Here at SaaStock, entrepreneurs often ask us how to start their Software-as-a-Service (SaaS) businesses with limited or no external investment. We’re passionate about getting SaaS start-ups off the ground and helping them to scale and achieve success, which is why we love being asked for this kind of advice.
In my work running SaaStock, and through our SaaS Revolution Show episodes, I’ve been able to engage with the founders of some of the industry’s most successful businesses on topics like bootstrapping. Who better to advise on the ins and outs of this process than the industry leaders who’ve built their businesses up from the ground?
In writing this article, I’ve delved into their fascinating stories, looking for their best tips on how to bootstrap a SaaS business. If you’re in the first stages of launching your company, I believe you’ll find the information captured here incredibly useful.
As always, I hope you enjoy the read!
Founder and CEO, SaaStock
“I would say [founding a SaaS business is] a bit of luck and then constant grinding, hard work, and being persistent and focused on what you’re doing.” – Saravana Kumar, CEO of Kovai
Before we go into the details of how to bootstrap your SaaS startup, it’s worth taking a quick look at what, exactly, the term means.
“Bootstrapping” originates from the English phrase “to pull yourself up by your bootstraps”. Simply put, this means improving your situation without any outside help. The term “bootstrapping”, now widely used in the business world, was born from this idea.
Bootstrapping refers to the process of building a business from scratch without external capital investment. This process usually means using your savings, money from friends or family, or what you’ve earned from your first sales to establish and grow your venture.
A well-known example of a bootstrapped company is GoPro. Its founder, Nick Woodman, initially bootstrapped the business with only his personal savings and a $35 000 loan from his mother. Another prominent example is email marketing service MailChimp, which was entirely self-funded and sold to Intuit for $12 billion in the last quarter of 2021.
Bootstrapping pros vs. cons
As I’m sure you know, no business model is perfect. All the different methods of acquiring startup funding have advantages and disadvantages which are critical to understand. Bootstrapping is no different.
Let’s take a look at some of the pros and cons:
PRO: Maintaining control and ownership
Maintaining control is one of the main reasons many founders go the bootstrapping route. As a bootstrapping entrepreneur, you’re in control of all business decisions. You won’t have to make decisions to satisfy the needs of others, and there’s less pressure to succeed in specific, set timeframes.
PRO: The potential for greater long-term rewards
By bootstrapping your venture, any profit made is yours. Venture capitalists or other investors won’t be waiting in line to reap the rewards, too. If you’re bootstrapping and you’re a single founder, you’ll own 100% of the business, and no one else can claim a piece of the pie.
PRO: Founders can focus on customers, not fundraising
Fundraising can cause strain for founders. The process generally takes great effort, can be costly, and may cause delays in getting your business off the ground. Bootstrapping bypasses all of this hassle. As the bootstrapper, you can launch your business as soon as you’re ready and focus primarily on your product and serving your customers rather than trying to impress investors.
PRO: Motivation to turn profitable
Linked to the above point is the importance of turning profitable as soon as possible to ensure your business’s survival.
As a bootstrapper, you’ll need to create a business model that translates into a positive cash flow and profits fairly quickly. This goal, in turn, creates a drive to build a product with excellent product-market fit (PMF). It also promotes good spending habits, which could persist throughout the life of your business. Lastly, bootstrapping can drive innovation and creative problem-solving.
“The lack of money makes you more pragmatic and makes you manage your priorities in a better way,” says Carlos Hernandez, CEO and Founder of Quaderno.
PRO: A clear vision
Business founders usually have a clear idea of where they’d like their companies to go. But be warned: this vision can become diluted and disputed as you add more people to the mix. Achieving your long-term vision may become less important as you chase short-term metrics to keep investors happy.
As a bootstrapper, you can keep your vision front of mind as you move through the stages of building your business.
CON: Founders have to handle it all
Being a bootstrapper comes with much responsibility, multiple roles, and hard work. “Being a founder, you need to know a lot of things,” says Kovai CEO, Saravana Kuma. “You need a level of expertise in marketing, you need a level of expertise in sales and go-to-market strategies, and you need to keep up with everything that’s happening. You need to give customer support and […] there are a lot of buckets you need to fill. The first thousand demos of the product I gave myself.”
Bootstrapping is definitely hard work, but the good news is that you’ll gain many valuable skills along the way.
CON: Missing out on support from investors and financiers
Going it alone could mean you miss out on the valuable guidance, expertise, and experience investors can bring to the table. Investors often have strong networks and bring a third-party perspective to major business decisions. Without this input, there may be no one to critically assess what you’re doing and whether the decisions you make are best for your startup’s growth.
