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If you build a business that makes 500k a year, which can be done with 30-50 customers for saas selling for 10-15k, you can sell the business and retire. Even a

If you build a business that makes 500k a year, which can be done with 30-50 customers for saas selling for 10-15k, you can sell the business and retire. Even at 250k a year, you have an asset that could change your financial life for good. If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing. You have to shoot for the moon to get massive ARR, that very very few companies ever hit. It’s really about the level of success needed to have a financial windfall, and bootstrapping is way lower for that.

gavinhoward 3y ago
I'm a business owner currently doing what the parent says to do, and the parent is exactly correct. I want a business that can support my wife and me; 500k is my target, and it would be a great situation for us because I would have a great work/life balance (based on how much time I spend right now). But if I took money, the investors would clamor for more, and the stress would probably kill me.
- ejlxsh 3y ago
  What are you doing to try hit that 500k target? Running a SaaS, consulting, etc?
  - gavinhoward 3y ago
    I am giving away my code as FOSS, so I'm doing the following, in this order: 1. Charging for bug reports or feature requests. 2. Support. (And I have great examples of public support as marketing.) 3. Consulting. (This would be exclusively to help companies trying to use my software, but unlike support, it would be about writing the stuff that uses my software and ensuring the client understands it so that I could do a handoff. The result would be carefully commented and documented code, probably just short of literate programming [1].) 4. SaaS. (If I did this, the server might not be FOSS, but the client would be, and it would use encryption.) [1]: https://en.wikipedia.org/wiki/Literate_programming https://en.wikipedia.org/wiki/Literate_programming
    - jjice 3y ago
      Can you say what the software is? I do like the model you have laid out.
      - gavinhoward 3y ago
        It depends on what companies have interest in. Below is a list of the ideas I have. * A build system that is also a package manager like Nix, but usable by mere mortals. Also, it will have an easy way to restrict what builds can do. This one is almost done (well, usable for early adopters, not done); my HN annoucement should be in about three months. * A VCS that, like Fossil, is self-contained with a bug tracker and everything. It will be able to handle binary assets and HUGE files. It will also be easy-to-use. (I'm going to be testing it on my non-technical wife without telling her how. Once she can use it naturally, I'll probably have a good model.)
        myaccountonhn 3y ago
        Is the vcs offline first?
        gavinhoward 3y ago
        I'm not sure what you mean by "offline first." Can you elaborate? (I've heard people use that term in multiple ways.)
        myaccountonhn 3y ago
        With Fossil I pull in the full issue tracker and forum and have it stored locally, if I'm offline I can then make my changes, comments etc. and when I'm online it all syncs.
        gavinhoward 3y ago
        Yes, it will be offline like that.
- bko 3y ago
  Good luck, but I don't know many business owners who have a great work/life balance. I don't think it ever gets easier really. It's like writing software. It's never "complete". 500k revenue doesn't leave a lot of room for outsourcing work
  - gavinhoward 3y ago
    You are absolutely right. The key for me is to reduce tech debt before I release. If I'm not dealing with tech debt, the actual programming shrinks, and I have time to deal with the other stuff.
    - giantg2 3y ago
      "The key for me is to reduce tech debt before I release. If I'm not dealing with tech debt, the actual programming shrinks, and I have time to deal with the other stuff." This seems like everyone's dream and nobody's reality. Good luck.
      - gavinhoward 3y ago
        Thank you! But I've already done it. I have been constantly refactoring over the three years I've been working on it. My tech debt is minimal at this moment.
        giantg2 3y ago
        Yes, but my point is that as you continue to code you are likely to encounter more tech debt, especially as you get more customers and as you need to make dependency version upgrades to address security vulnerabilities. A world without tech debt is a dream.
        gavinhoward 3y ago
        Yes, that's fair. Sorry for misunderstanding at first.
    - 3y ago
- DanielHB 3y ago
  You also took a bigger risk, either in your own money to support your product to profitability or in missed opportunity from a steady pay check (although the latter is also true to varying extents in VC backed companies) Although I am curious _how much_ risk did you take, could you elaborate?
  - gavinhoward 3y ago
    My wife is the breadwinner right now, so no missed opportunity from a steady paycheck. It did take me longer to get to this point, though (about three years once I got serious). I will have spent in the very low 5 digits for lawyers, to comb through my new FOSS licenses ([1], and we're still working on that, so they are not ready yet!) and to set up standard contracts. Beyond that, less than 5 digits for two beefy computers over that time and longer. [1]: https://yzena.com/licenses/ https://yzena.com/licenses/
    - lfowles 3y ago
      Why bespoke licenses? Won't that make customers more wary as they have to clear the licenses through their legal too?
      - gavinhoward 3y ago
        Yes, but these licenses have far more protection for me than regular licenses. I'm working with a lawyer to ensure that these licenses are void if the user expects me to have any duty, like the Bitcoin lawsuits ([1], see comments at [2]) or the EU's upcoming Cybersecurity Resilience Act that might require me to be audited or worse [3], which I can't afford. (I do want an audit when I can afford it, though.) [1]: https://laanwj.github.io/2023/02/06/regrets.html https://laanwj.github.io/2023/02/06/regrets.html [2]: https://news.ycombinator.com/item?id=34684715 https://news.ycombinator.com/item?id=34684715 [3]: https://blog.opensource.org/what-is-the-cyber-resilience-act-and-why-its-important-for-open-source/ https://blog.opensource.org/what-is-the-cyber-resilience-act...
        3y ago
- gjmacd 3y ago
