Teeny bit of traction — what next?

This is part of an ongoing startup advice series where I answer (anonymized!) questions from readers, like a written version of Smart Bear Live. To get your question answered, email me at asmartbear -at- shortmail -dot- com.

Burgeoning Startup Founder writes:

After a year of work, my startup is now doing about $6,000/mo in revenue and $3,000/mo in profit. I just quit my day job to work on it full-time, and I have a few thousand more dollars I can put into it.

What should I do next? I’ve heard automation is important for scaling a business and I think I could save something like $1000 if I worked on that, so should I do that?

You should not be focussed on automation, nor on cost-cutting. Cutting costs at this stage cannot lead to a significant change in the business.

To see this, consider what would happen if you really were able to save $1000/mo. What would you do with it? You can’t hire someone with it. It’s not enough to get a website redesign.

You could try to “plow it back into marketing.” But because you’ve already been at this a year and even now are only at $6k/mo, I can surmise that you don’t have a consistent way of spending $X in marketing to automatically drive $4X in revenue. If you did, you’d already have done that, you’d know what to do with all your extra money, and the company would be larger.

So, spending your time (your most valuable asset) on saving an extra $1000 cannot — today – significantly improve the business. You should be spending that time on something else. But what?

It has to be on getting more revenue.  Both short-term bursts and, more interestingly, building systematic ways of growing revenue month over month.  Such as:

  • Get AdWords 2x more efficient on campaigns with plenty of inventory headroom so that you get 2x more signups for the same spend.
  • Create different pricing tiers so that people willing to pay $99/mo instead of $9/mo can do so, doubling your average monthly ticket and therefore more than doubling profit.
  • Hustle up a few hits of press to inject some new customers this month.
  • Find a consistent reseller channel, like an agency who needs your service fifty times a month.
  • Find a lucrative consulting gig to inject cash (so long as it’s enough money to be worth the distraction rather than turning into a consulting company).
  • Get new leads to sign up for a newsletter so you can convert them over time.
  • Set up an affiliate program and sell bloggers and consultants on how much money they can make.
  • Offer an annual plan for a discount to increase immediate cash-flow.  Since you’re bootstrapping, “cash now” is far more valuable than “cash later.” Rand over at SEOMoz just wrote up what he thought about how we did this at WP Engine.
  • Install a web-chat system so you can close 2x more of the people who arrive at your website, whether by directly selling or learning about their experience with your website and product.

A breakthrough in any one of these areas means a significantly more stable business.  With under $10k/mo per founder in revenue — no matter what the other expenses are — you don’t have something sustainable.  You can’t afford to hire anyone else, you can’t cut enough costs to be worthwhile, you don’t have enough money left over to invest in future things (marketing, features, anything), and you still don’t have enough knowledge about what specifically you’d invest in anyway.

Once you get past that point, say with $15/mo with just you or $40k/mo revenue and three people, you probably have enough cash-flow to weather some ups and downs in order rate, seasonal slowdown, etc., and still invest back into the company.

In fact, at that point you might indeed find a way to save $1k/mo or even $5k/mo through automation or changing server vendors or whatever. And since you have the time for that, and since that $5k/mo can go back into growth — which now you probably can affect with that money — that makes sense.

Of course don’t be wasteful with money either — that’s just silly. But spend the next few months trying to 2x revenue, not trying to shave a little off the expense column.

Add your advice to the discussion section!

  • https://planscope.io/ Brennan Dunn

    Great, great post. A quick win you could try: If you aren’t collecting CC upfront for trials, start doing that.

    Another thing you might want to consider could be creating a transactional product (i.e. infoproduct) that you can cross-sell to your current customers. My product is humming away at ~$4,500 a month now and growing, but that’s not going to pay my bills anytime soon. Instead of doubling down on consulting to get some quick cash, I decided to write a book (+$30k revenue) and then upsell a workshop (have only run one so far, $25k revenue). The benefit of this approach is cold, hard cash plus selling to the same audience as my SaaS (i.e. the book has driven new customers to Planscope). Here’s my writeup: http://planscope.io/blog/how-im-making-five-figures-a-month-off-bootstrapped-products/

    • http://excid3.com Chris Oliver

      Something I’ve always wondered about was CC upfront vs later. Basecamp does it later, but they’re established and have a trusted name so it’s less important.

