Designing the Ideal Bootstrapped Business

There are a couple of major reasons why SaaS businesses fail.

Entrepreneurs don’t build something people want.
Entrepreneurs don’t design something that fits into the structure of a bootstrapped business—e.g. it doesn’t account for the weaknesses or strengths of bootstrapping.

To quit your job, you need to build a cash machine: a business capable of generating $10,000 in revenue per month without you having to do anything. This is the opposite of one-offs, which only sell a product once, and never get easier.

Model

You’re trying to build a boutique—a business that’s just you and expensive, but people buy into it because the service is amazing and the products are unique. You can be a boutique in anything.

Aim for 150 customers: 50 from scratching and clawing, 25 from guest posts and social media, and 75 from basic marketing.
To get to $10,000 / month, you need to be able to charge $67 / month for each of these customers. To hit this, target pricing tiers of $49, $99 and $249.

Marketing Budget

Use annual prepaid plans! You’re offering a discount, but you’re gaining a marketing budget that you can spend to acquire new customers.

At WP Engine, 25% of their customers elect to take the annual prepaid plan. This effectively gives them an infinite marketing budget, because their one-month cash output is less than their one-month cash input.

The most important metric to track as a small business is annual revenue per customer (ARPC). Just raise your prices.

Don’t build a business that picks up pennies (taking small percents off the top of something). It’s really hard to make money with this approach.

Choosing a Market

Bad Markets

Don’t pick something where the pain the customer experiences is temporary. You don’t want to have to catch them at a certain point in their life. For example, don’t target weddings, events, code profilers, etc.

Don’t pick something that depends on vitality. It’s really hard to get going, and it’s often difficult and expensive to start.

Don’t create a marketplace (buyers and sellers).

Good Markets

You want to create somewhere where the value is reoccurring. An example is something where the pain changes over time. This makes your tool a natural fit to keep up with the changes.

Another important attribute of a good market is that it’s not real-time in its nature. This means it’s not important the user gets something from you this instant or it’s over. This can be things like decision-support (analytical, metrics, reports, monitoring), finance, project management or content. Hosting is a counterexample.

Aftermarkets (tacking on to an existing market) can be really powerful. The customer bases are already established for you.

Target a big market. Niches abound in big markets. It’s already a validated space, and it’s easy to locate your customers.