your advantage in all these cases. Present yourself to the world as a real person with all the shortcomings and problems that every one of your customers encounters in their own lives, they understand. I'll continue talking about this problem, these kind of real problems of real entrepreneurs who have reached out to me this week on Twitter, actually, after thanking our sponsors. The following message is brought to you by Balsamiq. Balsamiq have decided to support the bootstrap founder community by donating their sponsored airtime to some of our listeners. Today's guest sponsor is OutZeta. spelled O-U-T-S-E-T-A, the only all-in-one platform that allows you to launch strike billing on your website in two minutes. Outsetter is bootstrapped. They're building a self-managed, employee-owned business.

126: The SaaS Market Maturity Paradox

Arvid Kahl: How easy will it be to continue to grow the business without the founder involved? And how easy will it be to transition the business into their organization? The more value and the less work are involved here, the higher the price. It's a pretty simple rule. And acquirers who buy businesses for this reason usually want to get the deal done very quickly, as this growing profitable business, hopefully growing profitable business, is getting more valuable every single day. So the earlier they can get their hands on it, the better. And this will affect the amount of money they will be willing to spend. To entice you to sell it to them sooner than later, they may even pay a premium for your business. So that's the financially motivated acquisition. And honestly, I'm going to talk about a couple more, and they may overlap. Just understand that these are archetypes, right? These are not the real, pure existence in the world out there. There will be some that have multiple components and have multiple motivations, but in general, if you're looking at private equity companies, like the one we sold to, they buy for financial reasons. And many businesses on the market that buy small to medium-sized bootstrap businesses do that because they build a portfolio of companies, they start with one, then they buy another one, then at some point they have 10. Then you build a team, and they have all these little companies. The team is running it.

36: Being Small Is a Benefit: How to Leverage Being a Bootstrapper

Arvid Kahl: People's budget for tax reporting tools is by far not as high as for groundbreaking tools, such as Stripe, for example. Pricing plays a much more prominent role in positioning for your product in this marketplace. And over time, this bearable that these software businesses provide gets optimized into easy, it becomes more and more important to make the solution to the problem more accessible and easily integrated into existing workflows. SaaS businesses at this stage, the third one after making things possible, then bearable, now easy, these businesses start integrating other solutions. They provide APIs for programmatic access, and they diversify existing general solutions into niche subsections of the industry. Instead of solving taxes for everyone, they start solving taxes for freelancers. And instead of providing a file upload tool for everyone who needs to share files, some businesses start focusing on, for example, lawyers and their specific regulatory requirements, or journalists and the privacy and secrecy needed for those kinds of file uploads. This is the time of most diversification and specialization. Competition is getting fiercer, price pressure causes businesses to entrench themselves into particular market segments, and creating a new SaaS has a decently high chance of fizzling out due to all of that. And this is also the time of lowest marginal value addition. I mean, obviously solving any problem that people have a budget to solve for is inherently valuable, but still it pales compared to what a completely new entrant into an underserved and unexplored field can do. Making things possible for the first time has way more impact than making them 0.5% faster than the next best solution in the market.

36: Being Small Is a Benefit: How to Leverage Being a Bootstrapper

(someone): By just being present and empathetic every time you talk to a customer, or just a prospect even, a great customer service interaction will stay on people's minds for a long time, and they will talk to it, to their peers, about that. When interacting with partners and large customers, you, as the founder, can use your command of the business as a credible argument as to why you can guarantee certain things. No confirmations or verifications needed when you're the one both promising and delivering things. Finally, bootstrappers are relatable. In most families, you can find an entrepreneur somewhere. It's a grandfather who was laid off from a job in the factory and started his own business. Or it's an aunt who decided to turn a hobby into a business and is now employing a handful of people, maybe a gigantic company. We all know someone in a relationship or an acquaintance who decided to start their own thing. in our private lives or in a business, in a family, anywhere. Your customers will too. By making it clear that you are a person running a business, their expectations and capacity for understanding will increase significantly. In a way, you're an underdog, and just like their dad was when he started the family business, and you're somebody who cares, just like their sister-in-law when she quit her high-paying but unfulfilling office job to start a project that helped real people with real problems. People can relate to this. And you can leverage that by just prominently showing the person behind the business directly on your landing page or in an about page, in your emails. Just make the business about yourself.

