
From Losing Money to a Profit Margin in 5 Months - joelrunyon
http://nathanbarry.com/profit/
======
3pt14159
From one of the linked articles:

> I’ve been a fan and customer of Freshbooks for years. They were self-funded
> for a very long time until recently raising a large round of funding when
> they had over 200 employees. I’m pretty sure Mike’s dealt with similar
> problems. Unfortunately I just missed a great opportunity to ask him about
> it.

Freshbooks was not self funded until they had over 200 employees. One of the
founders' parents put in money and a very prominent CEO of a major tech
company put in money and a very large financial company put in money and then
they hit 200 employees.

2nd Site Inc., the previous name, was self-funded / bootstrapped(ish). But
they weren't Freshbooks for very long without no longer qualifying by any
stretch of the imagination as "bootstrapped" or "self-funded".

~~~
nathanbarry
Ah, I didn't know that! For some reason I always thought of them as self-
funded until that funding round.

~~~
3pt14159
It isn't really your fault. The media generally took Mike's comments from
years back out of context and continued running them while they were no longer
true.

------
joelrunyon
> Outside cash is expensive.

I think this was my biggest takeaway from the article.

It's also really interesting to compare and contrast this with Buffer's very
open blog concerning profitability and growth -
[https://open.buffer.com/layoffs-and-moving-
forward/](https://open.buffer.com/layoffs-and-moving-forward/) . I believe
Buffer is a few years farther down the line than ConvertKit, but it's
interesting to note their decision making throughout the entire process.

~~~
wastedhours
Had exactly the same thought, especially when he mentioned about growing the
team to 20, lots of similarities, hopefully with some good lessons for
ConvertKit from Buffer's transparency.

------
kordless
> Silicon Valley Bank declining to talk to us about a line of credit since we
> aren’t VC backed—even though our profitability, cash on hand, and growth are
> far better than most VC backed startups.

Going from the VC world to bootstrap has been a night and day experience for
me at the new gig. It's surprising how hard it is to get credit lines
established, even if you are shedding cash.

~~~
nathanbarry
Yeah, now that we have a decent amount of cash on hand Wells Fargo and other
banks have offered to reconsider on smaller lines of credit ($100k).

~~~
cabinguy
Go to a small bank. I'm a bootstrapper and I have lunch every couple of months
with the owner/ceo of the bank we do business with. They have about 25
branches within their family (under 2 brands).

Small banks still do business the old fashioned way. Credit isn't an issue if
your cash flow supports it.

The best (banking) move we ever made was switching from a huge bank to a small
bank.

~~~
ChuckMcM
This is really solid advice. Small bankers are interested in actually
_banking_. I know that sounds silly but the larger "big name" banks are
answering to a different master (no I'm not sure who that is, but it certainly
isn't the small to medium business customer!)

~~~
amorphid
Just don't get too addicted to that line of credit. If the bank yoinks your
ability to borrow when cash is tight, you'll be hurting.

------
danaseverson
As another company that's part of the 'open financials' movement (or whatever
you want to call it), it's been amazing to witness ConvertKit's skyrocketing
growth over the past year. Great to now see the other side.

~~~
55555
I'm also very grateful for this blog post.

It doesn't seem fair to consider this a case of it taking 2 years to reach 3K
MRR, I don't think. I assume it was more like a 5 month stretch of work, then
a year mostly taken off, then another 5 month stretch with 50k invested.

I would like to hear Nathan confirm or deny this if he has time.

~~~
nathanbarry
I worked on it pretty consistently all along. Though there were a few months
in there where I only did 10-15 hours a week on ConvertKit.

------
tnorthcutt
Congratulations, Nathan – and thanks for continuing to be so transparent with
how you run your business. It's inspiring, instructive, and just plain
generous of you to share so much.

------
restalis
_" I totally understand the business reasons for their decision, but some days
it feels like the game is rigged against bootstrapped companies."_

I guess they grew to trust each other and the business system they developed.
In order to be trusted, outsiders require real evaluation, which is expensive
and thus - avoided most of the time. That is something that occurs in other
domains of activity too.

~~~
nathanbarry
A friend described it to me as AWS wanting to get a few multi-million dollar
per year accounts. By offering tiny amounts of credit to every YC startup,
they know they have a good shot of getting a couple of those each year.

Which totally makes sense.

------
20years
Your savings from the contract renegotiations is impressive.

Can you provide a little more insight on this "Then with our email
infrastructure provider we were able to switch to a managed service, saving
about $900 per month."

What email infrastructure did you have in place before and is the managed
service you are now using dedicated servers or something else?

~~~
nathanbarry
Those are mostly from asking for volume discounts. At that time we were
spending over $4,000/month, so it wasn't more than a 20% discount.

Now that we're at $10,000 per month I was able to get another $1,500 knocked
off.

------
ohitsdom
Sucks that Amazon doesn't recognize non-VC startups. This is why I love
Bizspark- great benefits and easy to join. It was a big factor in me choosing
Azure to build my side business on.

------
loceng
Look into Indie.vc as a funding vehicle - it could be perfect for you right
now. From my understanding it is a loan that converts into equity if you take
VC investment in the future, unless you've paid it off. It's an experiment
though it looks like it's going well as they're increasing the max loan sizes.

------
z3t4
It would be interesting to see how the first six months worked out. Did you
work on it full time? Do/Did you use the product yourself? (dogfooding). When
did you get your first user. What was your marketing strategy.

------
programminggeek
What I never fully understand is why not focus on being profitable on an
ongoing basis instead of a profitable business being an "event". Seems to me
the basic purpose of business is to make a profit, not to hire people and
"grow"(sans profit).

~~~
rtpg
If you're trying to sell software to mid-sized businesses, it can be hard to
be profitable.

If you want a big market, you need to implement a lot of features. That
involves many many people-hours of development.

You can specialise into one market and not need as many features, but then
your market is smaller, and you're high-end.

If you're selling things that cost $50-$100 a month, and you're at 10
employees, you need a pretty big amount of businesses that need onboarding to
reach profitability. And it's hard to convince people to use your software! It
takes a time (and of course a money) investment.

But the counterpoint is after you hit profitability you'll probably stick to
it for a while. if your company is at 4-digit LTVs for customers, that's
basically like selling cars.

But in order to have your "cars" to sell you need to build a lot of things,
and sell to a lot of people.

Thought experiment: Your product costs $50/month. Let's say you're the only
employee. Do you think you could manage selling 100 subscriptions to reach
"decent" profitability by yourself?

~~~
mbesto
> If you're trying to sell software to mid-sized businesses, it can be hard to
> be profitable.

This is not true whatsoever. I've executed diligence services on more than 15
software companies in the last year alone. Many of these are very profitable
(80% gross margin and 30% EBITDA) and growing at steady 10-20% rates....you
just don't read about them on TechCrunch because they aren't perceived as
unicorns.

~~~
rtpg
Sorry, I wasn't clear.

Very easy to be profitable in the mid-to-long-term. Things like Drip, WP
Engine, And here, ConvertKit all prove this. In theory you don't need 10
years. I was talking more about the initial years.

I'm wondering though, how many of those software companies were profitable in
the first year? Usually the fastest way to get to profitability is to be very
unprofitable at first to build up your base, and then rely on (hate the word
but) virality and scale to cross the threshhold.

But totally agree that it's very feasible to build a very profitable business
in less than the 8 years or so it took FB.

