42 ms·

From Losing Money to a Profit Margin in 5 Months

252 points by joelrunyon 10y ago

restalis 10y ago
"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.
- cheriot 10y ago
  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.
- nathanbarry 10y ago
  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.
joelrunyon 10y ago
> 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 10y ago
  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.
3pt14159 10y ago
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 10y ago
  Ah, I didn't know that! For some reason I always thought of them as self-funded until that funding round.
  - 3pt14159 10y ago
    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.
z3t4 10y ago
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.
tnorthcutt 10y ago
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.
danaseverson 10y ago
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 10y ago
  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 10y ago
    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.
programminggeek 10y ago
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).
- joelrunyon 10y ago
  That was what the whole post was about...
  - programminggeek 10y ago
    Except they totally didn't focus on being profitable until recently. They could have done this a year ago. Seriously.
    - nathanbarry 10y ago
      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).
- rtpg 10y ago
  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?
kordless 10y ago
> 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 10y ago
  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).
  - deleted 10y ago
    [deleted]
  - cabinguy 10y ago
    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.
    - soundlab 10y ago
      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.
    - ChuckMcM 10y ago
      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!)
20years 10y ago
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 10y ago
  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.
loceng 10y ago
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.
ohitsdom 10y ago
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.

252 points by joelrunyon 10y ago

"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.

cheriot 10y ago
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.
nathanbarry 10y ago
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.

joelrunyon 10y ago

> 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 10y ago
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.

3pt14159 10y ago

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 10y ago
Ah, I didn't know that! For some reason I always thought of them as self-funded until that funding round.
- 3pt14159 10y ago
  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.

z3t4 10y ago

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.

tnorthcutt 10y ago

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.

danaseverson 10y ago

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 10y ago
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 10y ago
  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.

programminggeek 10y ago

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).

joelrunyon 10y ago
That was what the whole post was about...
- programminggeek 10y ago
  Except they totally didn't focus on being profitable until recently. They could have done this a year ago. Seriously.
  - nathanbarry 10y ago
    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).
rtpg 10y ago
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?

kordless 10y ago

> 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 10y ago
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).
- deleted 10y ago
  [deleted]
- cabinguy 10y ago
  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.
  - soundlab 10y ago
    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.
  - ChuckMcM 10y ago
    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!)

20years 10y ago

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 10y ago
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.

loceng 10y ago

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.

ohitsdom 10y ago

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.