Teamwork’s Co-founder and CEO, Peter Coppinger, recognises the value that can be found in investor support: “We probably wouldn’t have made [the huge tactical mistakes we made along the way] if we had better oversight.”
On the flipside, you’ll be forced to build your own networks and learn through experience if you bootstrap.
CON: Increased financial strain and risk
Bootstrapping comes with a high level of personal financial risk. Using your own money dramatically raises the stakes for success. A bootstrapped business can also be weaker than a well-funded business and more at risk for insolvency. On top of this, the initial investment may not prove enough for the company to become successful.
CON: Not having to put in the groundwork for investors
Preparing pitch demos, budgets, and projections for investors is very useful for founders as it helps build discipline and rigour. You simply have to take the time to think everything through and plan how you’ll grow your business in preparing your pitch.
Chris Hall, CEO of Bynder, agrees that the investor search can be a positive experience for entrepreneurs: “It’s such a good experience just talking to these guys and understanding what metrics are important to them. You’ll be getting great feedback about your product [and] your team. It helped us mature as a company and helped us understand the metrics we should be measuring. […] These guys are going to be some of the smartest people you’ve ever met, and it’s a humbling learning experience.”
CON: Losing out on growth opportunities
The main reason why many entrepreneurs go out to fundraise is to scale their businesses as quickly as possible. Without outside capital, it can be challenging to promote visibility, find new customers through marketing, and improve what you offer your customers to promote fast business growth.
However, it’s worth remembering that it’s always an option to take on funding later in the game, once you’ve scaled your business as far as possible with bootstrapping.
How funding can come back to bite you
For the majority of entrepreneurs, money is a constant concern. Most will tell you there’s rarely enough of it and, if you’re bootstrapping, the financial risk is always on your mind. When the risk becomes overwhelming, external funding may seem like the only option.
But funding comes with its own set of problems. Chris Hall reflects on his experiences starting Bynder before and after investor capital: “[Before investment], your number one, two, three, four, and five problems is money, right? Cash flow. It’s always about cash flow. But remove that problem and your worries really start. This is when you have ten new problems, and you wish [you] only had to worry about money. At least it’s just a number. At least that’s something [you] understand. But now that money isn’t any part of the equation anymore, there are new challenges.”
For example, investors may not have the same long-term vision as you. They may want to be overly involved in strategic decisions, while their interests may differ from yours. They may also be resistant to change. In addition, the share of your earnings will be diluted. The stakes also become even higher to meet your goals for success, as investors are likely to have high expectations that could place a whole lot of pressure on your business.
SaaS and bootstrapping – a good match
The SaaS industry is ideal for bootstrapping for various reasons:
- The market is growing rapidly as more and more businesses see the value of these products and services.
- SaaS products are relatively simple to build and distribute, and open-source developer tools and software can simplify the process and keep costs low.
- An increasing amount of startup advice is available for free (also on www.saastock.com), making it easier to avoid common pitfalls and build a successful SaaS business.
- SaaS businesses usually have a predictable revenue model. So, entrepreneurs can plan their business trajectory and have a clear idea of the time, resources, and costs required to launch and grow their businesses.
- The overhead costs of creating most SaaS products are low compared to production costs in other industries.
- In the early stages, it’s easy for founders and their teams to work remotely with minimal resources and overheads.
Expert advice for bootstrappers
By now, you might be convinced that going solo is the right choice for your startup. With the advice shared below, you should be several steps closer to launching and growing your SaaS business successfully as a bootstrapper:
Develop and launch a minimum viable product
Creating a minimum viable product (MVP) is a development technique in which a new product is released into the market with basic features to get customers’ attention and acquire feedback from the first users. This feedback then guides future product development.
Getting this first step right is vital for bootstrappers, as you probably can’t afford costly mistakes or putting out a fully developed product that doesn’t fit the market.
Be realistic about your market size
Knowing your market size is, of course, vital for bootstrappers. Determining your market’s size will help you assess opportunities and plan your approach to launch your product. When you go through this step, it’s important to stay objective and impartial about your product and where it fits into the consumer market. Get this wrong, and you could end up in a market too small to keep your business afloat.
Don’t hire too quickly – fix it yourself
Determining at which point to hire full-time employees can be tricky. You’re going to feel like you need help at some stage, but you may not have a viable business model to afford a team yet.
