Startup to Last

Rick's new business is ramping up, and he's starting to think about how he's going to fund it until it's profitable. He definitely doesn't want to give up any equity at this early stage, so he needs to consider non-dilutive options. Here are some things we cover:There are a few main ways to fund a new business without giving up equity:Consult or work a normal job to make money and funnel that into your businessEnter pitch contests and apply for grantsTake on debtMake enough revenue directly from your customers to pay your expenses (this is ultimately what every bootstrapped company needs to do, it's just a matter of how long it takes to get there)It's helpful to understand the different capital needs for different parts of your business. Some things might be risky and uncertain. Others might be proven. Rather than thinking "I need $x to run the whole business", break it down by expense type because some might be a better fit for debt (e.g. scaling proven customer acquisition channels) whereas others might need other types of funding (e.g. paying employee salaries).For each type of funding, consider how much you'll get out of it relative to the time it takes to get the money. The most obvious thing you get out is the funding, but there might be other benefits that are harder to measure. For example:Winning a startup pitch could help you earn credibility for things like raising money from investors or finding early employees.Making money directly from customers might be harder at first, but the effort you're putting in is moving you in the right direction vs. something like consulting which is probably unrelated to your startup's business model.This episode of the Out of Beta Podcast discusses ways to think about raising debt

The main theme of our discussion was that it's important to understand the objectives of any meeting. Rick helped Tyler narrow the list of objectives down, and now Tyler needs to (1) consider which objectives are most important to him, (2) consider if some of the objectives are being met in other ways so they can be left out of the meeting, and (3) communicate the objectives to employees prior to each meeting so that they can understand what's expected of them.

Here are a few takeaways from this week:Identify what your most important work is, and devote most of your time to that. Rick was spending some of his most productive hours on reading and blogging, neither of which are priorities for his business.If you have things you have to get done (e.g. client work), try to knock that out early in the week so you can focus on your other work without distractions hanging over you.There are two types of work: transactional (meetings, phone calls, routine maintenance, etc.) and creative work (writing, strategy, programming, etc.). Transactional work can be done effectively even when you're not at your most productive, but creative work can't. So try to devote your most productive hours to creative work."Flow state" is when you're in the zone and getting a lot of work done. When working on creative work, one hour in flow state can be more productive than a day of normal productivity. But it's hard to get into flow state, so the key is to protect it once you're in it. To do this, try to structure your days to allow max flexibility to stay focused if you do enter flow state.The downside to giving yourself unstructured time for creative work is that it can be hard to manage your mental health. It can lead to stress and burnout because it doesn't follow the "hours worked = productivity" equation of more structured work. Combat this by expecting to go hours or even days without being very productive, and give yourself time to recover if you do end up having a productive streak.

Here are some takeaways from this week's episode:Marketing can be broken down into two categories: (1) bringing new people into the top of your funnel and (2) optimizing the conversion rates within your funnel. A lot of technical marketing projects are more about the second than the first. This can be helpful, but there's a ceiling to how effective marketing can be within increasing the top of the funnel.Increasing the top of the funnel is all about figuring out where your potential customers are, meeting them there, and telling your story. This can be done via inbound marketing (content creation, SEO, etc.) and outbound marketing (advertising, trade shows, participating in online communities, etc.)In order to know where to target your outreach, it's important to understand your existing customers. Where did they come from? What was their buying journey. This can be done by having one-on-one conversations with them, but it can also be automated by having analytics on your website, asking questions when someone signs up, etc.Because Tyler is interested in technical projects that help with marketing, a good approach is to build technology to help collect the right information about existing leads/customers so that the non-technical members of his team can understand where to focus their efforts to drive more people into the top of the funnel.

Acquiring early customers is a strategic blend of growth and learning. Identifying your target audience is vital; look for common traits among your initial customers. Open conversations with potential users can provide invaluable insights. Explore various acquisition methods, whether through personal outreach or innovative advertising. Understand the nuances between marketing to individual consumers versus corporate clients. Finally, foster genuine connections over aggressive sales tactics to build a loyal customer base.

It's impossible to cover the entirety of this topic in one episode, but there were some key takeaways that should apply to pretty much any startup:A financial model is something that takes inputs (e.g. historic data and assumptions about the future) and gives outputs (e.g. how much money might you make this year). It can be as simple as some notes on a piece of paper, or it can be much more complicated.There's no standard model that everyone should follow. The key is to figure out what questions you have, and build a model that will answer them.In some cases you'll want more than one model. For example, you might make a specific model to help predict what your customer acquisition could look like in the future, and then use the output of that as an input of a higher-level model predicting what your overall profit might be.The complexity of your model probably depends on the complexity of your business. Don't compare yourself with other companies.Having said that, you might find the process of building a model helpful as a way to force you to think through your business.If you're trying to raise money, your model needs to communicate information to them which you might not otherwise be interested in. Things can get more complicated at that point.Understanding all of the above, building a model is just a matter of opening up Excel, entering the inputs, and doing your best to generate reasonable estimates for the outputs. Each model is different, so it's hard to be more specific than that.

