Designing the Ideal Bootstrapped Business with Jason Cohen

Building a Self-Funded Startup

In this section, the speaker talks about what he thinks a perfect bootstrap startup is and what attributes it should have. He also discusses why most companies fail and how building something that people want is not enough.

Attributes of a Self-Funded Company

• Most companies fail because they are not structured to lend themselves to bootstrapping.

• A self-funded company should be viewed as a cash machine that generates predictable profit every month.

• The goal of a self-funded startup should be to focus on generating $10,000 per month in revenue per founder, with the hope of increasing it to $20,000 or more.

• Instead of using the term "bootstrap" or "lifestyle business," the speaker suggests calling it "self-funded."

Revenue Models for Self-Funded Companies

• One-off software revenue models are not suitable for self-funded startups since they require starting from scratch every month.

• Subscription-based revenue models are ideal for self-funded startups since they generate recurring revenue and provide stability.

• The speaker emphasizes the importance of having a predictable revenue model that generates consistent income every month.

Customer Acquisition Strategies for Self-Funded Companies

• The speaker recommends focusing on inbound marketing strategies such as content marketing, SEO, and social media instead of outbound marketing strategies like cold calling and advertising.

• Building relationships with customers through excellent customer service can lead to word-of-mouth referrals and repeat business.

• The speaker advises against relying solely on one customer acquisition channel and suggests diversifying by using multiple channels.

Product Development Strategies for Self-Funded Companies

• The speaker recommends focusing on building a minimum viable product (MVP) that solves a specific problem for customers.

• Iterating and improving the MVP based on customer feedback is crucial to creating a successful product.

• The speaker advises against trying to build a perfect product from the start and suggests prioritizing speed and agility over perfection.

Hiring Strategies for Self-Funded Companies

• The speaker recommends hiring employees who are passionate about the company's mission and values, even if they lack experience or skills.

• Building a strong company culture can help attract and retain top talent.

• The speaker advises against hiring too quickly and suggests taking the time to find the right fit for the company.

The Myth of a Thousand Rabid Fans

In this section, the speaker discusses the concept of a thousand rabid fans and how it is not as feasible as people think.

The Concept of a Thousand Rabid Fans

• Kevin Kelly's idea of a thousand rabid fans was popularized by Seth Godin.

• Getting a thousand rabid fans to buy merchandise and attend concerts is difficult.

• It is hard to get people to give $100-$200 per year, let alone $1,000.

• Even if an artist has 1,000 fans giving $200 per year, it may not be enough to cover expenses.

A New Approach: One Hundred Fifty Customers

• Instead of aiming for a thousand rabid fans, aim for 150 customers.

• Scratching and clawing can help you get 50 customers easily.

• You can reach out to potential customers through LinkedIn or other platforms and offer to pay them for their time in exchange for feedback on your product or service.

• With his previous company WP Engine, the speaker was able to find 30-40 people who agreed to give him $50 per month before he even had a company name or presentation.

Validating Your Idea and Charging More Money

In this section, the speaker discusses how to validate your idea and charge more money for it.

Validating Your Idea

• Validate your idea by solving a pain that people really have.

• Guest post on certain blogs and use social media to promote your product.

• Marketing is necessary, even if it's as mundane as Adwords or special ads on relevant sites.

Charging More Money

• Charge what may feel like a lot of money (e.g. $70/month) to reach a revenue goal of $10,000/month.

• Don't undervalue your product just because you're self-funded and don't have many features.

• Avoid charging too little with the hope of getting thousands of customers.

• Erica Douglas will discuss how to charge more in her talk.

Ways to Charge More Money

In this section, the speaker provides examples of ways to charge more money for your product.

Examples of Charging More Money

• Use different tiers with varying features or volume segmented by customer type (e.g. WP Engine).

• Charge a lot for the product ($99 or $199), but offer coupons and specials all the time.

• Offer bloggers coupons for their readers (e.g. 30% off for a year).

Becoming a Boutique Business

In this section, the speaker discusses becoming a boutique business.

Boutique Business Model

• Boutique businesses are super expensive and barely ever open because they're run by one or two people.

