A few months ago I wrote about the difficulty of self-funding a rapidly growing startup. If you haven’t read that yet, go and do that now. I’ll wait.
Here’s the quick timeline:
- JAN 2013 — Started on the idea for ConvertKit
- JUN 2013 — Reached $2,000 a month in recurring revenue (MRR).
- SEP 2014 — Revenue declines to $1,330 per month.
- OCT 2014 — Make the decision to double down on ConvertKit. Focus full-time, hire a team, and invest $50,000.
- JAN 2015 — $3,000 MRR
- JUN 2015 — $10,000 MRR
- OCT 2015 — $25,000 MRR
- DEC 2015 — $97,000 MRR
- FEB 2016 — Growing quickly, but just barely profitable with only $30,000 in the bank. Make the decision to get profitable as quickly as possible. Goal of 3 months of expenses in the bank by July 1, 2016.
We didn’t do much to cut costs (just renegotiated a few contracts), but instead focused on efficiency so that our new costs wouldn’t grow as quickly. Basically revenue and expenses should not be directly correlated.
Growing to profitability
Since we already were on a solid growth trajectory we just needed to stop increasing our spending lock-step with new revenue.
Renegotiate
The first step was to renegotiate every contract I could. Since our credit card processing volume was over $100,000 per month I was able to switch our payments from a flat 2.9% to a split 3.5% for Amex and 2.2% for everything else. This gave us about a 17% savings each month, which came to $800 per month at the time (a lot more now).
Then with our email infrastructure provider we were able to switch to a managed service, saving about $900 per month. That dropped our bill from $3,900 to $3,000. Though now it’s back to almost $9,000 per month—since we send 90 million emails each month!
We were also able to save about $300 a month on our affiliate management software.
Cut costs
Over time there are a bunch of expenses that just slip in there and are no longer needed. Since we’d been buried with growth I hadn’t kept my eye on the little things. After going through the credit card statement I was able to cut about $800 per month in expenses. Mostly from a lot of small things.
Total savings from cutting costs and renegotiating contracts were about $2,800 per month. We could have saved more by switching to annual prepay with many SaaS vendors, but that would just hurt our short-term cash situation, rather than help.
Getting efficient
The major work came in increasing our efficiency so that we could serve far more customers with the same team size. In February we had 14 people on the team serving 2,300 customers. The team was split between 4 people on customer success, 5 developers, 3 in sales/marketing, 1 in operations, and then myself.
So the goal was to double our customer base (and revenue) without increasing headcount.
I think that most startups underestimate their own efficiencies when they are growing quickly. Honestly, we were so inefficient it’s a little painful to think about. There’s still a lot of work to be done, but on the support team there are a few changes we wanted to make:
- Decrease tickets per customer. To do this we focused on improving documentation and linking to it in the app at the right time and place. Then the dev team worked hard to cut down on the bugs and confusing issues in the app that were generating the most tickets.
- Increase replies per team member. This metric is easy to game so we don’t track it that closely. But in short the goal is to get our team more efficient and be able to answer more tickets in the same amount of time. This came from writing better canned responses, learning keyboard shortcuts, and spending more focused time in the queue.
- Improve the quality of our responses. The high volume in the support queue is often from it taking several emails back and forth to find the problem. Also tickets that are more difficult (HTML/CSS customization, etc) would sit longer in the queue as they were skipped over for easier tickets. So we held live trainings for the support team on deliverability, coding in HTML/CSS, and more advanced functions of the app. This gave even the newer team members more confidence in troubleshooting harder tickets.
Results
We were able to take our average response time from 24 hours down to below 8 hours. Still not where we want it to be, but significantly better. And this is with supporting more than double the customers.
Development
On the development side we had to put a lot of energy that normally goes into feature development into infrastructure. During this time we doubled our monthly email sending and page views on embedded forms, so that meant a lot more server infrastructure and more efficient code.
In theory we could have maintained our development speed by hiring more developers, but having worked on larger teams that tried exactly that, it rarely works in practice.
I have to say a massive thanks to our development team who supported massive growth while still remaining small.