221: Why Entrepreneurs are Choosing 'Short-Lived Businesses' Over 'Forever Businesses

(someone): When a customer complains about a bug, don't say, it's just me. This will take a while. Instead, tell them that you'll personally get on it right after this conversation. Convey that their direct feedback matters. Second, appeal to early adopters by using their language. In the early stages of your journey, using labels like pre-release, beta, or prototype will attract innovators and early adopters, while it will keep mainstream customers at bay. They will come later, but in the beginning, early adopters are the people you want to work with anyway, so using the right language will attract them to your business. Third, be public about your journey. Talk to other founders, no matter if they are in your audience or not. Share your story and leave traces. People who care to find those traces will follow your journey and support you because they know how important this is for you. They will respond to your questions when you need an external perspective and they will spread information about your journey to those who will listen. Bootstrappers also really have nothing to lose. We don't have insane amounts of capital. We don't have hordes of employees we need to employ securely. We are flexible and can adapt to changing circumstances in the industry we serve much faster than established companies to cling to the status quo. If a prospect chooses your service, they can be assured that you will do whatever it takes to keep making your product better at solving their critical problems. You can leverage having nothing to lose like this. Show the journey of your product proudly.

151: Entrepreneurial Strategies & Anti-Patterns for a Calm SaaS Business

Arvid Kahl: That's usepinto.com. Alright, let's get back to our main topic today. Back when our economy allowed most of us to eventually be able to afford a house, we developed the phrase starter home. It describes the first careful introduction to home ownership for young people. The first home, one of many, the one to get started with. A home that will be owned temporarily before the growing family moves into a bigger home because it's just necessary to move. The idea was to incrementally move towards your dream home. We even call this forever home in our family, that home you end up with in the future. And yet, most entrepreneurs don't set out to build a short-lived starter business. They are inspired by their entrepreneurial idols that they see every day, who've built companies that last for decades. That's what they choose to imitate right from the start. Many first-time founders want to build a forever business from day one. And that is a terrible mistake in the world of digital entrepreneurship. Rob Walling popularized the concept of stair-stepping, the idea of incrementally building bigger, more independent businesses by going from building on somebody else's platform to eventually running your own software business and all the little steps in between. The idea is to build enough small projects to own your time. And once you're at that point, you shoot for the bigger goals.

36: Being Small Is a Benefit: How to Leverage Being a Bootstrapper

Arvid Kahl: Whatever combination you choose will heavily impact how you start, run, grow, and finance those business endeavors. The two dimensions are intensity of growth and importance of your initial idea. So let's dive deeper into how your growth aspirations and the belief in your own genius business ideas will impact your journey. There's a huge dividing line between SaaS founders rooted in the expectation of reasonable growth. To some, a business growing 10% yearly is more than enough. Others get nervous if it'll hit a monthly growth of 10%. And that's a huge difference. And it creates a notably different business that operates from wildly divergent assumptions. A calm, slow-growing and profitable SaaS business that operates in a well-defined niche and intends to stay there is called a micro SaaS. These companies are often called lifestyle businesses as they enable the founder to live a balanced life besides running the business. And this is true for the successful ones at least. when they have established processes and run in a more hands-off mode. But by no means will it ever truly run without the founder or someone doing the work of one, but it can become quite a calm business if you work towards that. And MicroSaaS is focused on creating a high-impact product that solves a critical problem for a validated group of people. There's very little guesswork in this kind of entrepreneurship, and it's also a great candidate for self-funding because of it.