  This is otherwise known as a "lifestyle business". It's the north star for most people and should be but it's not easy. If you build a $500K a year SaaS business and have very little overhead, you can probably take $200K of that revenue as income and have a good work-life balance that's very comfortable. I know, I was able to do this without taking VC and bootstrapping 100% on credit cards and my own cash. However, there's an inflection point that happens with this sort of business IF you're not careful -- or it becomes more successful / or becomes a death spiral. If we're speaking of a true SaaS model. It can work. But there's "gotchas". I did well with this and but eventually sold the business for about 3X and went back to work for another company. But for about 7 solid years as we gained customers and got to that $500-700K, it became very hard to keep it a "balance" as with every 10 customers we added, the more of my time was spent at work and not as much at home. As we added customers, my "balance" was diminished, so I had to hire people, which then cut my income considerably. In the end, I realized it was better to sell the business and take the profit I could to pay off my cards and get something out of it before it killed me. I used to tell people who used to say, "wow, must be great having a business like that!" I used to tell them, "Yes, it's amazing 100 hour work week!". It became more of a "job" and less of a "lifestyle" as the customer count increased. This could have been anecdotal to my business and product, but I have to believe that it won't matter as that size annual revenue demands a bit more of a sophisticated product type. Unless you've hit lightning in a bottle and have a very "light work" product that you're selling and have cracked the code of hitting $500K and having to do barely anything, more power to you... But I don't think there's a lot of those out there and a lot to be created. I just find that with most SaaS businesses I've been involved with and built, the product is solving business problems that aren't usually a "set it and forget it" kind of product to meet those requirements and just sit back and collect money... I find that most SaaS businesses in that range of revenue are complicated and warrant a higher degree of overhead. The real challenge is, "little overhead" to be able to create an income and survive. Support, service and development is expensive and requires more than one person. Good support is important to retain your customers to keep that $500K coming in, and that really is the problem because having just 10-20 customers paying you $500K is far riskier than having 1000 customers paying you $500K. Churn is dangerous in SaaS products that are high cost with smaller customer bases. One or two customers leaving could give you a pretty good dent in your revenue, thus causing you to cut income. So the trick is mitigating churn by having a product that's priced at a point that you can gain a larger customer base so that churn isn't going to radically impact your revenue. But both strategies are going to require support and service and that costs quite a bit of money and can gravely cut your income that has to be passed to engineers/developers who can improve and maintain the product. I had to hire really good support people and some engineers because as we grew that revenue, the product became more complicated and support and service was more demanding (I had about 400 customers). I eventually had to cut my income to pass that to people who could take on more because I couldn't do everything. So there is a law of diminishing returns with this sort of business strategy. It can work, but you have to really strategize, have a product strategy that can generate a good sized customer base but requires very little maintenance, development, support and service. But I call this the "holy grail" SaaS business -- they simply don't exist -- or if they do, they are rare birds. Just be prepared to understand the issues if you do have some success and are lucky enough to grown a SaaS business to $500K+ Just don't be surprised when you feel like you've succeeded but feel like you're failing.
- moneywoes 3y ago
  looks like you run a consulting practice, is that correct? if so how do you scale your arr? is it retainers further how did you get your first clients?
edgyquant 3y ago
I see this said here all the time, but why are obligated to do so? If VCs don’t own a majority stake what authority do they have to make you chase such huge returns at the cost of a stable and profitable business?
- mantas 3y ago
  VCs won’t invest if they know this is your plan? If you lie to them and keep going for 500k, they can sue you for scamming (or whatever legal term is).
  - plonk 3y ago
    "I initially planned to scale but eventually realized the company wouldn't make enough to survive, as happens to most startups. I chose to scale down and make the company profitable instead of killing it." Could the VCs really argue against that in court? It's well-known that most startups fail without any scamming.
    - thfuran 3y ago
      Making fraud your retirement plan seems unwise, even if there's a chance you'd get away with it.
      - edgyquant 3y ago
        How is there any fraud here? You took seed money, built a profitable company and it just can’t scale to a unicorn. That isn’t fraud and no court would consider it as such
        thfuran 3y ago
        How is it not fraud to initially represent to investors that you plan to scale to the moon while planning all along to later say that you decided it wasn't going to work out?
Waterluvian 3y ago
This general concept is what I wish I’d see more of: it’s okay not to grow. When you’re a public or funded company you have no choice. You must grow until you pop. But if you’re some small private org, you can carve out a very comfortable niche.
- brentm 3y ago
  I'd argue that if you're running a internet based company you do need some growth regardless of what you've raised or not raised. Someone is always trying to cut into your business and if you sit back and ignore everything growth related you will eventually be in a worse position.(Besides competition you do also have other things to consider like every year employees need raises, etc). What you really gain by not raising capital is freedom to pursue a less risky operating approach and a lower bar for a positive outcome.
zitterbewegung 3y ago