The numbers
Alright, let’s get into what happened on the numbers. In February we had $30k in the bank and almost no profit. Here’s how we turned it around. The projection is on the left, actual numbers on the right:
(Note: this comes from tracking our rough expenses and our bank balance each month. So they aren’t final accounting numbers, but are pretty close).
We saved up $538,000, beating our goal of $460,000 by $75,000. In May and June we pulled off over 50% in profit! The final profit in June was $162,000. I think that level of profit is unheard of for a fast growing startup.
Here you can see our MRR in blue and expenses in green:
Note: I hid the first 1.5 years from this chart because it made this into so much of hockey-stick it was hard to see the detail in the last few months.
It certainly helps to have such fast growth—we certainly wouldn’t have been able to cut our way to that level of profitability.
What are we doing with the money?
Not much. The goal was to have cash in the bank to give us peace of mind. Now that’s taken care of we’ll continue to be cautious with spending. Though we are loosening the purse strings in a few areas:
- Team retreat. I’ve been wanting to get our entire remote team together in the same room for a long time. Up until now we haven’t felt like we could afford it. Now the retreat is happening in late August in a small mountain town north of Boise.
- Personal finances. I’m personally still at a net-negative from ConvertKit, meaning I’ve invested more money into the company than I’ve been paid. Since I let my training business taper off over the last 1.5 years I haven’t made much since focusing on ConvertKit. So I’ll be repaying my initial $55,000 investment in the next month or so.
- Paid Acquisition. During this time we’ve spent very little on paid acquisition (about $1,500 per month). This is a huge channel for many startups, so we’re ready to give it a try.
- Hiring. We’ve recently grown from our small group of 14 to 20. Our new team members are joining in design, development, content, sales, brand/community, and customer success.
Hiring seems to happen in spurts for us. We grew quickly from 4 to 14 between October and January, but then stayed steady between 13 and 14 until June. Now we’ll jump up to 20, but we’ll try not to get much beyond that for at least 3 months.
The goal is always to keep our team as small as possible, without hindering growth.
Did we sacrifice growth to pull this off?
Yes. I’m certain we could have grown faster if we’d been spending aggressively on Facebook ads, hired faster for our customer success team, and attended or sponsored more conferences.
There’s no way to know what we missed out on by not spending the money. Everyone agrees that it was something, but there’s no way to know if it was a few thousand a month in MRR growth or something significantly like $10k-20k or more.
Slower growth in June
This may have contributed to slower growth in June. Our goal was to add $60k of new MRR in June, and we closed out just shy of $40k. This has us working hard to get more robust systems and tracking in place for growth. I think we’ve been able to get by with looser processes since everything has been going so well.
This could also be purely a seasonal change. December was a big month because everyone was making plans for the new year. June may be slower because everyone is taking off for the summer. Our growth is still too new to really predict seasonal changes.
So was it worth it?
Outside cash is expensive. Let’s say we raised this $500,000 from investors instead of saving it. Back in February our annual run rate (MRR x 12) was at $1.8m with a monthly growth rate over 20%.
But the publicly traded SaaS companies had just taken a huge hit (remember when LinkedIn lost half its value in a day?) and hadn’t yet recovered. So all the VCs were talking about cuts in valuations. Also running a remote team, outside of the valley doesn’t help.
I think if we really tried—mainly because of the growth rate—we could have had a 8-9x multiple on ARR (though most of my conversations never got that far).
That means roughly a $15m pre-money valuation. To raise $500,000 I’d need to sell 3.3% of the company. Though at that stage, major investors wouldn’t want to invest so little. Instead they’d want to buy 15-20% for it to be worth the partners’ time.
The more I considered that path the less I liked it.
Would raising money force us toward an exit? What if I want to take distributions from the company? Would the new board of directors be against that? (Most likely).
Other than a salary of $63k/year that started in January of this year I haven’t been paid anything from ConvertKit. Instead of continuing to just make a salary until a hypothetical acquisition date, I’d like to also get paid well along the way. I gave up a lucrative book/course business to focus on ConvertKit and I miss that revenue.