(someone): Bootstrap founders and their businesses are different from other enterprises in a few key ways. And each of those can be used to your maximum advantage. Bootstrap founders have skin in the game. They can't hide behind the corporate facade. Reputation is important to them and the success of their business. Customers understand that once they are dealing with a bootstrap founder and a bootstrap business, they can expect more than business as usual. If you're selling to a niche that understands the bootstrapping life, such as the startup market, you will also encounter this behavior. In the end, it boils down to honesty. Can you reliably deliver the levels of service that your customers expect? If you explain from the beginning that you being a solopreneur might mean that the service can be shaky when you're not there to fix it, or the other kind of things that are just normal part of the solopreneur life, you will allow your prospects to pre-sort themselves. You wouldn't want to have a customer you cannot serve anyway, or at least not yet serve in the current state of your business. Because once the business enters the stability stage, you can change your messaging to attract those kind of customers. Leverage having skin in the game like this. And I'll mention three points here. First, be clear about being a bootstrapper whenever you think a customer overestimates the size of your business. Don't go for sympathy. Go for comprehension. When a customer complains about a bug, don't say, it's just me. This will take a while.

149: Fundamentals of a Calm SaaS Business

Arvid Kahl: In many cases, an earn out may be a part of the exit, which means that your second part of the money is conditional to reaching several business goals for the acquirer over a set period of time. But all of this can vary. So let's talk about the different kinds here. Let's start with the financially motivated acquisition. And before we do that, maybe another idea, because people always ask about sale prices and valuations and how much money you get. You will find that particularly in being acquired as a bootstrap business, you cannot really put your finger on the number before you actually negotiate it. So the reason for that is that we are currently in the market where there's a lot going on and there's always this kind of discrepancy. Most founders who sell their company sell it for the first time, so they don't really know the value. And most private equity companies or other companies that acquire a business acquire that particular business for the first time. So there's no set valuation. since bootstrap businesses don't have high valuations that have been tediously calculated for some series A or even a seed fund round, everything is kind of in the air. And every bootstrap business in particular has its own internal financial systems and structures that can vary significantly between businesses. I wouldn't say that VC-funded businesses are all the same, but at least the goals of a VC-funded business are pretty much equal no matter where you look. You try to maximize shareholder value.

1. The FeedbackPanda Story

Arvid Kahl: SaaS businesses usually have significantly higher margins than businesses in other industries. And even in an economic downturn, SaaS businesses report 60 to 90% gross margins. That alone might want to make you start a software company. But it gets better. SaaS businesses are incredibly cheap to run due to the inherent scaling effects of offering the same exact product to all your customers and at almost zero marginal cost for onboarding a new prospect. Often a new customer means just adding a row in your database and triggering an email onboarding process. And all of that can be automated and costs you a fraction of a cent. And this kind of SaaS is called a low-touch SaaS business. Ideally, you'll never have to manually interact with your customers in such a business. If they need help, they find it in the self-help center that you've provided. And your payment provider handles their subscription management. Any feedback comes through feature suggestion tools and automated surveys. SaaS businesses like this can reach thousands of customers without having to hire additional help. A low-touch SaaS business can benefit immensely from word-of-mouth marketing, particularly peer referrals. And in fact, it can benefit from network effects of all kinds, both externally, when it comes to acquiring new customers, and internally, where customers help each other. They support other customers right inside the product.

1. The FeedbackPanda Story

Arvid Kahl: And I got a tweet from a CEO of a VC-funded Silicon Valley startup. who had checked out my GitHub profile and seen that the technology that they've been using for their product was the same that I've been using for one of my pet projects that I had there. Got a message if I needed a gig, which I found an interesting message to get on Twitter, usually recruiters or people who want to give you a job or reach out to you in different means, but got a tweet. And a couple of weeks later, I was working for them. Which was great. It was a wonderful experience to be part of a project of that size and magnitude. A couple of years later in Dresden, where I lived at that time, I kind of suffered from burnout from that kind of job because it was quite intense. Like once you're in this kind of system of Silicon Valley startup dynamics, it turns out to be a six, seven day a week job. Even if you're not working on a couple of days, your brain is always in it and you're always hanging out or communicating with the people in the business because it's starting to absorb most of your life. So with Burnout, I was sitting at home. A friend reached out to me and we founded a company, a software business that failed horribly because we never did any marketing. I guess I'll be talking about that at some point as well in, I guess, a podcast on the bad examples of my life. Another friend reached out to me just a couple months later.