We considered having this conversation privately, but since almost every business should have a conversation like this, we decided to record it in the hopes that the discussion is helpful for others. As expected, this ended up being a bigger topic than we could cover in a single episode, but we did start narrowing down on some ideas and constraints around the idea of starting up to last:Traditional entrepreneurship is already set up well if your goal is to become as rich as possible. Startup to last companies should probably have some other motivation such as enjoying the work, feeling fulfilled by the impact the company has, etc.Despite needing to be motivated by something other than money, sustainability is key to survival, and that means that every business needs to at least make enough money to make it worthwhile for the founders. That's the first priority, and then once that "enough" number has been reached, it's time to start focusing on non-monetary goals.It's only possible to run a company this way if all shareholders are on board. It's not hard to get founders, employees, and customers aligned. It's harder, but maybe not impossible, to get investors on the same page (venture capitalists specifically are unlikely to want this approach). This is why bootstrapping is common among these types of companies.Because the goals of startup to last companies are different so are the rules. We didn't get too deep into how this might impact how you operate the business, but there's a lot to discuss there.It's helpful to think about the company as a place you'll work for the rest of your professional life (even if that's not true). That will help you prioritize sustainability, enjoyment and fulfillment. Companies that expect to exit soon can justify burnout-level work environments because they know it doesn't have to last.

Takeaways from our conversation:Starting a new job is stressful, and one of the main goals should be to make the new employee feel safe. One way to do this is to set expectations are that (a) small enough to be achieved over a short time period and (b) not related to actual job performance at first.In the case of LACRM, expectations will be set around trust. The goal of the first month is for the new hire to feel safe and trust the rest of the team and the company. This way they know they don't need to worry about their job performance during training.It's valuable to give new hires a lot of context about the business (e.g. the history, who you serve, why, etc.) but this can be hard for employees to retain because they're learning so much at once. One way to help with this is to build everything into the same narrative.In the case of LACRM, because "trust" is the theme of onboarding, it might make sense to center all the other company lessons around that same concept. Instead of teaching new hires about 20 random concepts, explain how each of those concepts leads to trust.Most importantly: explain to the new hire why you're doing things the way you are. Just giving them info won't be helpful (and might actually be hurtful) if you don't contextualize it. This should be a topic for the first day, or maybe even before the first day.In the case of LACRM, focusing on trust might actually give new hires a reason to distrust the company if it's not explained why trust is so important (they might wonder what happened in the past to cause trust to be such an emphasis).

This week, we wanted to take some time to reflect on what happened in 2019 and set goals for 2020. We created a series of questions that Rick and Tyler both had to answer. Here are the answers...What happened in 2019?In our personal livesRick: Took 7-8 months of to figure out who he is and what his goals are, especially with his new marriage.Tyler: Figured out a sustainable dietIn our professional livesRickFigured out what he wants to do after leaving his previous job of 11+ yearsStarted LegUp Ventures which is a holding company for his various ventures:GroupCurrent - Outsourced member managementStartup to Last - This podcastRickLinquist.com - Rick's personal writingLegUp Health - Reducing healthcare-related anxiety for people without job-based insuranceTylerStarted the year working on a new project called Sparse which was abandoned in FebruaryThe rest of the year was spent on a major redesign of Less Annoying CRM which included two major new features: Custom fields and Outlook Calendar SyncThis was the best year for the LACRM product teamBiggest accomplishmentTyler: Finally built a real product team at LACRMRick: GroupCurrent turned around the business model of their first client and got it to sustainabilityBiggest disappointmentTyler: Sales in the second half of the year were below expectationsRick: Wasn't thoughtful enough about getting his wife's buy-in when starting his new venturesLooking forward to 2020Personal goalsRick: Get to a point where he and his wife feel comfortable having kidsTyler: Get a dogHigh-level professional goals / the theme of 2020Tyler: Continue the product teams momentum and establish a rhythm of regularly shipping updates to LACRMRick: Calm growth. His life is calm right now, and as his ventures pick up, he doesn't want that to change.Biggest worries / what's keeping you up at night?Rick: Making enough personal income to be able to sustain his venturesTyler: Growth at LACRM needs to pick up eventuallyThree specific goals for 2020TylerExercise moderately three times per weekWrite code once per weekBy the end of the year, average 50 paying users per month joining LACRM through the referral channelRickPlay more sports. He has an exercise routine, but it's boring and doesn't involve games or playBe ready to start trying to having kidsGet distribution revenue from LegUp Ventures to $10k/monthShared goal: Get this podcast to 250 subscribersMake a prediction for 2020Tyler: Starting a software business without venture capital will become much more mainstream over the next yearRick: An all-in-one leader will emerge in the no-code industryWhat do you want to read in 2020?Rick: Too many to name, but wants to read a lot about emotions.Tyler: The unicorn project and Obviously Awesome

Takeaways from our conversation:In the early days, a founder can easily offer great customer service just because they're an expert on the topic and are empowered to solve every problem. Rick doesn't need to worry about this at first.For a low ARPU (average revenue per user) product, it's best to think of support reps as "coaches" so they can be more proactive and replace other functions such as sales and customer success. It's not viable to have separate teams for each function at a low price point, nor is it desirable.Rick's first move should be to do all the coaching himself until he has it systematized. Some of it can be automated with things like tutorial videos, but some of it will need to be manual.Once he knows exactly how to manually provide the best coaching and he has enough customers that he can't handle any more, it will be time to start building a team.Offering great customer service for a low ARPU product will hurt margins. This might mean that certain investors aren't interested in the business, but it's still possible to be profitable enough to bootstrap.