By saving our own money I still have options. If ConvertKit stops growing at any point in the future then we still have an amazing business with $300,000 in revenue and half that in profit. That will do just fine.
Bootstrapped is harder
There have been a few times when I’ve been frustrated at how the startup world doesn’t support bootstrapped companies. The two more recent times include:
- Amazon AWS denying us access to their Activate program since we aren’t VC funded or haven’t been through an accelerator. This program gives startups $15,000 to $100,000 in AWS credits
- Silicon Valley Bank declining to talk to us about a line of credit since we aren’t VC backed—even though our profitability, cash on hand, and growth are far better than most VC backed startups.
I totally understand the business reasons for their decision, but some days it feels like the game is rigged against bootstrapped companies.
Factors in profitability
Now we do have some distinct advantages by not going the traditional route:
- We don’t have an expensive office or any of the costs that come along with it.
- We hire outside of major markets so we can pay competitive salaries that are still lower than NYC or SF.
- We focus our benefits on flexibility, quality of life, and a great team over the highest pay.
- We aren’t spending someone else’s money. The team and I worked hard for every dollar that’s in our bank account. Because of that we think carefully about each expense.
Wrap-up
Focusing on profitability was incredibly healthy for the company. We learned to be disciplined with our money. Every company should learn that. Only the companies with best profit margins can put off having to learn that lesson—or you just keep spending someone else’s money.
I hope our story of increasing our bank balance by 15x in 5 months gives a different perspective of what can be possible with startups.
Finally, I want to say a huge thank you to David, Marc, Matt, Nicole, Ashley, Val, Brad, Noel, Darrell, Blake, Violetta, Steven, Newbill, Dani, Jure, Dylan, Alexis, Barrett, and Morgan. You are all amazing. I couldn’t ask for a better team.
Thanks for sharing, Nathan! These are nice numbers to see as a happy customer :)
Thanks Brad! Really appreciate your support.
Nathan – the transparency on this is once again amazing, so glad you keep doing this. Also the 3x growth since January of this year is astounding. I suppose in retrospect, getting VC funding seems like a terrible idea, but back in January it was a hard decision to pass up.
I’ve learned so much keeping an eye on your ConvertKit growth reports over the years and it inspires me to work harder on my own thing!
Hey Joe,
I think there would have been nothing wrong with raising funding back in February, though I’m glad we didn’t do it. There are plenty of paths to take, I’m sure they would have worked out just fine.
Fantastic! It’s great to see the hard work and hustle is paying off.
Thanks for being so open Nathan!
Dude can’t be more proud of you. Keep pushing forward.
This was really interesting to read–gives me ideas for my own business.
Congratulations on the profit growth! ConvertKit has made my job a lot simpler, and I really appreciate all the work you and your entire team have put in to make things easier for users like me!
Great business success story, congratulations to you and your team. You’ve a distinct advantage now that you didn’t go the vc or similar funding route in that you’re completely self sufficient and free to make decisions without outside agenda. More power to you!
Love reading about ConvertKit and the path you’re on. It’s interesting to know that AWS didn’t accept you into Activate.
At Phaxio we’ve been bootstrapping since 2011 and we got into Activate in 2014 pretty easily.
I’d also love to hear how you determined what headcount to have for each department and when to hire.
Interesting – but I must admit I didn’t understand all of it, not having a business background. What is Paid Acquisition? Also, I have no idea what VC is. What does this mean? “Amazon AWS denying us access to their Activate program since we aren’t VC funded or haven’t been through an accelerator.” Cheers and well done.
Paid acquisition is a method of getting new customers through spending money. Usually Facebook or Google ads to promote your product. VC = Venture Capital.
Your transparency is amazing and I’m so excited about your company. Congrats on the growth!
On the funding side, I hope you follow your heart. If it doesn’t feel right, don’t do it. There are a lot of players on the sidelines pushing startups to raise VC even if it’s not right for them (ulterior motives?), and being “right” for you doesn’t mean that you’re not ambitious, but that you believe it will change the company for the worse. Stay true to that.