• Customers receive incredible attention and unique, special work.

• You can be a boutique consultant or anything else.

Revenue and Cash Flow

In this section, the speaker talks about how startups can charge more money by using annual prepaid tricks. They also discuss the importance of cash flow for self-funded companies and how to use annual prepay to increase cash flow.

Using Annual Prepay to Increase Cash Flow

• Annual prepay is required by law.

• By spending $300 on acquiring a customer that pays $50 per month, you can reach a monthly revenue of $350.

• With annual prepay, you can collect 16% less money over the year but get 100K in cash now instead of waiting for 12 months to get 120K.

• Collecting less money over the year means you have more cash in hand today which allows you to deploy it on other things like advertising or hiring designers.

Benefits of Annual Prepay

• One quarter of signups at WP Engine elect annual prepay which results in three times more cash flow every month than collecting monthly payments.

• WP Engine operates with an infinite marketing budget because they make back their marketing costs through annual prepayments.

Tips and Hacks for Getting People to Choose Annual Prepay

• Create coupons for affiliates and bloggers who might send traffic your way.

Pricing Strategies

In this section, the speaker talks about different pricing strategies that can be used to increase revenue per customer.

Raising Prices

• Suggests raising monthly prices and offering a discount on annual plans.

• Shares an example of a company that doubled their annual price and saw no change in signups.

• Encourages companies to keep raising prices until something bad happens.

Pricing Hacks

• Highlights the middle pricing tier to encourage customers to choose it.

• Offers a "most expensive" plan for businesses that automatically attracts those customers.

• Recommends using a 60-day money-back guarantee instead of free trials.

Importance of Revenue per Customer

• Emphasizes that revenue per customer is the most important metric for small companies.

• States that it is more important than metrics like cancellation rate.

Money-back Guarantee vs Free Trials

In this section, the speaker discusses why he prefers money-back guarantees over free trials.

Disadvantages of Free Trials

• Explains that most people who sign up with a credit card will stay, so free trials often result in lost revenue.

Advantages of Money-back Guarantees

• Recommends using a 60-day money-back guarantee instead of a 15-day free trial.

I'm sorry, but I cannot summarize the transcript as there are no timestamps associated with the bullet points. Please provide me with the timestamps for each bullet point so that I can create a clear and concise markdown file.

Temporary Pain vs. Recurring Revenue

In this section, the speaker discusses his preference for markets that offer recurring revenue over those that rely on temporary pain points.

Temporary Pain Points

• Companies that sell products or services based on temporary pain points, such as wedding photos or event planning, are not ideal for recurring revenue.

• Catching customers at the right time is difficult and does not guarantee repeat business.

• Examples of industries with temporary pain points include events and code profiling software.

Recurring Revenue

• Markets with naturally recurring value, such as financial cycles or ongoing service costs, are more likely to generate recurring revenue.

• Tools used for invoicing, reporting metrics, compliance HR admin are good examples of this.

• Digital marketing tools like SEO trackers also fall into this category due to their ever-changing nature.

Mobile App Development Revenue

In this section, the speaker discusses a study on mobile app development revenue and how it relates to recurring revenue.

• A study found that 30% of mobile app developers make no money from their apps while another 30% were unsure of their earnings.

• Apps focused on IT averaged $1,500 per month in revenue while finance-based apps averaged $6,000 per month.

• This suggests that markets tied to financial cycles have greater potential for generating recurring revenue.

Natural Patterns in Business

In this section, the speaker discusses natural patterns that occur in business and how to incorporate support in a way that is conducive to low touch support.

Natural Patterns

• Changing over time is a natural pattern in business.

• Support is another naturally recurring pattern.

• Incorporating support can be done through premium support packages or by creating two queues for tickets, one for those who pay for priority and one for those who don't.

Products That Don't Fit the Model of Self-Funded Startups

• The speaker does not like products that are viral because they almost never work and have a low risk of success.

• It's hard to get going with viral products unless you have a big corpus to start with, which can be difficult and expensive.

• Viral products don't fit the model of self-funded startups.

