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Ten Years of Bootstrapping: Lessons Learned (davegooden.com)
339 points by cabinguy on Sept 5, 2013 | hide | past | web | favorite | 70 comments

TEN years of bootstrapping. This just got removed from the title for some reason. Good thing Gabriel García Márquez didn't have the same editor.

Wow. This is interesting on its own, as others mentioned, but it's really interesting to me personally, as the co-founder of a bootstrapped local real estate referral company.

One thing I didn't see mentioned much was the 2008 housing crisis, which was disastrous for us. We were in acquisition talks in late 2007 which were suddenly canceled, seemingly in anticipation of the horrors to come. Our revenues were devastated and I went back to consulting for several years. Basically, our site was on autopilot until January of this year, when the real estate market showed signs of long-term strength and we started our current development drive.

We're still bootstrapping off consulting revenue, so it hasn't exactly been fast-paced, sadly. Let me say, still running a business you started after Startup School 2005 gives you a much different perspective than the usual startup narrative. When you bootstrap, you can press pause instead of eject. You're not on fire, so you don't turn to ashes the instant you run out of fuel, but you sure do have to keep smoldering.

For those who aren't familiar, I would describe real estate startups as being similar to a closed game of chess. Lots of long-term possibilities and plans, but not a lot of good moves available. The market is sharded, guarded, scattered and smothered.

We haven't explored (or had an opportunity for) an agency conversion, so it's really interesting to read this account, thanks. Instead, we are trying to rework our regional site into a niche national site. I'll share how it goes, hopefully before our company's own tenth anniversary. Congratulations and thanks again for writing this history.

I think the author is assuming that the readers know exactly what happened in 2008. The crisis is referred to implicitly here: "Markets that were closing 20 referred deals per year in 2006 turned into 1 or 2 closed deals by 2009."

Oh whoops, he does say "as the housing market collapsed" there. Thanks for pointing that out. I guess I skipped a line because the text was all the same color.

It does seem like it wasn't as bad for them, seemingly because this was in a non-bootstrapped phase. So clearly, that's a classic example of when having investors gives your company much-needed shock absorbers.

I guess I skipped a line because the text was all the same color

I see what you did there. My fave HN comments are the HN-referential ones.

> the real estate market showed signs of long-term strength and we started our current development drive.

It's not long-term strength, by the way. The US economy[1] is in shambles, and ready to implode any moment. What you're seeing in the real estate market is a new bubble. The buyers are investors, and the current craze started when people thought the bottom was in. The zero-interest rate policy "helps" too.

Just thought you might want to know. Be careful.

[1] Not only the US, but pretty much all Western economies (+Japan) are ready to implode.

Sigh, I'll bite. Tired of cable news quality comments presenting very debatable opinions as fact, especially without any concrete arguments, evidence, sources or otherwise real facts. On top of that being tangential to the post. Here is just one indicator that points in the opposite direction of your claims.


The U6 unemployment rate is more indicative of the current state of the economy: http://research.stlouisfed.org/fred2/series/U6RATE

GDP revised down dramatically in Q1. Q2 revised up to 2.5% on inventory growth and export growth very one-offish events. Q2 consumption part of GDP lower that Q1. With Fed induced spike in interest rates, mortgage apps are way down and housing sales figures are cooling fast. Emerging market currencies are being routed. Europe continues to languish. Employment is a lagging indicator.

> It's not long-term strength, by the way. The US economy[1] is in shambles, and ready to implode any moment.

So that's my gut feel as well, but I don't have a good handle on the economic & market information as to why that might be so. Can you expand?

> So that's my gut feel as well, but I don't have a good handle on the economic & market information as to why that might be so.

Welcome to Reality. The mainstream media is just misleading / propagandizing you - if you want the truth, you'll have to turn to "alternative" sources.

> Can you expand?

Peter can: http://www.youtube.com/watch?feature=player_detailpage&v=Rpf...

Here's another good source: http://globaleconomicanalysis.blogspot.com/

Wouldn't go as far to say as the US will implode, but Fed QE has greatly distorted financial and real estate markets. The Fed has pumped over $3 trillion into the bond markets since the financial crisis and are currently buying at a pace of $1.02 trillion per year. Since the US govt has never done this before, no one knows the consequences of these actions. There are dissenters within the Fed itself over QE, notably Fisher, and he has recently talked about this, um, predicament. http://www.dallasfed.org/news/speeches/fisher/2013/fs130805....