Plus, you’re absolutely right that you are doing better than the vast majority of VC-backed startups pre Series-B even. You’re disrupting the system more than anyone else in this industry. That’s fucking rad.
Congrats Nathan! Encouraged to see the growth of ConvertKit. Very inspiring for startups and entrepreneurs everywhere!
Great work – you rock.
Appreciate the transparency! Makes me feel warm and fuzzy about my monthly subscription. Converkit has been the first email marketing platform i’ve used. I’ve been putting it off since 2009. yes, 2009 lol. Everything else was frustrating or wasn’t out of the box ready to use. Converkit was for me. I see big things for you guys and I recommend you anywhere I can.
Thanks Lisa!
So damn good… Nathan I have so much respect for what you’re doing and I hope you are fully aware of the fact that you are a beacon of hope for all bootstrapped companies. My brother, sister and I are attempting to bootstrap a product and it is incredibly hard to keep money coming while we’re building out the product. I’ve been a customer since your web design handbook. I just wanted to let you know that I appreciate what you’re doing and thank you for sharing!
Congrats Nathan and team!! I’m so happy for you guys and really appreciate the detailed story of what it really takes to be a successful, bootstrapped startup. You continue to inspire all of us as you teach everything you know. I’m a proud ConvertKit customer and plan to stay that way for a long time!
Cheers,
Mary
I look forward to these update posts and I’m so excited for the future of ConvertKit. Well done.
Thanks Donnie! Always appreciate the support from you and Abby.
Another ‘behind the scenes’ post that talk about your strategy, execution, and results. I liked ‘Getting Efficient’ in particular, along with the graph of course. Thanks Nathan, for sharing your experience!
Congrats Nathan — great to see the progress you’ve made since ConvertKit started as just an idea on this blog. This is inspiring!
Amazing story! Thanks for sharing.
Nathan, this is exactly the kind of company I like to give my money to. Thanks for the great article, and keep up the amazing work. Every day I have more reasons to be glad I went over to Convert Kit.
Deena
Thanks Deena!
Congratulations Nathan, I am learning a lot from you, while enjoying your service.
Awesome to read Nathan, very inspiring and motivational. From $3k to $300k+ MRR in ± 1,5 years.. Respect!
It’s insane. So much better than I could have ever imagined.
Hey Nathan,
Thanks for your extremely open and candid sharing of your numbers. VERY well done indeed!
I DO have 1 question though …. Why you would not build your own sending infrastructure?!
It is a little expensive and difficult at first, but, in the medium to long term, you will put a LOT more money in your pocket.
Not trying to sell you any service here, but, would be more than happy to talk you through what you need to do to build your own sending infrastructure. Have done it myself, and managed it for over 7 years.
Ping me on my email, and we can schedule some time for a Skype call. No charge ;-)
It’s a lot more to manage. We may do it eventually, but it’s not worth it right now. Our bill is still under $10k per month and I want to keep a small team. So it makes sense to keep that outsourced to the experts.
Great news Nathan!
Good to know that our investment in integrating CK much deeper into WordPress than CK’s plug-in provides at the moment will deliver a return on investment… :)
(The new site will go live over the coming weekend.)
Cool article Nathan!
Keep up the good work!!!
Awesome article – thanks for being so transparent with your journey Nathan!
Awesome to see your progress Nathan. Keep up the good work!
Amazing. Inspiring. Terrifying! Congrats on the current successes & best of luck (which you’re manufacturing) on future growth. I look forward to a book from you on what you’ve learned. I’ll be the first to buy it.
What did you use to find these customers?
Hi Nathan,
Thank you for your inspirational post.
Your honest and refreshing account of your business growth really makes me appreciate the passion dedication you have put into Convertkit to make it a one stop package.
Chris.
Thank you for such an amazing write-up and the level of care and detail that you put in. Congratulations on ConvertKit and keep up the good work!
Amazing results! And thank you for sharing your exact monthly numbers!
Hi Nathan, thank you for such a transparent post. As a first-time entrepreneur who’s just starting, this is quite useful.
