Summary: 10 lessons on bootstrapping a $200m business | Patrick Campbell (ProfitWell)

Biggest mistakes in building your team ▶️

• Focus on your team and mission, avoid making everyone happy. Although people say, being the biggest cliche that "team is everything", it's not how most companies behave. Most managers have an average tenure of 15.7 months and time to report to a manager tenure is 10.8 months.
• Accommodation Culture. Often companies try to accommodate everyone, leading to a fundamental issue of trying to be everything to all people.
  • “You can’t be everything to all people, so who are you for? And who are you not for? Clearly define this in your values.”
• Assuming the most charitable interpretation can improve team dynamics.  Eg: If you didn’t like a comment on a colleague made on your shirt, you would just say “Hey you probably didn’t know but I don’t like comments on my shirt”. This explicitly sets where you stand without anyone else guessing, and German / Dutch cultures are a good eg of how they’ve grown with this trait.
• Avoid bad hiring decisions by being upfront about company values. If employees have a hard time fitting into that culture, then help find them another job. Pulling values forward in the interview process can help, ie stating company values clearly and saying that if the interviewee does not think the same way, that's okay and they are not better than the company or vice versa.

Bootstrapping vs funding: when to raise money and when not to  ▶️

“It depends”

“We should have taken money earlier in our life cycle this was actually a big mistake because we got hooked on the efficiency, which was good, but we could have moved quicker than we were.”

• Though ProfitWell is a great example of a bootstrapped company with a $200 million exist, Patrick believes that if they raised funds, they could even have gotten to a $1 billion exit.
• Find the “idea-funding” fit. Your funding situation (whether you raise or not) would depend on your goals (whether you want a big company or a small), your business model and your funding situation currently. Goals > Model > Funding situation
• The funding decision should be based on a company's goals and model. Bootstrapping is ideal for lifestyle businesses with cash flow goals, while funding suits companies aiming for big revenues. Entrepreneurs often seek funding prematurely, assuming their businesses are fundable, but they should wait for a solid foundation and market fit before seeking funds.
• Try to bootstrap initially even through the product-market fit if you can. It is the ideal time to raise after that. If it won’t be a $1 billion revenue per year business, you probably don’t want to go down a VC treadmill.

Biggest mistakes and opportunities in pricing  ▶️

• Increase product prices once annually. Companies typically don't change prices for 3 years. If your Net Promoter Score (NPS) is above 20, raising prices annually can provide data to support sales and avoid debates about ambiguous metrics.
• Have a pricing committee that meets every quarter: To review the revenue-per-customer and find ways to improve it. During these meetings, discuss various pricing strategies, including actual price, packaging, add-ons, discounts, localisation, and freemium options.
  • The most important pricing element to figure out is the pricing metric or value metric. The pricing metric ensures that customers pay for the value they receive, reducing churn by 20-25%, and doubling the expansion revenue. For entrepreneurs who face internal politics, it's best to start with a price increase once a year to get all the politics on the mat

Two types of retention: Strategic vs. Tactical  ▶️

1. Strategic retention is all the stuff that the product team is doing like the ICP (Ideal Customer Profile), Time to Value, roadmapping the right features, figuring out the mission metric, etc. which the product team is so focused on that they miss out on the tactical retention.
2. Tactical retention includes payment failures, term optimisation, cancellation flows, optimisation, etc. which constitutes 25-40% of the churn problem post product-market fit which you tend to ignore entrenched in strategic retention thinking.
3. Example of a good off-boarding: Analysing over 2 million cancellation flows, Profitwell found that asking users two precise questions within 18-30 seconds can provide valuable insights. These insights can then be used to offer users customised salvage offers, pausing plans, or maintenance plans based on their answers and engagement data.
   • "Why are you leaving? Multiple choice. Don't do the free response. You get, like, one out of 100 great responses, and then 99 are not
   • “What did you like about the product?"

Why people don’t want to pay for another SaaS product  ▶️

• When it comes to churn rates, workflow products—those used every single day or those users get value from without logging in—retain customers more. Products that fall in between these two categories struggle with retention.
• Often, founders create analytics tools that are a better way to measure and track things but struggle to make money as users may not be willing to pay for a SaaS analytics tool. To succeed in this space, companies must either go up market and become a data product with a UI or go niche, which might still be tough.

Shipping faster with Mission Metrics and Tempo Framework  ▶️

When you think any employee sucks some day, then does that mean you did the wrong kind of hiring? Well maybe, but most of the time you just haven't set an expectation of like what good looks like in terms of tempo (frequency of shipping) and then you haven't had that constant conversation to make sure that that employee has what he needs in order to ship.

• The tempo framework allows teams to keep a high output while aligning all the teams on what "good" looks like in terms of shipping frequency. Then the conversations could be that “you only shipped one thing per quarter, but we wanted to do one per month, how do we solve that now?”
• If you don’t call out what “good” looks like, there would be complete misalignment. When there is a misalignment, having conversations around the problem, cause, and solution helps teams get back on track and address the issues at hand. Most of the time it’s “this team isn’t talking to this other team” and usually solvable. David Sacks has a great post called Cadence - How to Operate a SaaS Startup on the tempo framework.