Types of Businesses That Work Well

• Anything that isn't real-time in nature works well, such as decision support for businesses like analytics, metrics, monitoring, invoicing software, project management tools etc.

• Content-based businesses are also easy to make highly available.

• Marketplaces where buyers and sellers come together do not work well according to the speaker.

Starting a Business: Chicken and Egg Problem

In this section, the speaker talks about the challenges of starting a business and how having no buyers or sellers can create a chicken and egg problem.

The Challenge of Starting a Business

• Starting a business requires finding buyers and sellers.

• Having no buyers creates a chicken and egg problem.

• Two companies have lower risk of succeeding than one.

• Competing in a space where lots of features is differentiator is not ideal for self-funded startups.

Products that Can Be Done

• A product that can be done is better for self-funded startups.

• Examples include shareware like WinZip, aftermarket tools like QuickBooks ODBC, and plugins for Photoshop.

Aftermarket Opportunities

• An aftermarket opportunity involves an established incumbent product with pain points to address.

• Examples include SmartBear's code review tool integrated with version control systems, Balsamiq Mockups as add-ons to Basecamp, Woo Themes as themes on WordPress platform, Alien Skin's Photoshop plugins.

• Vendors are often interested in supporting aftermarket tools. Ecosystem companies intentionally make after market products such as Salesforce's sforce.com or Heroku's plug-in store.

Building a Repeatable Business

In this section, the speaker talks about building a repeatable business and how to acquire customers.

Characteristics of a Good Market

• A good market is one where there are ecosystems committed to not taking advantage of you.

• Being in a big market is important because it provides lots of niches that can be targeted.

• A big market has lots of playgrounds and optionality which is always power.

Acquiring Customers

• Social media does not work well for acquiring customers as it often results in an unrepeatable business model.

• The speaker prefers businesses where they can put in a dollar and know they will make four dollars this year or even now with annual prepay.

How much should I pay per click?

In this section, the speaker talks about how to determine how much to pay per click for online marketing.

Determining Cost Per Click

• Divide the average revenue you get per customer by 25 to determine how much you can pay per click.

• This formula is based on several assumptions and may need to be adjusted based on your specific situation.

• Other factors that affect cost per click include conversion rate, traffic quality, and landing page optimization.

What happens when your company keeps growing?

In this section, the speaker discusses what happens when a small company grows and needs to hire more employees.

Hiring Employees

• If a company keeps growing but doesn't hire more employees, customer support may suffer.

• Hiring more employees means taking on management responsibilities that may not have been part of the original plan.

• Some options for dealing with growth include selling the company or doing an earn-out with a partner or employee.

The Dilemma of Raising Prices

In this section, the speaker discusses how raising prices can change the nature of a business and its clientele. He also talks about how sub-optimization can occur if one decides to raise prices after initially bootstrapping their company.

Raising Prices Changes Clientele

• Raising prices changes the nature of a business and its clientele.

• Some people may drop off if prices are raised, which could be useful for certain events or conferences.

• However, if a company wants to retain its current clientele, raising prices may not be ideal.

Sub-Optimization with Bootstrapping

• If a company knew ahead of time that they wanted to raise money instead of bootstrapping, then bootstrapping was a bad idea in the first place.

• It's important to know what you want from your company and what will be fulfilling for you as an individual. This is the hardest thing to figure out and requires constant self-reflection.

The Catch-22 of Success

In this section, the speaker discusses how success can lead to new problems and challenges that one may not have anticipated.

High-Class Problems

• People often sell their companies and then struggle with what to do next because they feel unfulfilled despite having made a lot of money. This is a very real issue that successful individuals face.

• Fulfillment is important and success can lead to new problems that one may not have anticipated.

Knowing Thyself

• To combat these issues, it's important to constantly reflect on what you want from your company and what will be fulfilling for you as an individual. This is the hardest thing to figure out, but it's necessary for long-term success and happiness.

The Formula for Success

In this section, the speaker discusses his formula for success, which involves having predictable customer acquisition and recurring revenue.

