BOOTSTRAPPING YOUR BUSINESS J A S O N N A Z A R Introduction Hello, I’m Jason Nazar, the co-founder and CEO of DocStoc, a company that helps small businesses by providing them with documents, videos and articles to help them start and grow their business. Docstoc is one of the 500 most visited websites on the internet, and there have been over half a billion people in the last 4 years who at some point landed on our website. We raised $4 million to launch Docstoc over four years ago, and I haven’t raised a penny since then. We have been proﬁtable for several years now, because I have always been focused on running a lean business and earning money. Our revenue streams are diverse, coming not only from ads, but our subscription and other products. Of course, launching Docstoc wasn’t easy. Before I had a product to sell, I needed to convince people to help me build it. While we were growing I learned the importance of testing and building efﬁciently. Even before I started Docstoc I started two companies that I didn’t raise any money for. From all of these experiences I began to realize that you can build any business you want with little to no money. In this eBook I will review the lessons I’ve learned myself and from other entrepreneurs about running a business on a budget. I know people who built a product with a on a couple thousand dollars, and created a business worth millions. If elle Bailis you’d like this to be your story, read on. by Roch esigned Edited/d PRINCIPLES Entrepreneurs Sell Ether A lot of entrepreneurs like to talk about how they made their I painted that picture in great detail, and then I infused it with ﬁrst million, or their ﬁrst 100 million. What people really want the most important thing of all: my certainty. It’s your to know is the very ﬁrst thing that entrepreneurs do to pull in certainty that turns ether into a tangible entity, a form of the capital required to start making money. The answer: they currency that you can trade with other people. sell “ether.” Great entrepreneurs, great leaders, great politicians and great IF YOU HAVE NO CURRENCY, ALL YOU AN religious ﬁgures sell ether. This means that they have the ability SELL IS ETHER. IT’S YOUR CERTAINTY to dream. If you don’t have money, experience or a product, THAT TURNS ETHER INTO A TANGIBLE what do you have to trade? All you can sell is ether. It means ENTITY, A FORM OF CURRENCY THAT you can paint a future experience for somebody in such YOU CAN TRADE WITH OTHER PEOPLE. speciﬁc detail, with such substantial intricacies that it feels tangible. When I needed somebody to design the ﬁrst DocStoc This allows you to get people to do things for you before you website, I didn’t have any money to give him. I had to tell this actually have the resources to pay them in the currency person that in a few months, he was going to get they’re used to. That’s a lesson that every great leader, every compensation, equity, and pride in creating this website that great politician, every great entrepreneur has learned and thousands of people would see in a very short period of time. applies on a constant basis. Everything Can Be Negotiated When you are starting a business, remember that whatever If the person isn’t price someone names, it’s negotiable. Don’t ever accept the entrepreneurial enough to ﬁrst offer. Push back. Stand your ground. Be willing to walk appreciate this opportunity, away. Even if the price is stated on their website, you can then I’d rather not develop a almost always get them to negotiate. How? You offer them business relationship something in return that is potentially as valuable, if not more with them. Those who valuable, than what they want upfront. are willing to make this deal get something When I ﬁrst started my business I needed help from various even more valuable experts, such as recruiters, accountants and attorneys. They all than a ﬂat fee; access to quoted an initial fee, and I responded with a proposal. I would a network of returning tell them “You’re going to give me 30% off your normal rate, customers. and in return I will bring you two more clients this year who will spend at least as much as I do. If I fail to do this, I will If you don’t have money, compensate you for the full market price. But I promise you ﬁgure out what other value that I have such a wide network of friends, I will be an you can offer, and always invaluable asset to your business.” be prepared to negotiate. You Don’t Need a Product to Sell a Product After business school, a friend and I decided to start a company together. He was worried because we didn’t have a product. This is the ﬁrst important business lesson I ever learned was that you don’t need a product to sell a product. Even when you’re building new products, it’s best to test how much people want it before it’s created. The biggest mistake people make in business is actually overestimating how much people want their service or product. Our tactic at Docstoc is to predict how many people want a product before we invest our time and money into making it. We do this by investing, let’s say $10,000 to drive 20,000 users into a webpage