It is easy to get taken in by the allure of entrepreneurship. People gravitate towards visions of eight-digit seed funding sums, several additional rounds of investments, and finally that glorious payout in the form of a billion dollar exit.
They peruse tech blogs like ours and gaze wistfully at the gargantuan sums of capital being moved around between investors and startups. But if you dig deeper, you’ll see the other side of the coin. Being an entrepreneur is far from sexy – it’s blood, sweat, and tears shed constantly in the hope of the great exit. Juggling both investor expectations and the day-to-day task of building your business up is incredibly taxing, and certainly not for everyone.
Jon Yongfook, founder and CEO of Beatrix, believes there is another path that is equally rewarding, and that is to bootstrap. He has good reason for his faith: just last week, he sold his press release delivery platform Pitchpigeon to US-based marketing company Mikrolink for a sum which Yongfook would only describe as “a very healthy multiple of [Pitchpigeon’s] annual revenue”. Pitchpigeon was entirely bootstrapped.
Given that the startup was bringing in yearly profits upside of five-figures, the sum likely isn’t too shabby. Additionally, since the business was bootstrapped right from the start, every cent of the deal went straight into his pocket.
Yongfook is not the first to advocate bootstrapping – several well-respected veterans like Jason Fried of 37Signals advocate focusing on your startup’s profitability from the get-go.
In Yongfook’s opinion, bootstrapping is the fastest route to profitability:
It’s funny how you can talk about your company and say, ‘we have 500 customers,’ and people think nothing of it because it doesn’t sound like an impressive number. But in the SaaS [Software as a Service] world that’s the rate at which you measure things. At roughly 1,600 customers, with an average subscription fee of US$50 per month, you’re bringing in almost a million dollars in annual revenue, with the vast majority of that being profit as it’s all software. It’s a business model that is far more fun than something more consumer or internet oriented, where you’re burning more cash than you’re earning in order to acquire customers.
Profit from day one
When Yongfook began working on Pitchpigeon in early-2013, he made up his mind to only pursue ideas that could be profitable right from the start.
“I’m a Rails developer, so if I get an idea, it’s pretty easy for me to build a quick prototype to test the idea out,” he explains. “I built the first MVP [minimum viable product] version of Pitchpigeon in like less than a week, and tested the value proposition by putting it on Hacker News and a few other places. It got a really awesome response, making money from day one.”
According to Yongfook, that was probably the one and only time he did any marketing. From then on, hundreds of paying customers signed up for the service, at a cost of $50 to $80 per press release sent out. He admits that while the profit wasn’t earth-shattering, it was a comfortable source of passive income.
His current business, social media planning app Beatrix, came about in pretty much the same way. “I wanted to build something a bit more technical that solves a big problem – something that businesses would feel is worth paying for. I had this idea for an analytics app for social media, and started to pitch the idea to potential customers,” he recalls.
“Every single one of them said something like, ‘this looks cool, but to be honest we suck at creating content so there isn’t really enough content to analyze in the first place.’ I realised then that content creation was the big and complicated problem that needed solving. I launched Beatrix again with an MVP, and it made money from day one.”
The case against funding
Possessing that sum of extra money from investors has its benefits. It would certainly have helped accelerate the growth of Pitchpigeon, and Yongfook was fully aware of this.
However, he approaches his business as a marathon and not a sprint. “I’m totally okay with growing slowly and steadily. This isn’t a race – I’m not VC-funded and therefore do not need to jump from funding round to funding round,” he says.
Independence from having to answer to your investors is another plus point. Taking money from someone essentially means that the team has to put accountability on the list of to-do tasks, of which there are surely many.
“The reason I create startups is not to get mega rich, nor to be in charge of a big company. I do it because I like the idea of total independence and freedom to do whatever I want,” Yongfook reveals. “And the moment you take on someone else’s money, you kind of lose that.”
There is also the ever-present danger of one becoming complacent due to having an abundance of money in the bank. Many startups have burned through relatively large sums of cash in record timing, simply because they had it there.
Yongfook thinks bootstrapping will force entrepreneurs to focus on revenue, instead of how to spend someone else’s money. He wrote in an article:
When you don’t have a chunk of funding sitting in the bank account, you spend money more frugally. In general I think this is a positive trait to cultivate as an entrepreneur. The opposite is extremely detrimental; frivolous spending on fancy office space / furniture / toys etc. Not all funded startups are guilty of this of course, but funding does enable this behavior.
The cherry on top of the cake comes at the grand finale. Yongfook sold Pitchpigeon and received money straight into his bank account within a paltry two weeks – which is highly atypical for a startup.
“[Pitchpigeon] basically ran on autopilot while I worked on other stuff, and when I decided to sell it I just hired a salesperson to do the legwork, no running around pitching to acquirers,” he says. “It was sold basically via a private auction, so in fact I don’t even know much about the acquiring company. But their wire transfer cleared so that’s the main thing, and it’s nice not having any external investors to think of.”
Some argue that the capital is required in certain cases to even a startup’s operations up and running at the beginning. His advice: “Do some consulting and get paid! When you’re cash flow positive, you’ll wonder what all the fuss of raising funding is about – and you’ll own a hundred percent of your company.”
Yongfook is now working hard on Beatrix, which as a monthly subscription service, is seeing even better cash flow than Pitchpigeon did. He is making a comfortable living off it, as the web app has hundreds of paying customers, each paying between $20 and $100 per month.
His goal this year: get up to 1,000 paying customers while bootstrapping, of course.