      I’d prefer to try it without my credit card. However, if I’m willing to put in my credit card just to try it out, I’m also far more likely to continue and pay for the product. Maybe it doesn’t matter much either way.

      • http://blog.asmartbear.com Jason Cohen

        Don’t forget Basecamp *used* to do it *before*.

        And in any case, the answer is always “try it” and not “copy whatever 37signals did at some point in time.”

      • wfjackson3

        I am with Jason on this one. Also, as a founder, you are a terrible data point for virtually anything. Test with others.

  • wfjackson3

    I am probably just being dense here, but for some reason I can’t decode this even after reading it four times.

    “Get AdWords 2x more efficient on campaigns with plenty of inventory headroom so that you get 2x more signups for the same spend.”

    Can you please elaborate?

    • http://blog.asmartbear.com Jason Cohen

      If you’re just starting out with AdWords, with some effort you can often get 2x more efficient, i.e. get the same results (not page-views, but signups) with lower CPCs due to better landing pages, a better website, better ad text, etc.. And in that case you’re getting twice the signups (i.e. revenue) from the same spend.

      If there’s not a lot of additional inventory on your AdWords, then this is not good advice because there isn’t a lot of room to grow, and instead you need to find a channel which does have room.

      • wfjackson3

        Ah, that makes sense. Thank you!

  • http://taylorbrooks.org/ Taylor Brooks

    Great advice. Like you said, early on I would caution against automating to reduce expenses. You can only go so far and then what?

    If you’re automating to increase revenue, do it! For early stage companies, that’s usually solving top of funnel problems. Building the system/automating should only happen when the channel is proven. In the meantime, try a bunch of stuff out and see what works!

    David Skok has a great SlideShare presentation about building a sales and marketing machine: http://www.slideshare.net/DavidSkok/build-a-sales-marketing-machine

  • http://briancasel.com/ Brian

    Really like today’s post.

    Would love to see more posts that focus on this stage of a bootstrapped startup — not day 1, not year 3, but that “early-ish” stage, beyond the initial launch/early traction and into the “step on the gas” stage.

    • http://blog.asmartbear.com Jason Cohen

      Thanks for that feedback — very useful, and indeed I’ll try to oblige!

      • http://twitter.com/brendanmc brendan mcnulty

        another +1 for this stage

      • http://twitter.com/austingunter Austin W. Gunter

        +1

    • http://www.adventurous-soul.com/ Shayna

      I agree! I’m in that “early-ish” stage myself, and it seems like most blogs either focus on the very beginning, or else on already-successful companies (which deal with higher-level issues). It’s a difficult stage to be in, because although there’s some traction, you’re not exactly rolling in money, so choosing where to reinvest is tough.

  • http://www.francis-moran.com Francis Moran

    I don’t know what to say. You counsel Burgeoning Startup Founder NOT to plough his extra $1,000 back into marketing and then go on to list nine things he should do AND EIGHT OF THEM ARE MARKETING.

    AdWords, pricing strategies, media relations, channel strategies, newsletters, affiliate programs, on-site visitor engagement through web chat — this is ALL marketing, people.

    • http://blog.asmartbear.com Jason Cohen

      You missed the point. The question at the top is whether he should focus on growth or saving money. He should not think about saving money because money alone isn’t growth. He should focus on growth — which of *course* means marketing — not on saving money. Once you have some *marketing* channels which you’ve established, then saving money can in fact be converted into more growth.

  • http://www.gathercontent.com/ James Deer

    Is that $6k/mo from the launch date? Or, 6months free beta, and $6k/mo after 6 months.

    Love the series by the way!

  • Mike

    Great post and really hits home with our company. One point I’d make (which I’m guessing Jason wouldn’t disagree with), if you are spending a ton of time dealing with customer service, processes taking a lot of manual effort, etc. then it might make sense to improve the automation. Not to save the $1000 but to free you up to grow the business. Time is the most valuable resource you have. If you spend most of your time on things that automation can do, bite the bullet now and get it done .

  • http://twitter.com/ricardodsanchez Ricardo Sanchez

    Ok, so this founder and his startup are at 6,000 / month in revenue, how about taking a close look at the things he is already doing that are causing the biggest percentage of that 6K? in other words, how about focusing more of his energy and money on what generates the biggest ROI and do more of that. Sometimes the best strategy is to do more of the same and not so much trying new things, instead try focusing and improving the part that is generating most of the 6K until you it stops growing…