How to Bootstrap a Software Company in 5 Steps
It may be the best business opportunity of our time.
It’s the perfect time to bootstrap a software company. The current quality and availability of enterprise software is low enough that Y Combinator is actively calling out for help. They’ve stated the myriad of problems they see and encourage potential applicants to tackle them saying “Software used by large companies is still awful and still very lucrative.”
The problems are waiting to be solved and the money is there to be made but how do you start?
David Hauser is an expert at starting software companies. He founded and bootstrapped Grasshopper to $30M+ annual recurring revenue, ultimately selling to Citrix for $170M. He founded Chargify, secured investment from Mark Cuban, and sold it to Scaleworks. The list goes on.
On the Run With It podcast, David was generous enough to share exactly how to bootstrap a software company: from finding an idea, pre-selling the solution, to then building the software. Here’s his framework:
The Steps to Bootstrap a Software Company
- Find an idea
- Pre-sell a solution
- Build the software
- Ask for feedback
- Improve the software
Finding an Enterprise Software Idea
Choose a niche.
Before you get your idea you may want to back up because great ideas come from your potential clients — more on that next. Before you fall in love with your own idea you can find a niche, or an audience that you want to serve. This could be an industry you’re experienced in or one in which you have an interest. Brainstorm several options then go with the niche where you think you can find traction easiest. David recommends “boring” industries that aren’t tech-forward, such as dentistry, manufacturing, or shipping.
Get your idea from potential customers.
Once you know your target market, get to know them better. They know their problems best, so there’s no reason for you to guess what matters most to them. Talk to several business owners. Ask questions about their business processes and identify common opportunities.
By going straight to the source — your clients — this process also reduces the chance of you creating useless software or software that already exists. This helps you stand out and increases your odds of success.
David recommends asking questions “close to the money” — ones like, “If I can deliver you 10 more customers, how much is that worth? How much would you pay me out of that?”
The absolute worst thing you can do when bootstrapping a software company is investing a ton of time and money into building a product that no one wants.
You don’t actually need to have industry experience to bootstrap a software business.
If you are an outsider, position that as a strength. Business advancements in an industry can sometimes even be ported-over from another industry.
Outsider status also allows you to view the problem without the blinders of someone steeped in industry traditions and lingo. You start from “first principles,” as Elon Musk likes to say.
You don’t need to be passionate about the industry to bootstrap a software company.
At Grasshopper, David’s purpose was empowering entrepreneurs to succeed.
But Grasshopper is a telecom company, right? It’s a virtual phone system. Did he love the telecom industry? No. But he was passionate about the customer base they were working with on a daily basis. He took pleasure in providing a service which allowed business owners to project professionalism and stay connected with their customers. Also, he loved the people and environment of Grasshopper, the company he co-created.
You can find your own passion within the industry you enter. Choose the “why” behind what you do and it will drive you forward.
As the story goes, a bricklayer who sees that he is building a great cathedral will enjoy his work more than he or she who thinks they are just laying bricks.
Pre-Selling Your Software Solution
Once you have your idea, pre-sell it to the people you spoke with!
Unfortunately, this straightforward advice is often ignored.
You get all excited about your idea and the positive feedback you’ve received from potential customers and you want to build it right away.
From David’s experience, asking for money often surfaces the real pain points.
Don’t be afraid to ask for money. A “no” will save you from wasting time on useless software. A “yes” backed by cash is golden.
The absolute worst thing you can do when bootstrapping a software company is investing a ton of time and money into building a product that no one wants.
The other big reason aspiring entrepreneurs avoid pre-selling is related to mindset. If you’re not practiced at it, it’s uncomfortable asking people for money. They might reject you, and your subconscious does everything in its power to protect you from that. You’ll reason with something like:
- “I understand why other ideas need to be presold, but I know mine is exactly what my clients want.”
- “I have to get this built ASAP or a competitor might be first to market!”
- “No one is going to pay for vaporware. They need to see the real deal for them to be convinced.”
These retorts sound plausible, and therein lies their danger. Take David’s advice and never build the product before preselling.
Even the most successful entrepreneurs fail when they try to build something without adequate validation.
If you don’t presell, you’ll waste a lot of time and money. Seriously. Don’t skip this step.
For a deep dive into how to presell from a protégé of David Hauser’s, check out this interview with David Cristello.
The essential steps are
- Create a “PowerPoint mockup” of the software you plan to build
- Sell a beta launch for a steep discount to those you interviewed in step 1
- Build your MVP with the funds from step 2.
- Use the feedback you get to iterate and grow.
Developing Enterprise Software Without Coding
Do not bemoan the fact that you’re not a coder.
If you were, you probably would have skipped the first two steps and wasted a lot of your time anyway building another todo list app that didn’t solve a painful enough problem that people would pay for.
You get to do things a much smarter way.
Option 1: Find a technical cofounder
Hang out on sites like Indie Hackers and Hacker News to get to know folks who can code.
Option 2: Hire a development agency
Set up meetings with several development agencies. Share the wireframe you created to get the best pricing. Insider tip: share your wireframes before you presell to understand how much money you need to raise.
Ask for Feedback
You need to get feedback from your customers in order to make sales and improve your product.
This can be a challenge for engineering-types who fall in love with their own idea, build it for months, and assume that everyone will flock to it.
That’s not how it works.
Even if your ideal user is yourself, you likely won’t know the best path forward for your software. You’ll need to learn that from your other users. Counterintuitively, the best way to learn from your users is to “do things that don’t scale.” Paul Graham described it better than we ever could in his famous article with that title. If you’re at this stage, read it!
Your main points to remember:
- CEOs should invest a significant portion of their time on sales and marketing; at this stage, that means demoing the product, asking for feedback and taking it seriously.
- Doing things that don’t scale will feel slow and make you feel like you’re wasting time, but keep your faith. If hard work leads to success, this is where the hard work comes in.
- Treat the ability to do things that don’t scale as an advantage that differentiates you from large companies or clueless founders.
- No, you won’t always have to do things that don’t scale.
- Focus on your most engaged users over your (potentially) highest-paying ones
- An idea isn’t enough to bootstrap a business — the idea gives you direction and doing things that don’t scale move you forward
Words of wisdom from PG that deserve their own paragraph:
“Sometimes we advise founders of B2B startups to take over-engagement to an extreme, and to pick a single user and act as if they were consultants building something just for that one user. The initial user serves as the form for your mold; keep tweaking till you fit their needs perfectly, and you’ll usually find you’ve made something other users want too.”
Enough said.
Improve the Software
As you collect feedback, it’s vital that you incorporate the best bits into your product. As Elon Musk has said, the pace of innovation is all that matters in the long run.
Continual, rapid improvements will delight your customers and signal a well-cared-for product.
Bootstrapping is Simple, But Hard
Bootstrapping a software company boils down to these five steps. It’s simple, but takes unwavering focus. Concentrate on these actions, avoid all the shiny objects, and you stand a great shot of succeeding.
Want to start a business but don’t know where to begin? Check out Run With It, a podcast that brings you new business ideas from proven founders. Each week, you’ll hear a new idea and the exact steps you should take to get it going.