promoting a product that doesn’t exist yet. Then we observe what percentage of people who view that webpage want to buy that product. If a signiﬁcant percentage express interest, we build that product for them, if not we move on. Hence, you don’t have to have a product to sell a product. TAC T I C S Designer, Developer and Marketer There are three things you need to keep your business alive. In some cases, B ATTLE OF THE B AYS one person might be able to embody some or all of this. A common mistake of startups in the Bay Area is that If you have a solid designer, a versatile they develop and design amazing and stunning products, front and back-end developer and a but don’t prioritize their marketing. good marketer, who were willing to work for a year without salary, you On the other hand, Los Angeles entrepreneurs are technically have everything you need to excellent at leveraging their connections and getting a launch a full product. product out there, but they don’t focus on creating products that are “sticky” If you’re missing any one of these three talents on your team, you will be An ideal approach is to combine these two approaches, missing a critical part of the foundation and place marketing and design on the same level of required for sustainable growth. importance. From Services to Products Some of the most successful companies have started off as service-based companies. The key is to shift from providing a valuable service to selling a product. Here are two examples USERPLANE of companies and founders that transitioned from services to products: Userplane was also a web development ﬁrm run by Mike Jones. They developed an instant messaging client for internal use that ended up 3 7SI GN A LS becoming the chat service for all of Myspace. It was 37signals started off as a web then sold to AOL for 40 development service, and built out a million dollars, and Mike project management software called Jones went on to be the Basecamp to manage their clients’ and CEO of Myspace and a projects. Customers liked Basecamp so famous Southern much that they ended up building it out California investor. His and monetizing it. It’s now their most beginnings were in the famous product, and pulls them tens of service industry, and grew millions in revenue every year. from there. The Six Week Cycle If you consider yourself an entrepreneur you’ve probably at least heard of The Lean Startup by Eric Ries. At Docstoc we live by this book, and focus on keeping our production lean and swift. We never launch anything that takes more than six weeks to develop, I kid you not. We launched a new product in a couple months called License123, which tells new business owners what licenses and permits they need to start their business. It was important that we got the product out immediately so that customers could use it, and guide us in the direction they wanted the website to go. Most of the time your product will end up transforming from what you originally intended. Don’t invest months making it perfect; if you spend too much time in incubation you won’t have the funds or wiggle room to experiment, improve and build out your product. Leverage Deferred Compensation & Equity This is similar to selling ether. Before you even have a somebody the chance for ownership, to have a serious product, you can leverage future compensation and stake in something they’ve created. equity for the company you are going to create. The key for you is to be sure to put this developer/ Eventually, you will be raising money or gaining designer/contributor on a vesting schedule, so that he revenue from your product. If you don’t have enough or she gets equity in pieces over a four year vesting funds to hire a designer or developer, you can offer to schedule. This will encourage loyalty. pay them half now half later, plus extra kickbacks from The most important thing is to sell them on this future revenue or funding when you succeed. product as if it exists already, so they feel like they’d be You can also offer someone equity, even before your completely missing out if they chose not to be a part of company exists or has a single share. You’re selling it from the beginning. MONETIZATION 7 Ways to Get Online Trafﬁc for Free A big thing most entrepreneurs overlook is how they’re actually going to get users. Bringing in customers can be incredibly costly if you don’t start thinking immediately about how you’re actually going to get people to show up on your website and use your application, your product or your service. Many new websites create a product, decide to spend X amount driving trafﬁc to their website, and then hope it goes virally from there. But remember: unless this trafﬁc is bringing a higher value than what you paid for the cost of acquisition per user, you can’t sustainably spend money to drive trafﬁc forever. You can only sustain the cost of ads with AdWords or other internet ads if you have a positive return on investment (ROI) to spend. For new companies, this often isn’t feasible. Over the years I’ve come across 7 free way to drive trafﬁc to your site. I’d suggest developing as many of these approaches as you can, so that you’re not depending on one source for driving users. 