For an anecdotal story Bingo Card Creator was a lifestyle business having a large amount of customers and a stable cash flow. Then he moved forward an SEO consultant like business model which was rather successful after making Bingo Card Creator and eventually tried to do a startup with Y combinator trying to gamify hiring but then failing (and IIRC he downsized his lifestyle during the startup) but I think he moved forward and is doing well.
- dpeck 3y ago
  By most measures https://news.ycombinator.com/user?id=patio11 https://news.ycombinator.com/user?id=patio11 seems to be doing alright. But given the trajectory I’m not sure the anecdote holds.
mgaunard 3y ago
You can get 500k as a normal employee. Why bother with the startup risk to make that amount? It's just glorified contracting at this point.
- 3m 3y ago
  If you own a business with $500k profit then you can sell it for a multiple of that. You also have the option to automate yourself out of a job or hire someone to reduce the time you need to spend on the business. As an employee you trade time for money with no ability to sell or reduce your workload.
- fourseventy 3y ago
  Getting to $500k comp as an employee isn't exactly a walk in the park either.
  - wg0 3y ago
    Not at all actually. That's half a million dollar compensation we're talking about. That's not the norm or average compensation.
- wg0 3y ago
  You can't leave your desk whenever you want. And when you leave your desk, you've always this social/peer pressure to ensure there aren't any complaints about you being frequently away or for longer, for example. That's not freedom. What's not freedom isn't richness. The attached price tag doesn't matter.
  - hcks 3y ago
    Im pretty sure the 500k employee at Google is vastly vastly more free to leave his desk than the small business owner making that much.
    - mholm 3y ago
      There's a wide range of workloads for small business owners. Sometimes a strategy finds a market and after significant effort to get to capture customers, doesn't take a lot of work to maintain. Others might be pulling 80 hour weeks for $40k/year
layer8 3y ago
Please don’t sell the business, at least not to a larger company. That’s how everything is sliding into enshittification.
- greenie_beans 3y ago
  "enshittification" is my least favorite recent word. i like the concept but it's a terrible word. very cringe, it's got middle schooler trying to cuss vibes
- esafak 3y ago
  That is a big incentive the build the company in the first place. If you eliminate that option you would simply have fewer startups.
krashidov 3y ago
These are all good points. To play Devil's advocate - the argument against this is that when you raise money you can sometimes take money off the table. Meaning you sell of a portion of your ownership for cash to you personally and not the business. This is not always in the best interests of the company, because it doesn't incentivize the founder to stay as much. But it can be healthy for the founder's psyche to not have to have all of their net worth tied up in illiquid startup stock. Also, I don't think this is as frequent as the crazy days of 2021. Where you could retire off of a Series A with not much revenue
ssharp 3y ago
Not all problems can be solved by a solo founder bootstrapping a business. If you're driven by the problem you're trying to solve for, you should take the path that most likely will result in you actually solving the problem. For many types of startups, that requires VC.
flandish 3y ago
This is just bog standard capitalist formula. Doing it yourself puts you in control of the expectations. Taking money from a firm is really just a camouflaged “employer:employee” relationship and the desire for larger returns, “more”, will always trend toward a disregard and exploitation of the humans doing the actual work.
dokein 3y ago
I would add some things to the framing: There's two axes. One axis of the matrix is what the founder wants. The other axis is what the business needs. The business needs axis is continuous: - Some businesses obviously don't require outside capital (e.g. founder is equipped to get a sellable product built by themselves). - Some businesses require tons of outside capital and cannot be bootstrapped; self-driving cars is an obvious example. - Some are in between; e.g. many b2b products require a baseline level of features / complexity with active competitors that's hard to achieve by bootstrapping. If a business requires a significant amount of capital AND the maximum outcome is e.g. $500K a year, then it shouldn't exist. This is why VCs ask what the market size is. Some founders think raising outside capital is a "win". They want that external validation and then convince themselves and/or VCs that there's a big outcome on the other side (or, in the ZIRP 2021 era, get convinced by VCs). This is a mistake -- the only external validation that matters is market validation. Instead, founders should think of outside capital as a necessary evil, and make a clear-headed decision as to whether the benefits of capital for their businesses is worth the cost (in the form of preference and control -- or at least influence). And it should be worth the cost by some significant margin, because outside capital is often optimizing arithmetic mean outcome whereas the founder is often optimizing something closer to geometric mean outcome.
- MacsHeadroom 3y ago
  I'm fairly certain most independently run american crop farms require many multiples of that in capital for around that much revenue if not less and NEED to exist. Of course they aren't good candidates for venture investment capital. But saying they shouldn't exist is probably a bit too far.
  - dokein 3y ago
    You're right, and there's other things like restaurants that require capital and have a cap on earnings. I should have phrased it as venture capital, which is structured to look for unicorns. There are other forms of capital that are appropriate for businesses with a high chance of returning a moderate gains instead of a low chance of extraordinary gains.
jryle70 3y ago
> If you build a business that makes 500k a year, which can be done with 30-50 customers for saas selling for 10-15k, you can sell the business and retire That's a big if, and no guarantee that it's easier to pull it off than if you have VC money. Let's assume for a second that VC brings nothing to the table other than money.
jwr 3y ago
