Build Your SaaS

We're 7 days away from the launch of Transistor. Justin is reflecting on bootstrapping.

Show Notes

In 2013, I interviewed Jason Calacanis, the angel investor.

One of the things I asked him: "Why do venture capital investors take these big risks with their money?" 

"There's a lot of money in the world. There are trillions of dollars just sitting around, and people are bored. The money is bored! Money wants to burn! Money does not want to sit in a safe."

Uh. What an interesting idea: "the money is bored."

Jon Buda and I are bootstrapping Transistor.fm and Spots.fm. We've invested our own money into both of these projects.

When you're self-funding a startup, your money is the opposite of bored. Your money is stressed. You're caught between these two realities: you're investing real time and money into the product, but the product isn't yet giving you anything back.

For example, we're launching Transistor.fm on August 1st.

Right now we have 51 early access customers and $781 in MRR.

Let's say that when we launch on August 1st, we double MRR to $1,500.

To get to $21,000 in MRR (enough for Jon and me to focus on Transistor full-time), it will take five years (assuming 10.0% exponential growth and 5.0% churn).

Five years. 60 months. That's a long time to wait for a paycheque.

There's this tricky tension when you're bootstrapping a SaaS. On one side, you're investing in this product that could be an incredible asset.

If Transistor hits $20,000 a month, that's dependable, recurring revenue.

But on the hand, investing all that time and money in something that isn't a sure bet is a risk.

It's easy to see why bootstrapped founders get stressed. It's easy to see why many experience burnout and have to quit.

That's something Mike and Fred talked about on their podcast, Hit Reply.

Bootstrappers who are building something new have to walk this fine line:
  • We need to invest a considerable amount of effort to launch our product.
  • But we also need money to live, and it can be years before a SaaS can support you full-time.
Which has me thinking about Basecamp.

What Jason Fried and DHH achieved with Basecamp is what most bootstrappers aspire for. Heck, most of us would be happy for even a fraction of their success.

They've long been the example of how you can self-fund a product, bring it to market, grow it, and have it succeed.

But the story many of us are telling ourselves about how they achieved that success isn't quite right.

Yes, they've bootstrapped Basecamp since 2004.

But in 2006 they didn't something a lot of us bootstrappers haven't paid a lot of attention to.

They took investment!

I recently read this interview with DHH on Startup.co. The interviewer asked:

"As you’ve built Basecamp you’ve been very vocal about resisting the temptation of unicorn culture. How have your perspectives changed?"

David's answer is interesting:

It wasn’t without temptation or struggle to stay like this. Especially in the early years, before our bombastic views on venture capital, the IPO rat-race, and other ills of funding were known. We had, I think, close to 50 different VCs get in contact. 

Ironically, part of what did give us the confidence to turn down that whole world was a small sale of equity to Jeff Bezos. That gave our personal bank accounts just enough ballast that the big numbers touted by VCs and acquisition hunters lost their lure.

This is something the bootstrapping culture doesn't think about a lot.

37signals, the poster child of the bootstrapped world, took investment two years after they launched the product.

That Bezos money didn't go into the company. It went into their personal bank accounts.

Jason and David were able to hedge their bets. That Bezos investment removed a lot of the stress and risk that comes from bootstrapping a product.

Bootstrappers have created a religion out of building something from scratch and self-funding the entire thing.

But what if that ideology leads to burnout? Or bankruptcy? Or not being able to go the distance?

Here's David again:

"I really wish that more founders who are on to something could find ways to diversify their accounts just enough to dare go the distance."

It's something we need to think about.

What do you think?

Show notes:

★ Please review us in iTunes – it helps other folks find the show!
Thanks to our monthly supporters
  • Pascal from sharpen.page
  • Rewardful.com
  • Greg Park
  • Mitchell Davis from RecruitKit.com.au
  • Marcel Fahle, wearebold.af
  • Bill Condo (@mavrck)
  • Ward from MemberSpace.com
  • Evandro Sasse
  • Austin Loveless
  • Michael Sitver
  • Dan Buda
  • Colin Gray
  • Dave Giunta

Want to start a podcast on Transistor? Justin has a special coupon for you: get 15% off your first year of hosting: transistor.fm/justin
★ Support this podcast on Patreon ★

Creators & Guests

Host
Jon Buda
Co-founder of Transistor.fm
Host
Justin Jackson
Co-founder of Transistor.fm
Editor
Chris Enns
Owner of Lemon Productions

What is Build Your SaaS?

Interested in building your own SaaS company? Follow the journey of Transistor.fm as they bootstrap a podcast hosting startup.

Justin:

In 2013, I interviewed Jason Calacanis, the angel investor.

Speaker 2:

First business was a copy of The Empire Strikes Back. And so, I was making copies of that and selling it for 30 or $40 a pop.

Justin:

One of the things I asked him was why do venture capitalists take these big risks with their money?

Speaker 2:

There's a lot of money in the world. There's 1,000,000,000,000 of dollars just sitting around and people are bored and rich people are getting richer and richer every month. You know, these billionaires, you know, have 50,000,000 or a $100,000,000 in profits on their investments. And they just sit there like, okay. What do I do with this month?

Speaker 2:

$50,000,000. Oh, just buy a big house. That's worth $50,000,000. None of us can understand it. But that's the truth.

Speaker 2:

And when the stock market is roaring and their investments are roaring and the polarization went through, like, it's like, oh, yeah. I'll put a $10,000,000 into this. I'll put $5,000,000 in this. Why not? They're bored.