Wow...Lesson #1 is SOOO on-point. I think that is what is missing from the free-to-paid conversion narrative.

The only people that will convert from free to paid is those that have received value. SaaS apps need to start paying attention to the 'value indicators', and provide an upgrade path on that - rather than a time limit.

This is one of the reasons that companies that charge per transaction are so awesome - because the only time you pay, is when you make money (which is the implicit value there).

This concept needs to be blown into a blog post - I just may do it - because this is so important and so easy to miss.

Your conversion rate may suck, not because your product sucks....but because your internal value metrics suck. You aren't measuring the right thing.

This is interesting article. I was the initial and primary developer of another lake realty discovery site, that used some NLP to process MLS feeds and discover lake based properties. Lakeplace.com was the main competitor and our goal was to make sure that we have more accurate listings and more listings then Lakeplace. It's nice hear the lakeplace side of story.

Author here. So in your case, we were "the enemy" who's head you wanted on a stick. Great. ;)

Question for you in regards to your 3phase goal setting.

What does that look like on day to day basis.

How do you make all three phases work together.

Great READ!

Pretty much yes.

Great post. Going to add this to my list of ones to pass around to people who think killing and crushing it gets things done. Learning to survive and then thrive is just as important.

How many entrepreneurs are willing to commit up to 10 years to find their path? Supporting this is what we need more of, and not as much echo chambers.

To the author: write more. Experience over time speaks volumes.

Do you actually have a list of similar stories? Could you share that list?

I think most businesses that aren't TechCrunch headlines follow similar paths and time lines. Today everything seems to be MVP and pivot, which really isn't accurate for long-term Entrepreneurs/business owners.

I think MVP and pivoting fits Bootstrapping just fine -- adding the mix of doing an idea that lets you charge from day 1 to finance it over the long term is the key difference in my mind.

Diigo tells me I have 97, specifically to do with bootstrapping.

Totally planning on sharing the list in some sort of resource but if you want, I can send you a link to get your input on it's value -- email me :)

Good story, great lessons for entrepreneurship.

The big thing I couldn't help noticing was how inefficient the real estate industry is. There's so much regulations and people taking a huge slice out of the consumers pocket.

Even the notion of ownership by consumers is at odds with modern times, after all, we hackers are finding it too onerous to even maintain physical servers and off-loading that to the cloud, while most people are still plopping down huge sums of money and mortgages to lay claim to small patches of land, in a clumsy procedure where we fork over almost a tenth of that large sum to people who provide little value (real estate agents, lawyers, city fees).

PG should put out a call to kill real estate like he did with hollywood. There's huge profits for hackers if we wrestle it away from the current players (bank, agent, lawyers), and a lot of good for consumers.

AirBnb's a good start, further steps might be to unify it with Uber, Shopify, SpoonRocket, Exec, and Mechanical Turk and reduce consumers experience down to a few button presses. There's a big opportunity for a company to offer complete life management in an app.

As someone who has been in the RE industry for 6+ years now (loan officer and now processing):

> how inefficient the real estate industry is. There's so much regulations

My biggest time consumer are boilerplate disclosures and astonishing conditions, which have become nightmarish since the housing crisis. That 10 day delay in closing? Someone mis-dated and now we have to wait out Dodd-Frank before proceeding. That 41 page package of forms you need to sign and return before we can even begin underwriting? Sorry, required. The $150 you received from your grandmother for your birthday? Yeah, we're going to need a gift letter. I wish I was being facetious.

> people taking a huge slice out of the consumers pocket

Unfortunately, RE and mortgages are just high-touch industries. People need to be re-assured that someone is working on their behalf. Look what happens when PayPal shuts down an account and gives a generic response? Or Google does the same when blocking a Gmail or AdSense account? People have a complete meltdown. Imagine if that is someone's home purchase (doubly worse for first time homebuyers), and they receive an email stating "Sorry, your loan was denied" with a link to "File an appeal". The ones I work for receive calls all day every day from buyers and agents wanting updates and peppering with questions and concerns.

