Funded Vs Bootstrapped SaaS startups, Part 2: self-funded off-road buggy

Published in

Stories by Agorapulse

9 min readJan 3, 2017

Nowadays, self-funded startups are still outnumbered by glamorous VC-backed startups. But over the past few years, a new trend is building outside of Silicon Valley: the rise of bootstrapped SaaS startups and “lifestyle businesses.”

We are proud to be part of this trend at Agorapulse. We’ve been building and designing a lean and agile off-road buggy, optimized for the long run and bumpy roads since 2010. Here is our story.

This is the second article of a two-part series. If you missed the previous article, it was all about nitro/VC powered dragsters, a brutal and epic race for growth and escape velocity.

The self-funded way — Off-road buggy

MailChimp is probably the most emblematic bootstrapped business that has demonstrated the Un-Silicon Valley Way to Make It as a Start-Up.

Basecamp (aka 37Signals) has been one of the most vocal leaders in this startup (r)evolution with their REWORK manifesto published in 2010 by Jason Fried and DHH. They’ve proven that you can break all the established rules and win:

you don’t need outside investors
you don’t need to be a workaholic
you don’t need to staff up
you don’t even need an office.

Micro-SaaS (or “lifestyle businesses”), operated by 1 or 2 people, usually do not require any initial cash to get started. They even have their own dedicated conference: http://www.microconf.com.

Bootstrapped startups (or “indie startups”), operated by real teams, might require some minimal initial cash from personal assets, business angel or seed funds to build and validate their Minimum Viable Product, but unlike their glamorous VC-funded counterparts, they don’t target VC funds after that.

Instead of focusing on chasing money and growing big enough to provide a return to investors, bootstrapped businesses focus on profitability, customer happiness and quality of life for their team.

A boostrapper profile

A bootstrapper cannot start out with ideas of world domination and ambitions to “shoot for the moon.” Bootstrappers need to hit a feature set that resonates with their audience quickly by focusing like a laser on building only the features that directly address customer pain points.

Unless someone pays for the product, a bootstrapped startup is dead. That’s one of the main reasons why most of self-funded businesses start at the bottom of the market, selling subscriptions targeted at SMBs instead of enterprises which require a longer sales cycle and a heavy sales process.

Another founders’ top concern is talent acquisition. This is why most self-funded businesses can’t be bootstrapped in the Valley — it’s impossible to compete with local VC-backed companies to grow their team.

Bootstrapped SaaS startups usually have a strong company culture of trust and transparency (https://baremetrics.com/open) and operate with distributed remote teams. Each team member is relatively autonomous and free to choose the way they want to work.

Funded companies can acquire new customers quickly by burning cash to experiment with paid channels. Bootstrapped startups don’t have this luxury. They prefer to rely on the most capital efficient channels: virality and organic inbound marketing. This is great for sustainable growth engine, but there is a down side: it will require a good amount of time and patience to get initial results.

Our journey to initial traction

Agorapulse is a Social Media Management SaaS startup, bootstrapped in Paris in 2010. Since our initial launch, we’ve been lightly pressing on the gas pedal with steady sustained growth into profitability (currently at $3M in Annual Recurring Revenue).

We are the typical bootstrapped SaaS startup targeting SMBs, with 2200+ customers handled by a distributed remote team of 25, working out of six countries (France, USA, Ireland, Argentina, Mexico, Brazil).

We’re nimble, we’re lean, and we’re humble — but we think and dream BIG, competing against huge VC-backed companies:

Sprout Social ($60M fund raised): founded in 2010 in Chicago, 17,000+ customers handled by a team of around 200.
Hootsuite ($250M fund raised): founded in 2008 in Vancouver, 10M users handled by a team of around 800.

Our main milestones up to today look like this:

Milestone 1 — Initial validation (crossing the desert)

Goal: Launch v1.0 MVP (Mininum Viable Product), get real feedback and revenue from first customers, $10K MRR (or 100+ customers)

AgoraPulse v1.0 was launched in september 2011, focused solely on Facebook, with apps/contests support and some initial social media management features.

By the end of 2012, we had validated our MVP and raised $250K seed round to continue to develop our platform and target initial traction.

It took us 18 months to reach $10K MRR (Monthly Recurring Revenue). That’s a pretty slow start, but we were entering a crowded market, and a huge feature set was required: an all-in-one solution (not just contests, publishing or monitoring, but all of them under one roof). We built it all with a small tech team of three top-notch engineers.

This is the hardest part of the journey. Based on a ChargeBee study, it takes an average of nine months for SaaS startups to hit $10K MRR, but crossing the desert can take much longer…

From $1 to $10k MRR, you have the illusion of product/market fit.

“In early customer development, you’re not selling. You’re learning” — Alex Turnbull, Groove

Milestone 2 — Initial traction

Goal: Tune growth engine and reach $100K MRR (or around $1M ARR)

Handling technical debt while growing is another complicated topic. In 2013, we decided to rewrite our entire platform on a modern tech stack (based on Angular and Grails). We also developped an iOS and Android mobile app (based on Ionic) in 2014.