My I ask what kind of database you use at ConvertKit? Is your team happy with your solution? There are so many options right now..
Thank you very much for sharing this!
Hey! Awesome post. I think more startups should follow a model similar to yours: why many startups are proud they don’t make a dime but are “growing”?
Why revenue and profit are two words many startups refuse to go after?
Anyways, thanks for sharing your experience. I’m just curious about one thing:
If you don’t spend much on Paid Acquisition what’s the biggest source of acquiring customers? Content marketing? Attending/sponsoring events? Your own network?
:)
Thanks!
Keep up the great work Nathan and ConvertKit team. I keep telling people about this Nathan Barry guy in Boise, his success story and about ConvertKit wherever I go.
Whoa! Awesome growth! Is this all through WOM and integrations?
Hi Nathan,
congrats on the continued success and thanks for writing this interesting piece for everyone.
Coming from the other side of the fence (venture backed business), I feel that you probably didn’t lose out any growth by focussing on profitability the way you did.
By focussing on your cost side you made your product more frictionless (through reducing bugs) and improved your customer service metrics. You did both primarily in order to save cost, but they are key cornerstones of driving word of mouth, which seems to be your primary source of growth.
With the old hammer / nail analogy. Having money quickly makes every problem look like a nail that can be solved by throwing money at it. It is so easy to simply increase the marketing budget when growth is slowing and so hard to resolve the root cause of slowing growth in your product or your organisation when venture money is obscurring your view.
While many things are harder when you are bootstrapped, I believe the way you focussed on the cost side has probably helped you grow more than paid acquisition would have.
Great achievement! keep up those numbers Nathan! I’m bootstrapping my startup myself… and it’s hard. Thanks for sharing.
Hey Nathan, amazing post. Your success with convertkit is inspiring, especially for someone like me who wants to expand the revenue streams by SaaS. For now, my main stream is freelance SEO but I’d love to combine my SEO skills and get into SaaS business and maybe even serve the SEO industry.
I wish you 1 000 000 in monthly revenue!
Billy
Great post, Nathan. It’s amazing what you guys have built. I’ve never heard of a bootstrapped company with those numbers of growth and profit.
Hi Nathan and congrats on the growth you’re getting. It’s great to see real numbers as many companies aren’t as transparent as you. Keep up the good work!
Hi Nathan,
Amazing work and strategy. Good to see that bootstrapped companies can make it and I totally feel the same – “There have been a few times when I’ve been frustrated at how the startup world doesn’t support bootstrapped companies.”
Keep up the good work!
Breath of fresh air in the land of “raising money is the key to success.”
Great stuff Nathan and dude… CONGRATS!
GREAT WORK!. Im a very happy customer from Panama! and Ive been trying to convert as many people as I can :)
Your transparency, integrity, and character – not to mention the awesome product you and the team have built – make this such a great story. Thank you for sharing Nathan.
Wow! Love this post. The fact that you share the #s and the real insights you picked up along the way. Wish more people would blog on this calibre. Thanks for sharing Nathan :)
Great stuff Nathan! That was a really insightful read and timely, as our team of four has just made our main goal to get to profitability. Taking money from VC firms is tempting and can create really explosive growth, but I’ve witnessed some difficult power plays in investor relations and can confidently say the peace of mind of complete control doesn’t have a price tag.
Keep up the good work!
Thanks for for being so transparent. I love when business owners document their journey. It’s very inspiring.
Killer post, and some really hard truths in there that a lot of founders don’t like facing up to.
Really like your comment on funding: “Outside cash is expensive”. So many startups get obsessed with raising VC funding, but fail to work out just how damn costly it can actually end up for them. It’s important to remember that you’re typically forced to offer up a huge amount of equity, while the VCs risk a fraction of their capital in exchange – the risk/reward is never equal for both parties!
Congrats on the transparency, Nathan (and the 51% profit margin turnaround)! Only found you today but am already inspired.
Wow, this is really inspiring and appreciate how open you are with all your numbers and thought process. It’s unbelievably helpful when figuring out how to grow my saas business.