I automate as much as I can in my workflow (thank you Python and C#) and have considered outsourcing it, but it's a job that is 95% edge cases and one-off situations. The best targets for efficiency improvement are lenders' and RE agents' internal procedures, but that's another discussion.

Thanks for that insider perspective, that will be useful to hackers attacking the space.

An approach would be completely abstract the process. I believe the ownership model is a completely broken process that's pushed by the nefarious banks (It's easy for them to just conjure up money from thin air and indebt us for 30 years - reserve banking. This is the root cause for the relentlessly growing, but almost entirely useless, home ownership industry).

Hotel 2.0 revolution is needed. Airbnb, but with professional, heavily computerized, management of much larger property portfolios.

I have a personal interest in people in non-tech professions who automate their own workflows.

Can you expand on what code you wrote, here or to my nick@gmail?

I think cutting out the agents and lawyers would be pretty dangerous if you were not able to solve the huge problems for consumers that make them necessary. I am about to close on a house next week and would be completely lost without a quality realtor. There is a ton of regulation and risk that make buying a home extremely difficult, especially for first time home buyers. A good realtor does a lot more than just drive you around and collect a check. The same goes for attorneys. Neither provide a whole lot of direct value, but they both mitigate loads of risk.

I closed on a house 6 months ago. My realtor was only good for dealing with problems he and the seller's agent created. The problem I found was that no one in the process can be trusted. It doesn't matter if it's a bad deal (or worse) for seller or buyer, they get paid to close.

Excellent post.

Entrepreneurship is hard. You, the entrepreneur, can easily become your own worst enemy. In many ways it is a mental game far more so than anything else. The tech scene sometimes highlights the "built it over a weekend" stories. It is easy for the uninitiated to get a feeling that they, too, ought to be able to spin something up over a weekend or a few days and have success. The truth is that overwhelming majority of entrepreneurial ventures look far more like what Dave Gooden describes than the "look Ma, I built a business in seven days" crowd.

The other element of note here is that your business doesn't have to be sexy in order to succeed. There are plenty of people out there doing very, very well, with businesses that lots of techies would not even think of approaching.

And, of course, a big exit is not the only definition of success.

His notes at the end do a good job of distilling his lessons down into memorable chunks. #4 seems especially relevant to this audience:

Know your customer. Your customer is the person who gives you money in exchange for your product or service. It’s easier than you might think to get confused about this one.

I really enjoyed "There are riches in niches."

It doesn't take millions of dollars in revenue to have a wildly successful small business. An incremental $250,000 in annual revenue doesn't move the needle in a 50 person shop, much less a public company. But if you're a 2 person shop filling a niche, your year just became awesome.

There are a ton of profitable niches in software that people need filled. Markets that aren't big enough for a huge company to bother with. Markets that are huge opportunities for a few dudes to make something awesome to serve a dedicated base of customers.

And don't forget that even though it's a niche and you probably have some awesome skills in the niche that are needed for running the business, BUT if you structure it correctly, you are also building up equity that can be sold if you decide to try other things or simply want to cash out.

For a recurring revenue net of $250k, it's not unreasonable value it at $750k to $1.25 mil depending on how likely you are to keep that cashflow going and how much ongoing investment is needed. (DISCLAIMER: this is napkin math, nothing more.) Although, after tax that doesn't sound like all that much, it is life-changing for most people. If you can for example pay off your mortgage and other debts, your lifestyle changes overnight.

When I read your comment the first time, I read "Riches in Riches"

This is equally true. Without sales, there is no money. Without money, no life or growth. Your point about a 2 person shop getting $250k is equally true.

Of course, many startups would take $250k and immediately spend it on becoming a bigger shop.

FWIW, I am writing a book about how to find and test such niches: http://www.howtofindsaasideas.com

(Apologies for the terrible landing page).

Great article and advice at the end- the author correctly identifies that perseverance in the face of uncertain market conditions and lots of "no's" from investors or other so-called experts is a key quality for entrepreneurs that have the guts to stick it out over the long haul.