151: Entrepreneurial Strategies & Anti-Patterns for a Calm SaaS Business

Arvid Kahl: And we then turned out to sell the company to SureSwift, which was also fun and a very interesting experience, which I will definitely write about. I've already written about parts of it on the blog and I'll continue speaking about it and continue writing about it because that exit is also quite the challenge if you don't prepare for it. We were lucky enough to be prepared because just even before we started the company, I've been looking into a lot of literature and a lot of blogs and podcasts about how to run a successful bootstrap business because it's always been interesting to me. Not necessarily because I wanted to build one at that point, because I never really had that aspiration, even though I've been building a couple companies with friends before. But bootstrapping was never really on the menu for us. We always tried to find funding at some point. Once I figured out that this is a viable option, I just started doing what I always do when I'm interested in something, which is reading a lot about it and listening to every single piece of audio, watching every kind of video that I can put my hands on, which I did. And in preparation for this, figured out that building a sellable company is a virtue in of itself, don't need to necessarily want to sell it. And we never really wanted to sell Feed the Panda from the beginning. We just wanted to build it. We needed a tool for Daniel. And then when we figured out it was a good business, we just wanted to keep running the business.

169: Paying the Bills While Building Your First Indie Business

36: Being Small Is a Benefit: How to Leverage Being a Bootstrapper

Arvid Kahl: This is kind of the gold-plated final step of the stair-stepping ladder. Selling a business to jumpstart an even more ambitious business is like one of the most potent entrepreneurial power moves that you could ever make. And a lot of things need to have gone right for this to happen. But hey, it's something to aspire to. And many founders turn into serial founders through exactly that. And then there's outside funding. And finally, we have the bootstrapper's worst enemy, other people's money. The biggest drawback here of outside cash is that it always has strings attached. And those strings, they could be very much aligned with your own ambitions, like if you're looking into bootstrapper-compatible funding options like Tiny Seed or the Comp Company Fund, or they could go against every slow-but-surely growth expectation you might have. That's what most venture funds do. Most venture money comes with massive growth goals that you have to fulfill. There's then the informal friends and family round, but this can get quite messy when things go south. So it's usually better to have clear expectations about the potential negative outcomes of your efforts and then have solid contracts in place done by experienced investors that will help to make these expectations normal for you. I've noticed one thing in all of this. The transitions between different kinds of funding are the hardest parts. And that's when most businesses actually fail or are being sold because the founder can't just handle it anymore.

111: Passive Income and Entrepreneurship

(someone): That can actually lead to a much, much higher level of confidence in you and your business. Another important point here is that bootstrappers are steering the ship. Not only that the founder envisioned the business, in reality, they are also operating and improving it every single day. So a founder is not just there for the founding moment, it's there for the whole term of the business. Often, a customer reaching out to customer service will be talking to the founder of the company. And unlike a rank and file employee at a large faceless corporation, the founder will pour their heart into every single interaction with a customer if they can. And those customers, they will notice the dedication and the attention that they were shown. You can use your direct connection with customers to turn a stressful customer service chat into a delightful trust-building opportunity. And I've done that quite a few times in Feedback Panda. The times when customers were irate about some random little problem and just being there, being present for them to vent, telling them that somebody's on it and then actually fixing it, often within minutes, deploying a fix and telling them that it's done, turned them from a customer who was on the verge of quitting into somebody who would spread the word about the product for months on end after that. You can leverage steering the ship. By just being present and empathetic every time you talk to a customer, or just a prospect even, a great customer service interaction will stay on people's minds for a long time, and they will talk to it, to their peers, about that. When interacting with partners and large customers, you, as the founder, can use your command of the business as a credible argument as to why you can guarantee certain things.