I run a business similarly to what the parent advised to do and I wouldn't have it any other way. I am independent, I don't have to pursue GROWTH GROWTH GROWTH at all costs, I don't have to worry about running out of funding, I don't have to "scale", I don't have to hire people just because investors want me to. The numbers are different for every business, and I'd argue that SaaS customers at $10k-$15k are not easy, because you need high-touch sales for that, but you can make various approaches work. The main point is that VC-funded (or YC->VC funded) startups are not the only way to achieve success as defined by financial sufficiency. Arguably (and I would really argue) they aren't even the best way, if you take quality of life factors into account. Or if you care about your customers/users.
DougN7 3y ago
I’m not sure I agree. I hear from lots of people wanting to buy my business IF it’s making at least $5 million/year (it’s not). $500K/year might get you a 2X exit, and $1M is nothing to sneeze at, but it’s not early retirement money.
- brianwawok 3y ago
  For a non-strategic buy you are right. For a big 1B PE fund, they can't be arsed to buy a bunch of 300k a year companies. I think its just too much to manage. So the higher in the millions you go, the more PE type people it can appeal to.
- indymike 3y ago
  > $500K/year might get you a 2X exit, Depends. When a company is subscale it's purchase price varies wildly. This is because standard revenue x multiple thinking just doesn't make sense when: * you are buying the team (leaders, skill positions, etc) * you are buying the tech (which may have great value in accelerating go-to market or adding competitive advantage) * The small company holds key contracts * IP has great value As companies grow, they tend to get valued more traditionally...
fairity 3y ago
> If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing. There are several noteworthy exceptions to this generalization. If you retain board control, you’re free to run a lifestyle business and pay out dividends to you and your investors. Plenty of VC funded companies have founder-controlled boards. Also, you can negotiate a buyout of your VC’s and shift to lifestyle once you fail to grow.
danielvaughn 3y ago
This is exactly right. A couple years ago I became a co-founder of sorts, supporting the technical side. I assumed all you needed was a good idea that attracted users - we had that. Even though we had a working software product and demonstrable 20% MoM growth, we couldn't get investors interested. I learned (the hard way) that what you need to do is put the dollar signs in investors eyes and manipulate their greed in order to convince them to cough over their money. Of course, it isn't often described that way - they say things like "we need to de-risk the investment" and "expand the total available market". But really what they mean is they're only interested in businesses that are shooting for billions of dollars and have a solid plan on how to get there. If I ever go into business again, I'm staying far away from VC.
- moneywoes 3y ago
  what did you end up doing?
JumpCrisscross 3y ago
> If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing Yes on the first. No on the second. You can still sell the business like a small business at a multiple of Ebitda. Standard early-stage terms shouldn’t give investors the right to block an exit that returns their liquidation value.
ugh123 3y ago
Yeah but you don't get to rub elbows and party with VCs! Isn't that what it's actually about? /s
manicennui 3y ago
ARR doesn't seem to be super important for VC funded companies as long as someone will pay a lot of money for the company and everyone can cash out.
- esafak 3y ago
  If you don't turn a profit you'd better have significant, consistent growth. Pulling that off is not necessarily easier.
whitej125 3y ago
> If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing. You have to shoot for the moon to get massive ARR, that very very few companies ever hit. N=1 example at least to the contrary... I read this a year ago. https://twitter.com/robgo/status/1559517843388977152 https://twitter.com/robgo/status/1559517843388977152 I don't know who the company was, what the terms were, who/if were other investors, etc. But as I read it... the company was venture-backed, didn't really create (or pivoted away from) something that was "venture scale" but otherwise had built a good business. The end result however, was not shutdown/get acquired. By building a good business, the company gave themselves optionality with their current investors and seemingly got to a good outcome for everyone. If you know your business is not going to be venture scale... there are probably better sources of capital out there for you to leverage if you need it (or bootstrap). Stresses that create less stress, less friction, etc. That being said - venture or not... don't forget to build a good business. Disclosure: NextView is one of our investors hence why I stumbled upon that post of Rob's back then.
joshstrange 3y ago
I’ve been of this opinion for quite a while now and the part about > If you raise VC money, the above scenarios are considered a failure Rings particularly true. My side company doesn’t make much right now but it’s growing and one day I could see being able to go full time on it. However there is no scenario that I can imagine where taking money (even if someone wanted to give it to me) would be a good idea. The business just doesn’t have the potential to justify the investment. It could grow to support myself and maybe even a few other people but never to a point where it would make investors happy. I wish more people went the bootstrap/self-funded route without the intention of selling from day 1. That’s the other gross part of our industry, making something you have no desire to run long-term, just making it attractive enough for a larger company to buy. Those businesses are rarely sustainable. As I’ve grown older the idea of “winner takes all” or “creating a business just to sell it” has become less and less attractive to me. I’m not saying I wouldn’t “sell out” if the price was right but there is a difference in my mind between those two things (creating to sell and choosing to sell). The sad thing is that some really cool ideas (that aren’t “winner take all”) do require a substantial, to me, amount of money to get off the ground. I spent time on a side project with a few other people until we realized that money transmitter licenses we would need pretty much required outside investment. Things like that really suck and I understand investment in those cases a little more.