The story also conveys about how important it is to put in TIME in a marketplace. Everyone wants to quickly flip for the big exit but the real value comes over the long and arduous process of iterating, growing, and especially uncovering unmet customer needs regardless of if it's product / service

> In 2006, at the height of the real estate boom, some of our 600+ real estate advertisers were closing 6-8 transactions per month that could be directly attributed to LakePlace.com leads. If you multiply that number out, the top agents using our website were clearing $30k+ per month for a $59/mo investment.

This statement was interesting as it gives the reason for the first big pivot. I have to ask though, why didn't you just change the pricing model and enforce a few limits to capture more from these transactions?

Very good read. I like his approach and how his company has evolved over the years from one thing to the next.

We went through similar transitions, starting as a mobile app shop, getting more into innovative web apps powered by our own stack and now as an ad-tech company with our own proprietary DSP.

Quite a transition and a lot of what he said rings true...and I wonder if the experiences he had ahead of where we are will occur for us as well.

Thanks for the writeup. I live in the area you serve and grew up at a family resort, so I saw your marketing efforts play out first hand over the past decade. Very interesting and insightful to hear the back story of your company.

I happen to work just up the road from your Crosslake office in the Liss building. Stop in if you're ever passing though.

Wow. We'll have to grab a beer the next time I'm in town.

I have never understood the huge commissions Realtors make! It has never made sense to me. I would love a Realtor to explain their expenses on the sale of a 1 million dollar house.

Showing it to 200 people before one actually agrees to buy it and makes it through the loan approval process for starters.

Imagine you're a contractor and had to spend 95% of your time pitching and doing spec work. What would your "hourly" rate be?

Irrelevant. How valuable is the work you do? You could go around 'pitching' your window washing services and land 5 out of 100 potential clients but you still aren't getting more than a few bucks per wash.

Totally relevant since all that extra time needs to be paid for or people wouldn't go into the business.

Irrelevant, since people are in window washing services despite the low pay.

Reasons for huge commissions:

1. Restricted field: you need a license, and in general these kinds of licenses are difficult enough to get to create artificial scarcity.

-> seek employment in such a field, if you think you can get in.

2. High stakes: A lot of money is moved around so it doesn't hurt so bad to give an important service provider a large chunk.

-> seek work where the money is. -> when dealing with Realtors etc., try and negotiate over the price anyway, just out of principle.

3. There is probably more to this profession than is visible from the outside. I don't know what, but usually people underestimate the complexities of professions they don't know much about.

-> ...? Maybe talk to Realtors and find out what it is like.

I'm just showing why realtors aren't as greedy as you think. The reason they get away with charging that much is because of the likelihood of being royally screwed when one buys a house.

There's a good section in freakonomics which casts light on realtors. About how they don't try that hard.

Getting an extra $10000 on your house won't earn them much more commission but makes a lot of difference to the seller. If I understand it correctly they're more likely to be on the buyer's side than the seller's.

It makes more sense to them to get sellers to accept the first offer so they can move on to the next sale.

For every buyer/seller that knows what they want and how much they want pay/get, there are hundreds that have no understanding of the market or homeownership and need serious handholding. I went to a realtor with the house I wanted and my opening offer, so he definitely didn't earn his commission in my case, but my impression is that this almost never happens.

At what point are you no longer "bootstrapping."? This seems more like 1 year of bootstrapping.

Still a good read. I can only imagine the acrobatics OP's stomach was doing when their newly-found CEO backed out.

On a broad level, "bootstrapping" simply means building and growing a business without significant external investment. In other words, the business is entirely self-sustaining and self-growing.

Bootstrapping doesn't mean getting by on ramen and futons, per se, although that's strongly implied in the early stages. Fiscal self-discipline is a nice-to-have in any startup, but it's the difference between life or death at a bootstrapped startup.

Achieving a certain level of profitability, and reinvesting those profits in the business, is still bootstrapping. Walmart, for instance, was bootstrapped until the day it listed on the NYSE.

In my mind the founders could have really sped up the process by figuring out something that added new or even true value to their users. By going the route of simply aggregating listing info and posting information easily accessible on other sites, they relegated themselves to being just another real estate listing website.