36: Being Small Is a Benefit: How to Leverage Being a Bootstrapper

Arvid Kahl: And anything that allows you to build a system, a self-sustaining system, and an automated solution, even if it's just partially automated, automation is really what helps you scale. And this product-as-service offering often leads us to one step further towards that goal, because almost any product-as-service offering has the potential to be turned into a software-enabled business. Software as a service businesses are that, and they shine at serving hundreds, if not thousands of customers simultaneously, offering the exact same service to each of them. And the service itself is highly automated and rarely needs your direct involvement. And it's really what the continuum is, right? You start with a service, you productize it, and then you take the most popular version of your packaging and you turn that into the system, into the SaaS business, software as a service business. That often means that you can't really customize it as much anymore. But that really is not as big of an issue because you can now serve hundreds and thousands of people at the same time, where before you had to reach out to every lead, right? It's just a matter of scale. And that's why usually all software-as-a-service businesses don't really offer that much in terms of customization, but they have a lot of configuration, where you can pick and choose the functions that are available in the system, but that's really what it is, right? There is no custom stuff. There's just configurable stuff. And that is good because it allows you to scale. But we're talking about building businesses here, right?

36: Being Small Is a Benefit: How to Leverage Being a Bootstrapper

(someone): You can leverage having nothing to lose like this. Show the journey of your product proudly. Document and publish the evolution of your product, your business, and your whole entrepreneurial perspective. Also, celebrate features and pivots and improvements. Just blog about things that make a difference in your life and in your customers' lives, and be proud of it. Your agility is your advantage. Communicate this with your prospects. And I said bootstrappers have nothing to lose, but of course they also have everything to lose. Because while our agility makes us very adaptable, it also prohibits us from entrenching ourselves too much. Other bootstrap businesses might just spring up and start competing with us. For that reason, we're forced to build as stable and reliable a business as possible. For many founders, that means dedicating every minute of their day to their product and its customers. If a prospect chooses to buy from you, they can expect you to work your hardest to get and retain their business. You can leverage that by just celebrating your challenges. Don't hide the bad and only talk about the good. Share what worked and what didn't with the founder community. Customers will do their research and when they find that you work hard and find the best way to go forward, that will create a lot of goodwill. Share your struggles and your growth as an entrepreneur. You don't have a gigantic safety cushion and utopian exits and those bonuses when you leave the business like you would have in the corporate world. If your business fails, so will you.

1. The FeedbackPanda Story

(someone): You can find me on Twitter at arvidkahl, at A-R-V-I-D-K-A-H-L, and you can check out the blog at thebootstrapfounder.com. If you have any questions about this episode, reach out on Twitter or send an email to arvid at thebootstrappedfounder.com. If you want to support me and the Bootstrap Founder Podcast, please leave a rating and a review on Apple Podcasts and wherever you subscribe to this podcast. It'll help other founders and founders-to-be to find the podcast and learn more about starting, running, and selling their bootstrap business. Thank you very much for listening and have a wonderful day. Bye-bye.

Arvid Kahl: I went to university for computer science, completely failed that. Went to university for philosophy and political science, failed that as well. Had a couple jobs in the software industry, building things for venture-backed companies, building things for regular bootstrapped German, I guess, businesses and had a couple of startups that I started with friends and just acquaintances that either failed horribly or actually did fairly well, but had to be pivoted at some point. I guess during both my writing and these episodes of the podcast, I'll be talking about this. quite substantially all these kinds of experiences that I had that didn't work out because there's a lot of interesting information in there and interesting things that you can learn, particularly from these kinds of examples. But the biggest thing that I've been talking about recently is Feedback Panda. which is a SaaS business that I co-founded with my business and life partner, Danielle Simpson. She and I founded this software as a service company back in 2017 as a consequence of needing the product ourselves, I guess. We built it and grew it for two years, just shy of two years when we sold it to Shrewsbury Capital, a private equity company, in the middle of last year of 2019. So we built it up from essentially zero, like bootstrapping it completely, to $55,000 of monthly recurring revenue. without ever hiring an employee, which I'll be talking about as well. It's a blessing and a curse. And yeah, there's a lot to say about that.

