> 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".
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.
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/ . 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.
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.
> 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.
The thing is that a bank is a "very staid institution"
A bank only understands an ordinary business with ordinary assets that can be liquidated if stuff goes, as well as an ordinary niche in a well-known sort of market.
How much money you're making now is an impressive statistic to you. How long you have been making a steady amount is the figure a bank you be most concerned with but even, them knowing why you've made this money is important since there are lots of ways to seem like you are getting money.
A bank doesn't have the resources to research the particularities of an online business - or probably any business that doesn't have a significant history of making money. Really, banks don't research at all, they simply follow procedures, which is how they can operate on a mass scale.
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.
Fellow self-funded biz here, definitely agree with this. Go with a small local/regional bank. Start small and grow with the LOC. Depending on how involved the loan officer group is, you may get some great CFO-type advise / dashboard review out of it. Even if they're not typically doing hot SaaS businesses, they know the fundamentals and growth stages of small businesses inside and out, regardless of industry.
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!)
They lend based on the 5 C's, anything else is considered speculative. Cash flow is the starting point and is nice, but even in college I was approved for a credit line from Chase... Up to about 85% of the value of our single asset, which they required us to pledge as collateral. The asset was a fairly popular model of a bus :)
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.
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.
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.
"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.
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.
Especially for AWS, it could be old fashioned customer segmentation. They want to give free credits to companies that are going to have increasing infrastructure costs and money to throw at it.
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?
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.
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.
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.
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).
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?
> 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?
Don't forget support! You not only have to manage implementing features and selling your product, you also need to fix bugs and help customers who may not know how to do simple things.
> 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.
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.
Solely because of the time value of money. It might seem great to have profit now, but you really want to maximize your net present value[0]. Focusing on growth early is often the way to do it.
I'm not sure we could have. A year ago we had $10,000/month in revenue and more than that in expenses. It's really hard to be profitable before you have meaningful revenue.
We were profitable from July to December last year, but only a couple thousand each month. It felt like we needed to keep hiring and spending just to stay above water with supporting growth.
January is the only month in the last year that we weren't profitable (though most months were only $1-3k in profit).
> 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".