Predictable Customer Acquisition

• The formula for success involves having predictable customer acquisition that leads to recurring revenue.

• Annual prepaid can help solve cash flow problems in any market that is conducive to the kind of company being built.

SAS Business Model

This section discusses the SAS business model and how it differs from traditional sales models.

Recurring Revenue

• SAS companies typically have recurring revenue through annual contracts.

• Enterprise customers often prefer annual prepay contracts due to their budgeting process.

Enterprise Sales

• Enterprise sales are a common approach for SAS companies.

• Salespeople may not be necessary if the team is competent in demos, sales calls, and customer support.

• Hiring competent people can lead to high revenue per employee.

Challenges of Enterprise Sales

• The enterprise sales cycle can be long and costly due to cold calls, conferences, and legal involvement.

• Purchase orders may take a long time to pay, leading to cash flow issues.

• Commission-only models may be necessary for hiring salespeople due to cash constraints.

Pilots and Land-and-Expand Models

• Pilots with smaller budgets can help establish relationships and generate cash flow.

• Land-and-expand models involve starting small with a customer and expanding over time as they buy more products or services.

Affiliate Programs

This section briefly touches on affiliate programs for coders with products.

Affiliate Programs

• The speaker does not provide an opinion on affiliate programs for coders.

Affiliate Sales

In this section, the speaker discusses affiliate sales and how they can be used to generate predictable cash flow. He also talks about the importance of paying affiliates well and vetting them carefully.

Using Affiliate Sales for Predictable Cash Flow

• Affiliates should be paid well to encourage them to promote your product.

• Most affiliate programs pay around $30 per sale, but paying more can attract bigger affiliates who will bring in more sales.

• Annual prepay options can help with cash flow since affiliates are paid quickly after a sale is made.

• Special coupons can be offered to encourage annual prepay options.

Benefits of Affiliate Sales

• Affiliate sales can provide predictable cash flow since affiliates are incentivized to bring in new customers every month.

• The affiliate program only pays out when a sale is made, making it easy to ensure that the equation works before investing in it.

Vetting Affiliates

• Shady affiliates exist, so it's important to vet them carefully and control who is able to participate in the program.

• WP Engine values its reputation and is careful about which affiliates it works with.

Regretting Not Following Your Gut

In this section, the speaker talks about regretting not following their instincts when it comes to treating people and setting standards for their company. They also discuss feeling uneasy about having someone promote their product.

Trusting Your Instincts

• The speaker regrets not following what they believe is right in terms of how to treat people and set standards for the company.

• They mention not standing up for something that they know is wrong and not acceptable within the company.

• The speaker wishes they had acted stronger in making their beliefs known to everyone.

Skepticism About Promotion

• The speaker expresses feeling "skeevy" about having someone promote their product.

• They explain that when building a self-funded company, one's identity is tied up in the company itself.

Calculating Cost Per Click

In this section, the speaker discusses calculating cost per click and how they measure everything throughout the funnel. They also talk about being willing to spend more money than expected on advertising.

Measuring Everything Throughout the Funnel

• The speaker explains that they measure everything throughout the funnel and segment out costs by marketing channel.

• They mention measuring server costs, support costs, and other factors for each customer.

• Until a business signs up 1,000 customers per month, it may be difficult to use data effectively.

Willingness to Spend More Money on Advertising

• The speaker mentions being willing to spend even more money than expected on advertising to acquire customers.

• They explain that most of their new signups come from word-of-mouth and social media, so they can afford to spend more on advertising.

Using a Formula for Cost Per Click

In this section, the speaker talks about using a formula for calculating cost per click when there is not enough data available. They also discuss the value of having customers even if it is difficult to measure.

Using a Formula When There Is Not Enough Data

• The speaker explains that they use a formula for calculating cost per click when there is not enough data available.

• They mention that the formula is based on assumptions that seem correct in the main.

• Until a business signs up 1,000 customers per month, it may be difficult to use data effectively.

The Value of Having Customers

• The speaker explains that having customers has financial value even over time, even if it is difficult to measure.

• They mention that having customers can lead to word-of-mouth referrals and upgrades later on.