221: Why Entrepreneurs are Choosing 'Short-Lived Businesses' Over 'Forever Businesses

(someone): So does the motivation to improve at the same time? If you are the North Star, where do you go? Many founders and investors will tell you to go for a monopoly. Control the market, control the choices your customers get to make, control it all. But do you really want to be the only player in the market? I don't think this is a good long-term perspective. No single business can reliably and willingly serve everyone in their space. The dynamics of a monopoly lead to complacency and eventually consumer harming processes. And you'll be alone. It's lonely at the top and it's very muffled too. If you suppress choice, people will make do with what they have. They won't inform you about ways to improve because there are none for them. And it's much more chatter in an industry when your customers have potential alternatives to go to. And that chatter is what you learn from. They'll quickly let you know what other players in the market are doing and what you're expected to do to retain them as a customer. If you can dictate the terms of this relationship, your customers don't get to see those alternatives. And running a business means constant learning from your customers, your competitors, and the rest of the market. The more incentives you have to learn about ways to improve and provide a better service, the stronger your business will become. Because competition is a great teacher. And finally, it also generates motivation. So let's get back to that Olympic final.

148: Fundamentals of a Calm Business

Arvid Kahl: I call this ever-resting, because it kind of feels like you try to summit these challenging peaks without ever really having climbed even a small hill in your neighborhood. Too many founders think that they have to imitate these unicorn startups to be real founders, but this approach involves significantly more risk. And if trying to Everest your first business fails, you stand to lose all your time and money investment and you have nothing to fall back on. That's a problem. And that forever business might come at some point, but it's much less risky to build a few temporary projects before you even get there. And these early entrepreneurial experiments will teach you a lot about how markets work and the revenue from these products will be catalysts along the way for your bigger aspirations. And you will end up building assets that are quite sellable to other founders once you outgrow these particular projects. And that definitely is more valuable than trying to do it all from the start. I'm often surprised to see how little reflection goes into projecting the inner workings of these bigger traditional businesses onto the digital realm that most software businesses and software creators operate in. for most businesses of the internet age. Longevity means being operational for a couple more than maybe five years. Compare that to the world's oldest companies, like there's one called Kongo Gumi, that's a Japanese construction company, and that was founded in 578 AD. That's an old company. And it's not the age difference that I care about here.

36: Being Small Is a Benefit: How to Leverage Being a Bootstrapper

Arvid Kahl: It's possible to build a calm company that seeks to change a whole industry, but you'll have to fight the expectations of one particular group you won't be able to avoid with that kind of business. Investors. Every business needs money, and the way you get it and what strings will be attached to it makes all the difference. For a software as a service business, there's a high chance you'll be able to completely bootstrap your entrepreneurial efforts, particularly in the beginning. The components needed to build a minimum viable product to test and verify your assumptions, they're incredibly cheap, often offering extensive free tiers to make prototypes quick and affordable to build. Let's look at Endcrawl again. All they needed to get started was a 400-line Perl script, a place to host video files that they rendered, and an email account. And that may have been cheap back in the day, but it's even more affordable today. But eventually, running a business becomes more expensive. And even though SaaS businesses are usually high-margin endeavors, you don't need to cash in your life savings to run marketing experiments. There are funding options out there that will align with the goals of a calm business owner. Comm funds finance through a mix of equity and profit sharing, and usually come in once some sort of product market fit can be shown. Where traditional venture capital employs massive cash at the idea stage, and sometimes even before that, comm funds focus more on sustainable businesses without capping their upside, as revenue-based financing options would.