gavinhoward 3y ago

I'm a business owner currently doing what the parent says to do, and the parent is exactly correct. I want a business that can support my wife and me; 500k is my target, and it would be a great situation for us because I would have a great work/life balance (based on how much time I spend right now). But if I took money, the investors would clamor for more, and the stress would probably kill me.

ejlxsh 3y ago
What are you doing to try hit that 500k target? Running a SaaS, consulting, etc?
- gavinhoward 3y ago
  I am giving away my code as FOSS, so I'm doing the following, in this order: 1. Charging for bug reports or feature requests. 2. Support. (And I have great examples of public support as marketing.) 3. Consulting. (This would be exclusively to help companies trying to use my software, but unlike support, it would be about writing the stuff that uses my software and ensuring the client understands it so that I could do a handoff. The result would be carefully commented and documented code, probably just short of literate programming [1].) 4. SaaS. (If I did this, the server might not be FOSS, but the client would be, and it would use encryption.) [1]: https://en.wikipedia.org/wiki/Literate_programming https://en.wikipedia.org/wiki/Literate_programming
  - jjice 3y ago
    Can you say what the software is? I do like the model you have laid out.
    - gavinhoward 3y ago
      It depends on what companies have interest in. Below is a list of the ideas I have. * A build system that is also a package manager like Nix, but usable by mere mortals. Also, it will have an easy way to restrict what builds can do. This one is almost done (well, usable for early adopters, not done); my HN annoucement should be in about three months. * A VCS that, like Fossil, is self-contained with a bug tracker and everything. It will be able to handle binary assets and HUGE files. It will also be easy-to-use. (I'm going to be testing it on my non-technical wife without telling her how. Once she can use it naturally, I'll probably have a good model.)
      - myaccountonhn 3y ago
        Is the vcs offline first?
        gavinhoward 3y ago
        I'm not sure what you mean by "offline first." Can you elaborate? (I've heard people use that term in multiple ways.)
        myaccountonhn 3y ago
        With Fossil I pull in the full issue tracker and forum and have it stored locally, if I'm offline I can then make my changes, comments etc. and when I'm online it all syncs.
        gavinhoward 3y ago
        Yes, it will be offline like that.
bko 3y ago
Good luck, but I don't know many business owners who have a great work/life balance. I don't think it ever gets easier really. It's like writing software. It's never "complete". 500k revenue doesn't leave a lot of room for outsourcing work
- gavinhoward 3y ago
  You are absolutely right. The key for me is to reduce tech debt before I release. If I'm not dealing with tech debt, the actual programming shrinks, and I have time to deal with the other stuff.
  - giantg2 3y ago
    "The key for me is to reduce tech debt before I release. If I'm not dealing with tech debt, the actual programming shrinks, and I have time to deal with the other stuff." This seems like everyone's dream and nobody's reality. Good luck.
    - gavinhoward 3y ago
      Thank you! But I've already done it. I have been constantly refactoring over the three years I've been working on it. My tech debt is minimal at this moment.
      - giantg2 3y ago
        Yes, but my point is that as you continue to code you are likely to encounter more tech debt, especially as you get more customers and as you need to make dependency version upgrades to address security vulnerabilities. A world without tech debt is a dream.
        gavinhoward 3y ago
        Yes, that's fair. Sorry for misunderstanding at first.
  - 3y ago
DanielHB 3y ago
You also took a bigger risk, either in your own money to support your product to profitability or in missed opportunity from a steady pay check (although the latter is also true to varying extents in VC backed companies) Although I am curious _how much_ risk did you take, could you elaborate?
- gavinhoward 3y ago
  My wife is the breadwinner right now, so no missed opportunity from a steady paycheck. It did take me longer to get to this point, though (about three years once I got serious). I will have spent in the very low 5 digits for lawyers, to comb through my new FOSS licenses ([1], and we're still working on that, so they are not ready yet!) and to set up standard contracts. Beyond that, less than 5 digits for two beefy computers over that time and longer. [1]: https://yzena.com/licenses/ https://yzena.com/licenses/
  - lfowles 3y ago
    Why bespoke licenses? Won't that make customers more wary as they have to clear the licenses through their legal too?
    - gavinhoward 3y ago
      Yes, but these licenses have far more protection for me than regular licenses. I'm working with a lawyer to ensure that these licenses are void if the user expects me to have any duty, like the Bitcoin lawsuits ([1], see comments at [2]) or the EU's upcoming Cybersecurity Resilience Act that might require me to be audited or worse [3], which I can't afford. (I do want an audit when I can afford it, though.) [1]: https://laanwj.github.io/2023/02/06/regrets.html https://laanwj.github.io/2023/02/06/regrets.html [2]: https://news.ycombinator.com/item?id=34684715 https://news.ycombinator.com/item?id=34684715 [3]: https://blog.opensource.org/what-is-the-cyber-resilience-act-and-why-its-important-for-open-source/ https://blog.opensource.org/what-is-the-cyber-resilience-act...
      - 3y ago
gjmacd 3y ago
This is otherwise known as a "lifestyle business". It's the north star for most people and should be but it's not easy. If you build a $500K a year SaaS business and have very little overhead, you can probably take $200K of that revenue as income and have a good work-life balance that's very comfortable. I know, I was able to do this without taking VC and bootstrapping 100% on credit cards and my own cash. However, there's an inflection point that happens with this sort of business IF you're not careful -- or it becomes more successful / or becomes a death spiral. If we're speaking of a true SaaS model. It can work. But there's "gotchas". I did well with this and but eventually sold the business for about 3X and went back to work for another company. But for about 7 solid years as we gained customers and got to that $500-700K, it became very hard to keep it a "balance" as with every 10 customers we added, the more of my time was spent at work and not as much at home. As we added customers, my "balance" was diminished, so I had to hire people, which then cut my income considerably. In the end, I realized it was better to sell the business and take the profit I could to pay off my cards and get something out of it before it killed me. I used to tell people who used to say, "wow, must be great having a business like that!" I used to tell them, "Yes, it's amazing 100 hour work week!". It became more of a "job" and less of a "lifestyle" as the customer count increased. This could have been anecdotal to my business and product, but I have to believe that it won't matter as that size annual revenue demands a bit more of a sophisticated product type. Unless you've hit lightning in a bottle and have a very "light work" product that you're selling and have cracked the code of hitting $500K and having to do barely anything, more power to you... But I don't think there's a lot of those out there and a lot to be created. I just find that with most SaaS businesses I've been involved with and built, the product is solving business problems that aren't usually a "set it and forget it" kind of product to meet those requirements and just sit back and collect money... I find that most SaaS businesses in that range of revenue are complicated and warrant a higher degree of overhead. The real challenge is, "little overhead" to be able to create an income and survive. Support, service and development is expensive and requires more than one person. Good support is important to retain your customers to keep that $500K coming in, and that really is the problem because having just 10-20 customers paying you $500K is far riskier than having 1000 customers paying you $500K. Churn is dangerous in SaaS products that are high cost with smaller customer bases. One or two customers leaving could give you a pretty good dent in your revenue, thus causing you to cut income. So the trick is mitigating churn by having a product that's priced at a point that you can gain a larger customer base so that churn isn't going to radically impact your revenue. But both strategies are going to require support and service and that costs quite a bit of money and can gravely cut your income that has to be passed to engineers/developers who can improve and maintain the product. I had to hire really good support people and some engineers because as we grew that revenue, the product became more complicated and support and service was more demanding (I had about 400 customers). I eventually had to cut my income to pass that to people who could take on more because I couldn't do everything. So there is a law of diminishing returns with this sort of business strategy. It can work, but you have to really strategize, have a product strategy that can generate a good sized customer base but requires very little maintenance, development, support and service. But I call this the "holy grail" SaaS business -- they simply don't exist -- or if they do, they are rare birds. Just be prepared to understand the issues if you do have some success and are lucky enough to grown a SaaS business to $500K+ Just don't be surprised when you feel like you've succeeded but feel like you're failing.
moneywoes 3y ago
looks like you run a consulting practice, is that correct? if so how do you scale your arr? is it retainers further how did you get your first clients?