Speaker 2:

Yeah. The market the money the money is bored. Money wants to burn. Money wants to be spent. Money does not want to sit in a in a safe.

Speaker 2:

Yeah. Money is intended to be gambled. Put it on black. Spin the wheel. Let's see what happens.

Justin:

What a what an interesting idea. The money is bored. You know, John Buda and I are bootstrapping transistor.fmandspots.fm, And we've invested our own money into both of these projects. And when you're self funding a startup, your money is the opposite of bored. Your money is stressed.

Justin:

You're you're caught between these two realities. You're investing real time and real dollars into the product, but the product isn't yet giving you a return. For example, we're launching transistor.fm on August 1, 2018 And right now we have 51 early access customers and $781 in monthly recurring revenue. Now let's say that when we launch on August 1st, we double MRR to $1500. What would it take for us to get to $21,000 in monthly recurring revenue enough for John and I to quit doing our full time work and just focus exclusively on transistor.

Justin:

Well there's a tool that bear metrics has forecast.bearmetrics.com. And when I plug our numbers in, it would take 5 years. That's assuming 10% exponential growth and 5% churn. 5 years. 60 months.

Justin:

That's a long time to wait for a paycheck. There's this tricky tension when you're bootstrapping a SaaS. On one side, you're investing in this product that could be an incredible asset. I mean, if transistor hits $20,000 a month, that's dependable recurring revenue. That could pay John and I for a long time, and it's unlikely to fluctuate a lot month to month.

Justin:

Even more, that's that's a sellable asset. That's something that someone might want to acquire down the road if we ever wanted to sell. But on the other hand, we are investing time and money into something that isn't a sure bet. It's a risk. So it's easy to see why bootstrapped founders get stressed.

Justin:

And it's easy to see why so many experience burnout and have to quit. That's something that Mike and Fred talked about on their podcast, Hit Reply.

Speaker 3:

After, like, a month, you start feeling it. Right? And motivation levels start dropping, and it starts kind of affecting, I guess, your health. So

Speaker 4:

I get to

Speaker 3:

a point where my motivation levels really start dropping. Yep.

Speaker 5:

And because of that, I start eating worse. Unless you can somehow jump in and stop that cycle, it it doesn't end very well. And I think that's where we often hear the stories and the famous stories of Burnout which are almost like car crash endings where it all falls apart because you've been going so hard.

Justin:

Bootstrappers who are building something new have to walk this really fine line. We're investing a considerable amount of time and effort and money to launch our product. But at the same time, we also need money to live and it can be years before Sass can support you full time Which has got me thinking about Basecamp again What Jason Fried and David Hahnemeyer Hansen achieved with Basecamp is what most bootstrappers aspire for. Heck, most of us would be happy for even a fraction of their success. They've long been the example of how you can self fund a product, bring it to market, grow it, and have it succeed, all without needing venture capital or angel funding.

Justin:

But that story many of us have been telling ourselves about how they achieved that success isn't quite right. Yes. They've been bootstrapping Basecamp since 2004. And, yes, it was profitable from the beginning. But in 2006, they did something a lot of us bootstrappers haven't paid a lot of attention to.

Justin:

Here's Jason Fried on the Foundation podcast.

Speaker 4:

So, 2006, Jeff Bezos got in touch with us. He'd seen me speak at a conference in San Diego at Etech in 2005. And a few things came together and he was interested in what we were doing. He liked our message. We're a very long term focused company.

Speaker 4:

He's a very long term focused guy. And for for me and David, my business partner, it was it was good because, you know, this is 2,006. We weren't sure if this Basecamp thing was gonna last. We didn't know. It There's an opportunity for us to take some money off the table and put

Justin:

a little bit

Speaker 4:

of money aside just in case.

Justin:

Jason and David took this investment from Jeff Bezos. And what made me think about this was this recent interview David did on startup.co. And in that article, the interviewer asked, as you've built Basecamp, you've been really vocal about resisting the temptation of unicorn culture. How have your perspectives changed? And David's answer is interesting.

Justin:

He said It wasn't without temptation or struggle to stay like this. Ironically, part of what did give us the confidence to turn down that whole world was a small sale of equity to Jeff Bezos. That gave our personal bank accounts just enough ballast that the big numbers touted by VCs and acquisition hunters lost their lure. This is something the bootstrapping culture doesn't talk about a lot. 37 signals, the poster child of the bootstrapped world, took investment 2 years after they launched the product.

Justin:

And that Bezos money didn't go into the company. It went into their personal bank accounts. And then David says, I really wish that more founders who are onto something could find ways to diversify their accounts just enough to dare to go the distance. Jason and David were able to hedge their bets. That Bezos investment removed a lot of the stress and risk that comes from bootstrapping a product, from self funding a product, from doing it all on your own.

Justin:

And bootstrappers have created a religion about building something from scratch and just doing it all. But what if that ideology leads to burnout or bankruptcy or not being able to go the distance? It's something we need to think about What do you think? If you're listening to this right now You can reach out to us on Twitter at transistorfm or you can contact me directly I'm the letter m the letter I Justin m I Justin if you're listening to this in breaker or cast box leave us a comment right in the app and while you're doing it if you could also give us a heart or a thumbs up that'd be great. You can also email us at mail@transistor.fm.

Justin:

That's it for this week. We will be back with a launch episode next Tuesday. If you want to get notified when we launch, sign up at transistor.fm.