Their growth was then limited to how many phone calls and connections they make - in other words, no one was beating down their doors to list on their site and only after years of growing this way did they command some semblance of a home buyer audience that made it worth while for the sellers.

The model these guys implemented is tried and tired and brings nothing new to the table. That's why they resorted to the traditional broker model in the end.

This is a really interesting story. It seems like the lead-gen sales were probably being under-reported, since they went from 2 to 53 sales in the same market. I am surprised that lead-gen in the real estate market is not easier to audit.

Dave and Cam - you go!! I launched my startup in ecommerce/payments and can totally relate. Entrepreneurship is tough but the joy of doing it and success at the end is totally worth it

#9, Pick a fight, is one of the best sales mindsets I've ever read. So true when you're scrapping and bootstrapping. Thank you for sharing your story! It's especially illuminating on what a successful business trajectory is away from the usual startup hype narrative. I wish more founders would tell these honest stories.

I'm a bit disappointed in the story. It seems to me that businesses of this type represent an opportunity to disrupt the real estate industry, and it's sad to see them end up joining the industry.

The outcome of them trying to build a central place to look at listings turns into them becoming what they were trying to work around, and end up still not having a central place to look at listings.

Interesting and useful article, thanks. If the original author turns up, I'd be curious to know how you felt about their being two of you in it together and not just a single co-founder.

Author here. I wouldn't have made it through without my co-founder. A co-founder is great support during the bad times...and added responsibility all the time. If I don't give it 100% every day, his family feels it, and vice versa.

Some people can do it on their own, but our partnership/friendship works well for us.

I really liked the part about everything scaling. I hate when people say, "It wouldn't have scaled." It would have. You just weren't thinking of it in the right way.

Is he saying for the rentals that they entered rental properties onto their site without the lister's permission, and then contacted the lister to offer a paid version?

I think rather that he offered to do the data entry, and then later on once listing agents started to get hits through his service, started to charge them a fee. I may have misunderstood.

You're correct. Sorry for any confusion.

Thanks for clarifying. I'm still a bit confused and since I've thought of doing this same thing at a potential startup I'd love to know the details.

So you searched for lake listings on other sites, contacted the lister and offered to add them into your system? What kind of response rate did you get for that? I'd imagine you wouldn't hear back from most of them?

How about adding them by default and then contacting them and saying "I've add your listing to our site so you can have an idea of how it works. If you choose not to join, let me know and I'll delete it."

Ouch, no need for a downvote. I'm just curious if that's a useful way to get customers, or do they get offended?

Lesson: traditional brokerage selling houses turns out to be just as profitable as they were.

enjoyed the read

Not really a direct response to you, just a remark, but I don't know why people downvote this type of comments. "enjoyed the read" is real feedback for the writer.

It's redundant. An upvote says the same thing. Feedback needs substance, and without substance, it's just noise. People come here specifically because there isn't much noise. It all comes down to respect. Respect my time by providing insight, value, knowledge, or a unique perspective, and I'll do the same.

I agree it was probably redundant; however, I was the first person other than OP to upvote the post and comment on it. I thought it was a good read, didn't want it to get buried, so upvoted and left a brief comment. Will refrain from doing the commenting next time.

An upvote might mean "This is important", or "This has good lessons", though, and specifically saying that you enjoyed reading it, or that it was written well, is a slightly different compliment.

There is no value in a thoughtless "enjoyed reading" or "nice read." If that's all someone has to say, I would recommend waiting until they have more to say. If they want to spend 5 minutes explaining their thought process and why they enjoyed it, that's a different story, that's something I'm interested in hearing.

Personally, I enjoyed the post because it has a chronological order, specific names, dates, and numbers. Dave's transparency is refreshing and gives me confidence in his opinion. As for readability, it could use more of a contrast of the text and background, but I appreciated the increased line-height, which helped me to scan the article quickly.

Anyone can type a couple of words, this is the internet after all, but that's not why people come here.

Spambot writes love to use comments that contain nothing but a fully content-free phrase like "Great read!". These comments can be real feedback if written sincerely by an actual human, but their content gives you no clue whether they are. I've ended up thinking of most comments that could be posted verbatim for just about any story as mindless robot noise.

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