The Ideal Bootstrapped Business 
Tags: startup, business, entrepreneurship
Published: 2020-02-03 14:33:11

---
title: The Ideal Bootstrapped Business 
published: true
description: Notes from Jason Cohen's presentation at Microconf 2013
tags: startup, business, entrepreneurship
cover_image: https://dev-to-uploads.s3.amazonaws.com/i/m5ubqrbjkmx4knu1mzae.jpg
---

I recently watched Jason Cohen's excellent presentation from [MicroConf](https://microconf.com) in [2013](https://microconf.com/videos-2013). Jason is a successful entrepreneur and has founded several companies including [WP Engine](https://wpengine.com) and [Smart Bear](https://smartbear.com). His presentation was chock full of great information.

https://vimeo.com/74338272

Here are my notes. Hopefully you'll find them useful.

---

Most companies don't work. They either fail to build a product that people want, or they build something that doesn't embrace the constraints of a small company.

# The Self-Funded Startup

A self-funded startup is a **cash machine** with **predictable** acquisition of **recurring** revenue that offers **annual** prepay in a **good market**.
 
## Revenue Models

- 🚫 **One Offs** - Every month starts at zero and requires new sales efforts... the opposite of a cash machine.
- 🚫 **Picking Up Pennies** - Skimming a percentage from other financial activity i.e. donations, transactions, etc... an inefficient cash machine.
- ✅ **Recurring Revenue** - The only way to build a cash machine.

---

Getting 1,000 customers at any price point is really hard. **150 customers** is more realistic to start.

### 150 Customers

- 50 from scratching and clawing
- 25 from social media marketing
- 75 from standard marketing

**Average Revenue per User (ARPU)** is the most important metric that you can track while you're small. Set a goal to hit $10,000 in monthly recurring revenue with 150 customers. That means your pricing should average $66/mo per customer. 

Founders are hesitant to charge enough because they know their product is shitty in the beginning. Find ways to justify a higher price. Also, embrace the fact that you're running a **boutique** business. People are willing to pay more to help small companies they believe in.

#### Pricing Tactics

- **Tiers** - monthly/quarterly/yearly
- **Specials** - higher monthly price with various coupons and discounts
- **Annual Prepay** - will solve cash flow problems

    If just 25% of your customers elect annual prepay, it will yield over **3x the cash flow** that monthly plans provide. Here are some tactics to convince more customers to opt for annual prepay.

    - **Annual Only Coupons** - 3 months off
    - **High Monthly + 1/2 off Annual** - raise monthly prices & offer steep annual discounts
    - **Business Tier** - name the most expensive plan "Business"... some will opt for this simply because they want to spend the most

#### Revenue Tactics

- **Money Back Guarantee** - will produce more revenue than free trials.
- **Premium Support** - paid offer to move a customer's support tickets to a priority position in the queue. Doesn't require additional labor but is very much a value add for the customer.

## Market Models

- 🚫 **Consumer (B2C)** - Extremely low price and very high maintenance.
- 🚫 **Point-in-Time** - Pain points are temporary and not recurring or sustainable. *Weddings, events, etc...*
- 🚫 **Viral** - Very low probability of actual virality or revenue.
- 🚫 **Marketplace** - Difficult to build. Requires creating two different businesses and balancing their growth.
- ✅ **Naturally Recurring** - Anything tied to regular cycles or underlying volatility. *Hosting costs, marketing tools, invoicing, reporting, SEO, HR/compliance, etc...*
- ✅ **Naturally Latent** Anything without real-time requirements. *Decision support (analytics & reports), content, project management, etc...*
- ✅ **Completable** - Smaller product scope mitigates feature creep and allow you to focus on customers without racing to add every competitor's features.
- ✅ **After Market** - Add ons to an existing product or service.

Choose a **big market**. Product validation already exists and customers are easier to find. There's plenty of money and room for competition. Servicing a niche in a big market provides the flexibility to pivot or expand as needed.

## Acquisition Models

- 🚫 **Social Media** - Very expensive (time and money) and doesn't produce predictable recurring revenue.
- ✅ **Paid Advertising** - Very predictable and repeatable.

Rules of thumb for acquisition costs. 

- Low bar is a $300 spend for $50/mo in revenue.
- Basic CPC (Cost per Click) Formula: `CPC = Monthly ARPU / 25`

*Your formulas will become more sophisticated as you experiment and gather data.*

## End Game

Successful companies continue to grow. They don't stop. You need a plan.

- Sell and take your exit
- Deliberately limit growth (raise prices, waiting list, etc... will change your clientele)
- Raise money to fuel accelerated growth