edgyquant 3y ago

I see this said here all the time, but why are obligated to do so? If VCs don’t own a majority stake what authority do they have to make you chase such huge returns at the cost of a stable and profitable business?

mantas 3y ago
VCs won’t invest if they know this is your plan? If you lie to them and keep going for 500k, they can sue you for scamming (or whatever legal term is).
- plonk 3y ago
  "I initially planned to scale but eventually realized the company wouldn't make enough to survive, as happens to most startups. I chose to scale down and make the company profitable instead of killing it." Could the VCs really argue against that in court? It's well-known that most startups fail without any scamming.
  - thfuran 3y ago
    Making fraud your retirement plan seems unwise, even if there's a chance you'd get away with it.
    - edgyquant 3y ago
      How is there any fraud here? You took seed money, built a profitable company and it just can’t scale to a unicorn. That isn’t fraud and no court would consider it as such
      - thfuran 3y ago
        How is it not fraud to initially represent to investors that you plan to scale to the moon while planning all along to later say that you decided it wasn't going to work out?

Waterluvian 3y ago

This general concept is what I wish I’d see more of: it’s okay not to grow. When you’re a public or funded company you have no choice. You must grow until you pop. But if you’re some small private org, you can carve out a very comfortable niche.

brentm 3y ago
I'd argue that if you're running a internet based company you do need some growth regardless of what you've raised or not raised. Someone is always trying to cut into your business and if you sit back and ignore everything growth related you will eventually be in a worse position.(Besides competition you do also have other things to consider like every year employees need raises, etc). What you really gain by not raising capital is freedom to pursue a less risky operating approach and a lower bar for a positive outcome.

zitterbewegung 3y ago

For an anecdotal story Bingo Card Creator was a lifestyle business having a large amount of customers and a stable cash flow. Then he moved forward an SEO consultant like business model which was rather successful after making Bingo Card Creator and eventually tried to do a startup with Y combinator trying to gamify hiring but then failing (and IIRC he downsized his lifestyle during the startup) but I think he moved forward and is doing well.

dpeck 3y ago
By most measures https://news.ycombinator.com/user?id=patio11 https://news.ycombinator.com/user?id=patio11 seems to be doing alright. But given the trajectory I’m not sure the anecdote holds.

mgaunard 3y ago

You can get 500k as a normal employee. Why bother with the startup risk to make that amount? It's just glorified contracting at this point.