At that time, a high churn rate linked to our initial target audience (time-framed FB contests/campaigns) was killing our growth. So we worked hard to reduce our churn and ARPU metrics, continuously improving our product and integrating additional social networks: Twitter and then Instagram — must haves for any viable social media management platform.

But we were still a small team with limited resources. It took us 30 months to go from $10K to $100K (a total of four years since launch). Recent examples of some of the best time frames are Front, Groove or Buffer who managed to get from $10K to $100K in about 15 months.

This part of the journey can be really rewarding as all the initial efforts start to pay off.

“You’ll fail in SaaS if you don’t commit to spending 24 months to achieve Initial Traction” — Aaron Ross

Milestone 3 — Initial scale

Goal: Accelerate and reach initial scale at $1M MRR (or around $10M ARR)

Now comes 2017. Things are really getting serious! Currently at $3M ARR, we find ourselved right in the middle of this: From Initial Traction to Initial Scale: The Hardest Phase. But — The Cavalry is Coming.

What’s a good MRR MoM (Month-over-Month) growth rate at this stage?
Here is Jason M. Lemkin’s answer:

20% MoM growth is an outlier, but the best find a way
15% MoM growth is freakin’ awesome
10% MoM growth is strong.

But that’s for funded startups, most of which aren’t profitable. Honestly, if you’re gaining between 5% to 10% MoM at this stage (more than 100% YoY), as a bootstrapped startup AND you’re profitable, you’re doing a great job.

Why bootstrap in SaaS?

PROS:

freedom and full control over strategic decisions
financial discipline and capital efficiency
more time to focus on customers, product and team management (instead of chasing money)
no external pressure and racing against time (once profitability is reached)

CONS:

it takes longer to build a business limited solely to organic growth
more risks are put on the founders and their personal assets if the business fails
not suited to all businesses, especially when time-to-market is strategic (huge amounts of cash are required upfront for highly innovative and disruptive markets)

Clement Vouillon wrote an interesting article comparing the Metrics of 37 SaaS Companies, with the following conclusion:

“Money doesn’t buy better core metrics but it buys growth speed” — Clement Vouillon, Point Nine Capital

Are you prepared to committing several years to hitting Initial Validation and Traction? Do you fit into the bootstrapped startup model: targeting SMBs, located outside of Silicon Valley, possibly with a strong remote culture?

Then bootstrapping is most probably the way to go. Nobody will prevent you from raising money later on, either from venture investors or from debt credit, in order to transform your buggy into a dragster!

You’ll be in control and you’ll have the choice.

Conclusion

Obviously, off-road racers won’t have the acceleration capability of nitro/VC powered dragsters. They’re made for agility and endurance. They can provide exhilarating freedom and an amazing driving experience. However, the “un-silicon valley way” to build a startup is a much longer ride.

It’s a question of time, patience and perseverance.

“Patience and dedication will see you through. Don’t give up. Do the time and you’ll see” — Aaron Ross

What’s next for us?

We’ve successfully managed to bootstrap Agorapulse from France and have taken our time to build a “serious” business in a crowded market, competing with heavily VC-backed US startups. Last year, we found ourselves with some sexy and healthy metrics that could be used to raise a Series A round and began to wonder if we should inject some nitro VC-backed fuel.

As I stated in the previous article, accepting VC funding is pretty much like getting married. We’ve spent months investing our time as founders to the “dating phase” processes of choosing and being chosen. We’ve met with diverse group of investors and startup founders, explored every potential avenue.

Our decision? In the end, we’re sticking with organic fuel for all the reasons I’ve stated above. Plus 2016 has been a great year with 140% YoY growth. We are more than profitable (even after doubling the team) and have enough gas in the tank to continue accelerating into 2017 and target initial scale.

It has been a long and hard journey with many bumps on the road.
But what an amazing trip!

We are bootstrapped.
We are remote.
We are free.
We are profitable.
And still growing…

ANNEX — SaaS startup metrics

Some 2016 metrics of (mostly) bootstrapped successful startups:

Groove ($1M angels): founded in 2012, 4,500+ customers ($5.5M ARR) handled by a team of 10, fully remote/no offices!
Buffer ($400K seed > $3.5M Series A): founded in 2010, 60,000+ customers ($12M ARR) handled by a team of around 80, fully remote/no offices!
Unbounce ($850K seed): founded in 2009, 14,000+ customers ($15M ARR) handled by a team of around170.
Balsamiq (bootstrapped): founded in 2008, 9,000+ customers ($6.5M annual revenue) handled by a team of around 20, fully remote/no offices!
Todoist (bootstrapped): founded in 2007, ? customers ($?M annual revenue) handled by a team of around 40, fully remote/no offices!
Github (bootstrapped > $100M Series A > $250M Series B): founded in 2008, 13M freemium+customers ($100M annual revenue) handled by a team of around 590.
MailChimp (bootstrapped): founded in 2001, 14M freemium+customers handled by a team of around 500.
Atlassian (bootstrapped > IPO): founded in 2002, 60,000+ customers ($450M annual revenue) handled by a team of around1700.
Basecamp (bootstrapped): founded in 1999, 100,000+ customers handled by a team of around 60.
Zoho (bootstrapped): founded in 1996, 20M freemium+customers handled by a team of around 3500.