Especially in the early stages, see how many problems you can troubleshoot yourself without paying someone else to do it. Equip yourself with the skills you’ll need to run your business and hire slowly, as this becomes necessary for your business.
“Everything is learnable,” says Kovai’s Saravana Kumar.
Keep your paycheck small (and get a business account)
When you’re starting out, don’t expect to be living a lavish lifestyle. Instead, try to pay yourself the absolute minimum so that you can keep your funds to build your product and business. Perhaps you can even avoid giving yourself a paycheck until the company is profitable.
Also, set up a business account right from the start, as this will reduce sloppy spending and allow you to track what adds or diminishes your funds more successfully.
Focus on CX and reducing churn
The most successful bootstrappers focus on customer experience (CX) right from the beginning. Good CX can be achieved with the help of a CX platform, self-service, real-time engagement, and quick responses to customers. A successful CX experience builds communities of happy, loyal customers, which leads to reduced churn.
Teamwork’s Co-founder and CEO Peter Coppinger realised the value of CX early on: “We went off and read every book there is on customer success. We watched every video. We just really learned everything we could.” He adds that Teamwork developed a 90-day onboarding team, a feature-adoption team, and a churn-reduction team. “Every one of those teams has one very clear metric that defines how well they’re doing.”
Guillaume Moubeche, Co-founder and CEO of Lemlist, adds: “For the first six months, even though I couldn’t see any results, I was solely focusing on trying to bring value to people, help them in the community, [and] give them tips […]. The key components of this were being able to improve the product and reduce the support load. When you have a community, people will ask their questions to the community because they can get additional advice etc. [This also] drives growth through word of mouth.”
Build a remote team and save
Remote teams will save you the money needed for leasing office space, purchasing equipment, and covering other overheads. Also, the cost of hiring labour from overseas is often lower. Start your business by managing a lean team and filling any gaps only when absolutely necessary.
Get your processes straight
Your processes need to be a key focus, both when you start your business and as you move into the growth stage. Take the time to set good processes and systems in place (for example, how to onboard new customers) – and you’ll reap the rewards in years to come.
David Darmanin, Founder of Hotjar, says: “The example I use is that an airline pilot may have flown millions of miles. But every time they sit down, they’ve got to run through that checklist before they even take off – just to make sure they’ve got everything covered. They can’t remember hundreds of things they need to do to get their plane running.” He adds that he only now really understands and appreciates that, when you get to the growth stage of your business and you want to scale, having good processes in place makes all the difference.
Don’t always cut corners – invest in the right tools
You’ll often read articles telling you to cut corners to survive as a bootstrapper. While this is usually true, it’s worth investing in some key tools, expertise, and processes that will save you time and money in the long run. For example, investing in a good, optimised website, Google AdWords, and social media marketing could help you quickly grow your business.
Keep checking in on PMF
Lastly, keep a close eye on your PMF as your business grows and develops. It’s vital to keep checking that your product still meets the needs of consumers in your market as time goes on.
Carlos Hernández of Quaderno shares his experience: “At the beginning, my first SaaS was an invoicing tool for freelancers. It was quite successful in Spain, but I didn’t get enough traction. So, in 2014, I decided to take some of the technology I designed for this business to create Quaderno and focus on the international market and accounting automation. So, we started there and finished all around the world.”
When to seek external funding
There’s no one easy answer to the question of when to turn to external funding. Every business is different. Rather than applying a hard-and-fast rule, it seems best to approach external funding introspectively. Ask yourself: have you grown your business as much as you can without external help? What are your short- and long-term goals? Do you want to continue scaling the business?
When you’re unable to grow any more, or quickly enough, due to a lack of funds, it may be time to start looking for external funding sources to continue the development of your business. Note that timing for external funding is critical. Get it too early, and you could become overwhelmed by investors’ expectations and build a product that isn’t 100% right for the market. Get it too late, and your business growth could grind to a halt due to a lack of funding for the resources you need to find investors.
Once you’ve established the right time for your business to look outward and seek external funding, you can start doing your research on funding options such as incubator programmes, accelerators, angel investors, or venture capital. From here, the search for funding can begin in earnest.
Don’t go it alone – sign up for SaaStock Founder Membership
There’s no need to tackle the bootstrapping of your business alone. SaaStock is here to help. An easy way to get access to a wealth of information on how to make your business a success is by joining our SaaStock Founder Membership. As a member of this private community of founders, you can interact with peer groups, be part of a global network, and get access to our workshops and resources. Our experts and community will provide you with the support and advice you need to successfully bootstrap your business.