3m 3y ago
If you own a business with $500k profit then you can sell it for a multiple of that. You also have the option to automate yourself out of a job or hire someone to reduce the time you need to spend on the business. As an employee you trade time for money with no ability to sell or reduce your workload.
fourseventy 3y ago
Getting to $500k comp as an employee isn't exactly a walk in the park either.
- wg0 3y ago
  Not at all actually. That's half a million dollar compensation we're talking about. That's not the norm or average compensation.
wg0 3y ago
You can't leave your desk whenever you want. And when you leave your desk, you've always this social/peer pressure to ensure there aren't any complaints about you being frequently away or for longer, for example. That's not freedom. What's not freedom isn't richness. The attached price tag doesn't matter.
- hcks 3y ago
  Im pretty sure the 500k employee at Google is vastly vastly more free to leave his desk than the small business owner making that much.
  - mholm 3y ago
    There's a wide range of workloads for small business owners. Sometimes a strategy finds a market and after significant effort to get to capture customers, doesn't take a lot of work to maintain. Others might be pulling 80 hour weeks for $40k/year

layer8 3y ago

Please don’t sell the business, at least not to a larger company. That’s how everything is sliding into enshittification.

greenie_beans 3y ago
"enshittification" is my least favorite recent word. i like the concept but it's a terrible word. very cringe, it's got middle schooler trying to cuss vibes
esafak 3y ago
That is a big incentive the build the company in the first place. If you eliminate that option you would simply have fewer startups.

krashidov 3y ago

These are all good points. To play Devil's advocate - the argument against this is that when you raise money you can sometimes take money off the table. Meaning you sell of a portion of your ownership for cash to you personally and not the business. This is not always in the best interests of the company, because it doesn't incentivize the founder to stay as much. But it can be healthy for the founder's psyche to not have to have all of their net worth tied up in illiquid startup stock. Also, I don't think this is as frequent as the crazy days of 2021. Where you could retire off of a Series A with not much revenue

ssharp 3y ago

Not all problems can be solved by a solo founder bootstrapping a business. If you're driven by the problem you're trying to solve for, you should take the path that most likely will result in you actually solving the problem. For many types of startups, that requires VC.

flandish 3y ago

This is just bog standard capitalist formula. Doing it yourself puts you in control of the expectations. Taking money from a firm is really just a camouflaged “employer:employee” relationship and the desire for larger returns, “more”, will always trend toward a disregard and exploitation of the humans doing the actual work.

dokein 3y ago

I would add some things to the framing: There's two axes. One axis of the matrix is what the founder wants. The other axis is what the business needs. The business needs axis is continuous: - Some businesses obviously don't require outside capital (e.g. founder is equipped to get a sellable product built by themselves). - Some businesses require tons of outside capital and cannot be bootstrapped; self-driving cars is an obvious example. - Some are in between; e.g. many b2b products require a baseline level of features / complexity with active competitors that's hard to achieve by bootstrapping. If a business requires a significant amount of capital AND the maximum outcome is e.g. $500K a year, then it shouldn't exist. This is why VCs ask what the market size is. Some founders think raising outside capital is a "win". They want that external validation and then convince themselves and/or VCs that there's a big outcome on the other side (or, in the ZIRP 2021 era, get convinced by VCs). This is a mistake -- the only external validation that matters is market validation. Instead, founders should think of outside capital as a necessary evil, and make a clear-headed decision as to whether the benefits of capital for their businesses is worth the cost (in the form of preference and control -- or at least influence). And it should be worth the cost by some significant margin, because outside capital is often optimizing arithmetic mean outcome whereas the founder is often optimizing something closer to geometric mean outcome.

MacsHeadroom 3y ago
I'm fairly certain most independently run american crop farms require many multiples of that in capital for around that much revenue if not less and NEED to exist. Of course they aren't good candidates for venture investment capital. But saying they shouldn't exist is probably a bit too far.
- dokein 3y ago
  You're right, and there's other things like restaurants that require capital and have a cap on earnings. I should have phrased it as venture capital, which is structured to look for unicorns. There are other forms of capital that are appropriate for businesses with a high chance of returning a moderate gains instead of a low chance of extraordinary gains.

jryle70 3y ago

> If you build a business that makes 500k a year, which can be done with 30-50 customers for saas selling for 10-15k, you can sell the business and retire That's a big if, and no guarantee that it's easier to pull it off than if you have VC money. Let's assume for a second that VC brings nothing to the table other than money.

jwr 3y ago

I run a business similarly to what the parent advised to do and I wouldn't have it any other way. I am independent, I don't have to pursue GROWTH GROWTH GROWTH at all costs, I don't have to worry about running out of funding, I don't have to "scale", I don't have to hire people just because investors want me to. The numbers are different for every business, and I'd argue that SaaS customers at $10k-$15k are not easy, because you need high-touch sales for that, but you can make various approaches work. The main point is that VC-funded (or YC->VC funded) startups are not the only way to achieve success as defined by financial sufficiency. Arguably (and I would really argue) they aren't even the best way, if you take quality of life factors into account. Or if you care about your customers/users.

