The ideal bootstrapped startup design Talk

I came about a really inspiring video from Jason Cohen about designing startups with low investment that suit lone entrepreneurs best. Quite insightful, I figured I’d share it here.

Below are my takes on the video, important bits to me and key takeaways. I hope I’m not getting anything wrong but either way these are my thoughts, not Jason Cohen’s.

A self-funded company is a cash machine, meaning a predictable way you’re going to make money every month.

Huge focus on recurring revenue, ability to be sure you have a stable and predictable business and stream of revenue.

Revenue models

One-offs (selling a product once to many customers) never get easier. Even when the business is working there is no telling if the current or next month will be as good as the previous and whether you’ll meet the end. Too much stress.

Recurring revenue is the only way to know I’ll have money next month.

The first goal is to get 150 Customers : 50 through scratching and clawing, 25 through guest-post, social media, 75 through basic marketing. If you can’t do that, over the course of a few months, it’s hard to believe the company could ever actually work and you need to go back to the drawing board and change the product or simply start over with something new.

If you can get to 150, surely that’s not the ceiling, so 150 becomes 250 and so on.

Cash is king

You have to use the annual pre-pay trick. You have to.

Let’s say $300 gets you $50/month then $60k gets you $10k/month. If you offer 2 months free for annual sign up, $60k gets you $100k immediately. $40k profit now is better than $60k profit over a year.

With annual pre-pay, it’s actually possible to get unlimited marketing budget because the profit is immediate, even though a little lower than what it could have been over the course of a year.

Always have a “Business” plan, some companies will just pick this one, whatever the difference is with the less expensive other plans.

Charge for features that cost nothing, such as top priority support. You get paid more just to change the order in which tickets appear in your user support software, which you would have taken care of anyway.

I hate free trials.

Free trial is money you’re never charging if people stay, which they should, and if they don’t you have bigger problems than whether or not to have free trials.

I don’t like “picking up pennies” models.

Picking up pennies means companies like Kickstarter and such where the business takes a percentage of the transfers happening on the platform. Kickstarter lost money while they processed millions of dollars and didn’t get enough so they had to get some more funding.

Market models

Some markets are intrinsically difficult to build a cash machine in and some markets are intrinsically easier to build a cash machine in.

B2B. Absolutely never sell to consumers. People are the worst clients, sell to businesses, period.

Avoid markets in which the pain or needs of your target customers is temporary (weddings, events, one-time code issue, so on). It’s really hard to be in front of the right client at the right time and even if you do, those people might not experience the same need until later or ever.

Ideal markets are naturally recurring, either because the costs are recurring (such has PaaS, hosting), anything linked to financial cycles (things that have to be done weekly monthly yearly quarterly whatever), ever changing pain (SEO, competitive analysis), support.

It’s important that real-time isn’t a requirement, sure the faster any kind of issue is fixed the better but it’s better if you can wait for some issue to be fixed and it’s not vital to your business or your consumers. Decision-support, Finance, Project Management, Content.

Marketplaces are very difficult to build because you have to get the sellers and you have to get the buyers and you need both to grow somewhat at the same pace which is difficult. It’s awesome if it works because it’s really difficult for anyone to compete with you if you have both but it’s really hard when bootstrapping.

It’s important that the product can, at some point, be finished. It’s a bad idea to be in a market where the only way to keep making money if to compete on features.

After-markets are good. Using an existing eco-system and adding your own product on top of it. It’s easy to find the clients (you know precisely who they are), it’s easy to know how big the market is, you can get in touch with the company behind the eco-system and they’re likely to be able to help you communicate with your target audience.

You need to be in a big market. Validated markets are safer, it’s okay if there are multiple solutions already and you don’t need to be the number one to make enough money out of it yourself.

Acquisition model

I do not like social media to acquire customers

It’s hard to measure the cost to acquire customers and is hard to turn into a predictable model that predictably turns $1 investment in $4 profit.

Acquisition needs to be data-driven, knowing how much you get per visit, how much a customer is worth over its life-time when signing up, which then leads to conversion rate optimization to make most of the cost of driving people to your website.

Failure because of success

Growing can become the hard part when your company has to grow to support your success.

When reaching that point, you can sell your company and move to something else. When possible you can also stop marketing to let current client give you money and not reach new ones. Raise prices so you drive more customers away, which changes the clientele and may change the business and company themselves.

Conclusion

A predictable acquisition of recurring revenue with annual prepay in a good market creates a cash machine.

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