First Principle Thinking - Implementing Problem-Cause-Solution  ▶️

• When facing a growth problem, it's important to have conversations about the problem, identify its causes, and then brainstorm solutions. In ProfitWell, using a freemium model and pay-for-performance products helped mitigate the growth problem in a dense market. This problem-cause-solution approach allows the team to better understand the situation and make more informed decisions.
• You get this like nice alignment between - I can solve a cause, and if I solve the cause that's big enough and proper enough, I'm going to eventually solve the actual problem
• Applying the problem > cause > solution approach to a smaller issue like a customer support ticket can help find the root cause of the customer's dissatisfaction. By understanding the cause, such as not providing a timely response, support representatives can address that issue directly and provide a better solution tailored to the customer's concerns.

Problem > Cause > Solution is a powerful mental model for unlocking growth in your business by giving you prioritization superpowers.

It's also the framework I used most bootstrapping to an exit of over $200M.

A short thread on how it works: pic.twitter.com/XyNGx3N3Bv

— Patrick Campbell (@Patticus) April 27, 2023

The Importance of Customer Research  ▶️

• Companies that conduct customer research see higher NPS scores, more efficient funnels, better LTV to CAC ratios, and faster growth rates. And yet only 1 in 10 companies actually do customer research on a quarterly basis.

“...Willingness to pay is typically higher. The funnel is more efficient. LTV to CAC is normally much, much higher. You're typically growing at a much, much higher rate, like a 15, 20%, not a small delta rate. Higher rate. Retention is better”

Strategies for Customer Research  ▶️

• Have regular non-sales customer conversations. Setting a goal of having monthly non-sales customer conversations is valuable. These interactions do not necessarily need to involve direct feedback, as it's more about understanding customers' perspectives and experiences with certain products or services. Surveys are an effective tool for this purpose as well, but it's essential to keep them brief and to the point.

• Don't rely on brute force in the market. Many companies that raised a lot of capital have resorted to brute force techniques to achieve market penetration, neglecting the importance of customer research and not understanding their market properly. This could lead to short-lived success. They should focus on gaining a deeper understanding of customers and their needs.

“I would rather be the company that gets the $100 million, $200 million exit with bootstrapping because I know my market, I know my customer so well [than the one that can use funds to grow via brute force]”

Having Competitive Intelligence  ▶️

• If Patrick has good competitor intelligence, he doesn’t share it with his product team as they should be focusing on the customers, but in general he would be obsesses with what competitors are doing and trying to predict what will happen in the market.
• Fun fact: Over the past decade if you're building in tech, particularly in like SaaS or subscriptions, you have 16 times the number of competitors if you started a business today, than if you did 10 years ago and this is because everyone and their mother can spin up a website and drive traffic to it.

Veterans make great hires  ▶️

Local Strategies: power of meeting prospects in person  ▶️

• People like to buy from people. Prospects who meet you in person have 10-30% higher willingness to pay than those who didn't. Churn for those folks who you meet in person is typically 20% lower than those folks who have never met you. Expansion revenue is typically 15% to 20% higher. These numbers apply not just for higher-priced sales but also for products that cost $20-50 per month.
• Get out of the office. Do events, meetups, conferences, breakfasts, and lunches can foster personal connections without breaking the bank. Giving priority to valuable prospects and nurturing others through casual interactions can be an effective way to increase conversions. Take p1 priority folks to coffee one-on-ones and p2, p3s to breakfasts or lunches for example.

• “It's so so high leverage because there are a lot of people who will not answer your email but will come to an event to meet you or meet someone from your team because it's something to do especially if you're buying them breakfast or coffee or something like that”

Why you should focus on the middle of the sales funnel ▶️

• Bottom of the funnel efficiency and top-of-the-funnel efficiency have plummeted in the past decade. 80% of sales and marketing budgets tend to go to the top of the funnel and the bottom of the funnel and because the efficiency has plummeted for these funnels, teams should focus more on the middle of the funnel.
• Investing in the middle can help create a "pool" of users who are aware of and interacting with your product regularly. There are two key ways to build this middle: through freemium and inbound marketing.
  • Freemium can lower CAC, increase retention (by 10-20% compared to a traditional sales process or a free trial), and improve NPS.
  • Inbound marketing, like creating podcasts and video series, can build awareness and make your pool of users interact with your content regularly. This pool can often lead to more sales conversions and customer satisfaction.

“MOFU is the new TOFU”

Patricks' Rapid Fire ▶️

• Books recommended by Patrick:
  • "High Output Management" by Andy Grove, which has helped shape his understanding of management principles;
  • "Thinking in Bets" by Annie Duke, which encourages a first-principles approach to problem-solving;
  • "Powerful" by Patty McCord, which offers insights into rethinking HR and people operations.

"I have read High Output Management probably 20 times in the past ten years. I read it at least once a year now. I commissioned a bust, a bronze bust of Andy Grove. So that's being done, I'm a big Andy Grove fan."

• Patrick’s favorite SaaS products.
  • Notion for documentation
  • Descript for video recording and editing
  • Ktool for sending articles and documents to Kindle
  • Tweet Hunter for social media engagement
  • Apple Watch Ultra as a means of reducing screen time when away from the computer.
• Patrick Campbell's favorite show, The West Wing.
• Controversial interview question for candidates. Patrick has a mini case study where he asks his job applicants what they would do if one of their Slack colleagues made an indirectly offensive comment. No matter what the candidate's response is, he always tells them that they have never seen such behavior at ProfitWell, just to remove the likelihood of fear from such a position. This interview question gives him an opportunity to talk about the most charitable interpretation and the company culture.

This is a human edited summary of the podcast episode with Patrick, by Gaurav Chandrashekar (@cggaurav, productscale.xyz). To listen to the full episode, go here.