DougN7 3y ago

I’m not sure I agree. I hear from lots of people wanting to buy my business IF it’s making at least $5 million/year (it’s not). $500K/year might get you a 2X exit, and $1M is nothing to sneeze at, but it’s not early retirement money.

brianwawok 3y ago
For a non-strategic buy you are right. For a big 1B PE fund, they can't be arsed to buy a bunch of 300k a year companies. I think its just too much to manage. So the higher in the millions you go, the more PE type people it can appeal to.
indymike 3y ago
> $500K/year might get you a 2X exit, Depends. When a company is subscale it's purchase price varies wildly. This is because standard revenue x multiple thinking just doesn't make sense when: * you are buying the team (leaders, skill positions, etc) * you are buying the tech (which may have great value in accelerating go-to market or adding competitive advantage) * The small company holds key contracts * IP has great value As companies grow, they tend to get valued more traditionally...

fairity 3y ago

> If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing. There are several noteworthy exceptions to this generalization. If you retain board control, you’re free to run a lifestyle business and pay out dividends to you and your investors. Plenty of VC funded companies have founder-controlled boards. Also, you can negotiate a buyout of your VC’s and shift to lifestyle once you fail to grow.

danielvaughn 3y ago

This is exactly right. A couple years ago I became a co-founder of sorts, supporting the technical side. I assumed all you needed was a good idea that attracted users - we had that. Even though we had a working software product and demonstrable 20% MoM growth, we couldn't get investors interested. I learned (the hard way) that what you need to do is put the dollar signs in investors eyes and manipulate their greed in order to convince them to cough over their money. Of course, it isn't often described that way - they say things like "we need to de-risk the investment" and "expand the total available market". But really what they mean is they're only interested in businesses that are shooting for billions of dollars and have a solid plan on how to get there. If I ever go into business again, I'm staying far away from VC.

moneywoes 3y ago
what did you end up doing?

JumpCrisscross 3y ago

> If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing Yes on the first. No on the second. You can still sell the business like a small business at a multiple of Ebitda. Standard early-stage terms shouldn’t give investors the right to block an exit that returns their liquidation value.

ugh123 3y ago

Yeah but you don't get to rub elbows and party with VCs! Isn't that what it's actually about? /s

manicennui 3y ago

ARR doesn't seem to be super important for VC funded companies as long as someone will pay a lot of money for the company and everyone can cash out.

esafak 3y ago
If you don't turn a profit you'd better have significant, consistent growth. Pulling that off is not necessarily easier.

whitej125 3y ago

> If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing. You have to shoot for the moon to get massive ARR, that very very few companies ever hit. N=1 example at least to the contrary... I read this a year ago. https://twitter.com/robgo/status/1559517843388977152 https://twitter.com/robgo/status/1559517843388977152 I don't know who the company was, what the terms were, who/if were other investors, etc. But as I read it... the company was venture-backed, didn't really create (or pivoted away from) something that was "venture scale" but otherwise had built a good business. The end result however, was not shutdown/get acquired. By building a good business, the company gave themselves optionality with their current investors and seemingly got to a good outcome for everyone. If you know your business is not going to be venture scale... there are probably better sources of capital out there for you to leverage if you need it (or bootstrap). Stresses that create less stress, less friction, etc. That being said - venture or not... don't forget to build a good business. Disclosure: NextView is one of our investors hence why I stumbled upon that post of Rob's back then.

joshstrange 3y ago

I’ve been of this opinion for quite a while now and the part about > If you raise VC money, the above scenarios are considered a failure Rings particularly true. My side company doesn’t make much right now but it’s growing and one day I could see being able to go full time on it. However there is no scenario that I can imagine where taking money (even if someone wanted to give it to me) would be a good idea. The business just doesn’t have the potential to justify the investment. It could grow to support myself and maybe even a few other people but never to a point where it would make investors happy. I wish more people went the bootstrap/self-funded route without the intention of selling from day 1. That’s the other gross part of our industry, making something you have no desire to run long-term, just making it attractive enough for a larger company to buy. Those businesses are rarely sustainable. As I’ve grown older the idea of “winner takes all” or “creating a business just to sell it” has become less and less attractive to me. I’m not saying I wouldn’t “sell out” if the price was right but there is a difference in my mind between those two things (creating to sell and choosing to sell). The sad thing is that some really cool ideas (that aren’t “winner take all”) do require a substantial, to me, amount of money to get off the ground. I spent time on a side project with a few other people until we realized that money transmitter licenses we would need pretty much required outside investment. Things like that really suck and I understand investment in those cases a little more.