In light of Jason Cohen’s company WP Engine passing \$100M in annual recurring revenue I decided to re-watch his great talk on Designing the Ideal Bootstrapped Business. These are my notes.
The target
Building a business that predictably and recurringly gives you \$10,000 per month per founder, even if you didn’t work on it for the whole month.
This was his early target for WPEngine. Selling one-offs never get easier because you start each month from scratch. Recurring revenue is the only reliable way to hit this target.
The idea of getting 1000 true fans and making a living off them is not really possible. Shoot for 150 customers.
The math to \$10,000 per month
To get to your target number you need 150 customers paying you around \$67 each per month.
How to get the first 150 customers
There are three steps:
- Get 50 customers by scratching and clawing
For WPEngine he went on LinkedIn and asked WordPress consultants (his target customers) for their time (he would pay them, of course) to look at his product and tell him what they think. If many would pay you for the product that doesn’t even exist yet you’re good.
Get the next 25 with social media
Guest posts, podcasts, etc..Get the next 75 with basic marketing
See Part Three
Part One: Pricing
- Create 3 pricing tiers: $49 / $99 / \$249 per month OR
- $99 per month but sale to “$79” all the time. You can also give out coupons to bloggers
- Be a boutique: special, unique, pricey, barely open, feels good to spend money there
- Cash is king: do annual prepay for two months free so you can spend that money right now on growing your business. Give bloggers coupons for three months off.
- You can make annual prepay even more enticing by upping the monthly costs and giving 50% off for annual.
- ARPU (average revenue per user) is most important metric for small SaaS businesses.
- Do 3-4 tiers, highlight the middle one. Call the most expensive one the “Business” tier.
- Raise prices. Do it again.
- Do 60 day money back guarantees instead of a free trial.
- Don’t choose “picking up pennies”-businesses (taking a percentage of deals or something similar). Kickstarter does it and it even lost money in a good year. Always charge your customer.
Part Two: Market Models
Which market should you choose? Definitely don’t do B2C. People don’t like spending money (Gmail, \$.99 apps in app stores). Go B2B like almost every speaker here at MicroConf. Here are some bad and some good markets:
Bad markets:
- Having to catch people at a specific time (e.g., weddings, profiling software that already solves the problem in the free trial phase).
- Viral markets. Expensive in the beginning until virality takes off.
- Marketplaces. You have two businesses. Get the sellers on the site and get the consumers on the site. Chicken and egg problem.
Good markets:
- Naturally recurring businesses. Examples: anything tied to financial cycles (invoicing, taxes, reporting, admin, HR)
- Something where the pain changes over time: SEO, PPC, email marketing, support
- Not real-time: invoicing is good, can wait til morning. Hosting not, when site is down we have to fix it now. Decision-support (analytics, metrics, reports, monitoring), Finance, Project Management, Content
- Something that can be finished: WinZip, Freshbooks, Basecamp..
- Aftermarket for an existing business: Smart Bear, Balsamiq, WooThemes, PhotoShop plugins
- Ecosystems: Salesforce, Heroku, Apple App Store
- Big market that has multiple niches. Validated space and you can switch niches easily if things don’t work out.
Part Three: Acquiring Customers
- Doesn’t like social media ads. Doesn’t lead to repeatable business.
- Formula to calculate how much you should pay at most per click (CPC): CPC = MRR / 25. Read his justification here.
To what end?
What are you going to do when you hit your target? The Business will keep growing, that’s what sucessful businesses do. Could lead to bad customer support if you don’t hire. Your options are:
- Sell to partners
- Sell to biggest customer
- Raise prices
- Raise money
Find out what you want to do in life. Most difficult thing still is to know thyself.
Conclusion
All put together, what you want is: Predictable aquisition of recurring revenue with annual prepay in a good market to create a cash machine.
