Bootstrapping our SaaS company in an age of excess.
We’ve been building Nickelled for over 24 months now, we’re beyond the point of being Ramen profitable and are working with some of the best web based businesses in the world, helping them to improve their customer education.
In a time that feels like every startup is raising $millions it’s easy to think this is your best and/or only path (glamorised and propagated by the tech press to get easy page views as well as by the investors since it’s core to their business). At Nickelled we chose to head in the opposite direction and focus on bootstrapping the business to profitability which has the following benefits:
- It forced us to build a product that people are willing to pay for in year one, or we’d go out of business. We couldn’t hide in our office working on building an amazing product for years, and we couldn’t postpone finding a profitable business model until later.
- We focus on the customer, the product and nothing else. The business is operationally simple, we don’t chase investors or do monthly updates with them, hire lawyers to go through term sheets or have a budget for recruiting. We focus on the customers and product which is critical to early success.
- The equity of the company is retained by the people working in the company doing the actual work, and not external investors.
- Taking on the risk of survival upfront. There’s a high probability we wouldn’t have been cash flow positive before we’d run out of cash which would have forced us to make some tough decisions and could have made us think raising capital is the solution. What we’d really be doing though is delaying future pain. Let’s consider fictitious company “Nickelled Bravo” that are starting out and raising $500k, since it’s an investment they’ll have to start burning through cash pretty fast. Let’s assume ~$27.5k p/m, this is because the investors will want the money put to work and not sitting in a bank account — they want to fuel growth, which gives the company a runway of around 18 months at which point the likelihood would be that MRR isn’t covering the burn and they’ll have to raise more money, scale back or die. There’s a few things I don’t like about this: once you’re on the fund raising merry-go-round it’s hard to get off, you’re limiting your future options/opportunities since it’s go big or go home and you’re increasing the number of external factors the business’ survival is dependent on (investor appetite for your business and market).
- Teaches us to be frugal and lean. For the first three months our server costs were $10 p/m. We hosted everything on a single cloud instance on Digital Ocean (yep — we splashed out on the second cheapest instance). Only when revenue started coming in and we started hitting barriers did our spend on infrastructure and services start to increase.
- Direct customer contact. Requesting a demo on the site? Got a support request? Want to discuss features or the roadmap? All of these requests will go to one of the founders to deal with and then because we’re also building the product this keeps the feedback loop really tight and allows us to iterate fast. The first hand exposure helps us understand our clients problems and businesses much better than if we had a layer of sales/support relaying the information.
- Freedom. It feels like we now have freedom and time to create something great in the way that we want to.
There’s also some significant down sides to being cash constrained but I’ll leave that for a different post. Anyway, this isn’t an attack on raising capital or investors (who are integral to the eco-system) and a lot of businesses need to raise external funding before they can operate or become profitable. This is a criticism of the startup environment we’re currently in where raising a pre/seed round is the default option for a software company when there could be a better way. Oh and anyone that thinks that you’re just thinking small by going this route should check out Atlassian and Mailchimp — Not bad for lifestyle businesses ;)