Bootstrapping a software company is the best way to build wealth.
Jason Cohen has bootstrapped 4 software companies from 0 to $1+ million in revenue.
Two are now worth $1+ billion.
Here's his exact plan to self-fund startups:
The Goal
Build a self-funded business that predictably gives you $10,000 per month.
We aren't trying to change the world.
Just build a business that funds your lifestyle and is fun to work on.
Three areas to focus on to hit our goal:
- Revenue Model
- Market Model
- Acquisition Model
Let's start with revenue...
Revenue
To hit $10,000 per month you need 150 customers paying you ~$67 each per month.
Recurring revenue is the only reliable way to hit this target. Then you only have a acquire a customer once.
Acquiring customers doesn't get easier.
First 50 Customers: Scratch & Claw
For WPEngine he reached out to WordPress consultants (his target customers) on Linkedin and offered to pay whatever they wanted to look at his product and tell him what they think.
No one asked to be paid. Many put money down pre-product.
Next 100 Customers
Ignore social media and blogging. Focus on ads.
Jason's blog had 40k readers. He tried to sell his blogging software to them and got 2 customers from it.
Ads are repeatable: Spend X dollars on ads. Get Y dollars in revenue.
Be a Boutique
You aren't a huge company. Lean into that.
- Be expensive
- Be special
- It works in every profession
Customers like to support one person making a go of it.
Cash is King
Do annual prepay for two months free so you can spend that money right now on growing your business.
You can make annual prepay even more enticing by upping the monthly costs and giving 50% off for annual.
Give bloggers coupons for three months off to grow.
Charge More
ARPU (average revenue per user) is the most important metric for small SaaS businesses.
Basic 3 pricing tiers: $49 / $99 / $249 and highlight the middle one. Call the most expensive one the “Business” tier.
Raise prices. Do it again.
No Free Trial
Do a 60-day money-back guarantee instead of a free trial.
Converts better. No one uses it and you get the money upfront.
Here's a graph of the number of customers after WP Engine changed from a 14-day free trial to a 60-day money-back guarantee.
Bad Markets
Never sell to consumers. They don’t spend money. Hard to get someone to pay $1 for a mobile app.
Avoid temporary pain / point-in-time. Ex weddings, events. Not recurring.
Avoid marketplaces - You have to build two businesses. Need sellers and consumers.
Good Markets
Naturally recurring. Ex: anything tied to financial cycles (invoicing, taxes, reporting, admin, HR). They have to pay for it.
Pain that changes over time: Ex: SEO, PPC, email marketing, support
Not real-time. Ex: analytics, metrics, finance (ex invoicing), project management, content.
Something that can be finished. Avoid competing on features.
Add-ons. Anything attached to an established product such as Shopify or WordPress.
Go for big markets with multiple niches.
This means that people actually want the product already. Demand is validated.
Find your niche and then expand.
TLDR on a Self-Funded Business
- Revenue: get 150 customers paying $67+ per month
- Market: choose a big market. Build a product that people need and is naturally recurring.
- Customer Acquisition: Focus on ads over content. With annual pre-pay it creates a cash machine.
Go watch his 2013 talk on "Designing the Ideal Bootstrapped Business"