Lessons on Bootstrapping to Profitability

Just finished a couple of days at SaaStock in Dublin. One of the reasons I like this conference is its very strong bootstrapper stream, showcasing some inspiring self-funded success stories.

In amongst the meetings I caught a couple of sessions that had some actionable insights for founders wondering how to bootstrap or to be capital efficient when building their company. Big thanks to Mark Organ and Rory Codrington for the pearls of wisdom.

Hope its useful!

Focus and Niche Down

By all means have a grand vision, but in the early days founders should aim to focus and ‘niche down’ as much as possible. Once you have your vertical, ask yourself whats the sub-vertical and even the sub-sub-vertical of that sector. Focus will enable you to build a product that serves a group of customers needs tightly, without distraction and the danger of building a product that serves everyone but no one well. Once you’ve cracked that sub-vertical, expand to the next, and so on.

Creating Constraint

One for the earlier stage companies and founders still ideating. Some businesses are intrinsically easier to bootstrap earlier on than others due to the nature of the product and the contracts they pursue.

Contract sizes dictate your ‘go to market’ strategy. If you can secure an annual contract value of >$20K you can justify sales people, each win will be material and you will end up selling to larger organisations who tend to be stickier. Smaller than that and you will have trouble recouping the salaries of any sales people and will have to rely on building a product led growth engine, which isn’t always possible depending on the sector.

Contract durations should always be annual or longer. Shorter contracts create unnecessary instability. Where possible, expansion revenue should be baked into the contract. This could be via usage based or tiered pricing, or contracted additional features.

An obvious one but gross margins really matter. If you can create a >80% gross margin for your core product (excluding any service revenue) you will dramatically increase the chance of hitting breakeven early.

“Servicisation”

We talk about this one a lot at D2. Service revenue is akin to a swear word in venture land, but it’s a powerful lever to bring in revenue early, validate demand and stay close to your customers. Many startups perform needs analysis and valuable workshops pro bono to land their early customers. Often this work is valuable to those prospective customers and could be charged for. Delivering a mechanical turk version of your product may be more palatable if it’s done so under the guise of a project or short duration piece of work. It isn’t scalable, it’s not where you want to end up, but it works the sales muscle early. As companies scale, we’ve seen SaaS + service models create incredibly sticky products, especially in technically challenging markets. Never forget that one of the greatest capital efficient venture backed success stories of all time, Veeva, still offers professional services to help onboard customers and get the most out of their SaaS platform.

Strange Budgets

Speak to your customers about their budgets. Many times organisations might have allocated budget for one area e.g. an ‘AI budget’, but not in an adjacent area e.g. ‘legal support services’. If you understand where the customer has budget and your product straddles categories you can position your business to maximise your chances of accessing an available pool of capital.