1) Search Engines 2) Press Improving SEO is the ﬁrst small change you can make When you ﬁrst start out and don’t have money for a to bring in signiﬁcantly more trafﬁc without much PR ﬁrm, you need to get your own press. This expense. takes persistence, and I mean possibly months of developing relationships. At Docstoc there are 20 million people a month that actually type in the docstoc.com. The other 20 million Michael Arrington, the founder of TechCrunch, wrote people enter queries for documents or resources about Docstoc four times before we even launched through search engines. the site. Why? Because I built a personal relationship with him. I didn’t realize when we ﬁrst launched Docstoc that we would be a search-based company. But after seeing When I was back in law school, I skipped one of my a strong correlation between the amount of trafﬁc we ﬁnals when I heard he was going to a party. I crashed pulled and how quickly our resources were increasing, the party, and approached him. From his perspective, I realized that growth couple be exponential. I probably came off as a stalker. The more content we had, the more trafﬁc we But I stuck around, bought a couple drinks for his brought in. So the only metric that was important to group of friends, and didn’t leave until I could have a us that ﬁrst year was growing the number of nice conversation with him and build a rapport. I documents in our library. worked on building a relationship with him until he was willing to look at what I did, and eventually write In the beginning our content was provided by our about it. The single best way to get journalists to pay users, so we would run contests for users to upload attention to you is to follow them. more documents. We built in features and incentivized Go to their blog, post uploading, and leveraged our community. We looked comments, re-tweet their log, for content in publicly reach out to them and start a available sources. We conversation. Don’t ask for made deals. We did anything. Do things to whatever we could help them out, and to grow our after 6 months, library. you’ll have built up enough equity. 3) Social Media Simply creating a Facebook and Twitter account before you have any followers probably won’t generate you new trafﬁc. Try using social media outlets that will start a conversation with users, and have the potential to go viral. At Docstoc, we got trafﬁc through posting on link aggregate sites like Digg and Reddit and Stumbleupon. I also know of major publishers that are driving a million unique visitors from LinkedIn referrals. The Dollar Shave Club was a small startup with the great idea of shipping razors directly to men’s homes for a dollar. All they needed was to be discovered. So they created and shared a short video all across the internet. The commercial was hilarious, and quickly went viral with over 4 million hits on Youtube. This genius piece of marketing was all they needed to generate an explosive amount of sales, and kick-start a sustainable company. 4) Partnerships & Deals 5) Refreshing Content You can always ﬁnd a way to make a deal with someone If your product doesn’t have refreshing content, it to drive trafﬁc to your site. Find a value proposition doesn’t give people a reason to come back. you provide that they don’t have, that’s worth them At Docstoc, it’s a very transactional based experience; sending trafﬁc your way. people visit our site when they need a document, and You don’t need a huge, then they leave. In order to successful company to get retain users, we started YOU DON’T NEED A HUGE, SUCCESSFUL the big guys to pay COMPANY TO GET THE BIG GUYS TO PAY creating original expert attention to you. In the videos and articles, in the ATTENTION TO YOU. IN THE STARTUP startup world, more than hopes that in after they WORLD, PEOPLE WILL WORK WITH YOU any other industry, people come for a product, they JUST BECAUSE THEY LIKE YOU. will work with you just return for original content. because they like you. I’m willing to make a bet on partnerships with smaller 6) Solve a Compelling Need startups if I like their founder and I see them working This one is pretty straightforward. People need three hard. There’s no other industry like the web, where you things in their life; love, health and money. If you can leverage your own personality to get people to build manage to ﬁnd a solution that touches one of these things with you. three burning desires, that helps facilitate acquiring it for your user, it will often sell itself. An example of a viral loop is Highlight, an app that connects you with people that are in a close physical proximity to you and share similar interests to yours. When you register, the app asks you to connect with your Facebook contacts, and because it’s an app about 7) Viral Loop connecting with people, you oblige. A viral loop draws in customers, retains them and Every user becomes a free marketer motivates them to return to the website that brings in 3 or 4 more customers, frequently. A great way to galvanize a viral loop is and creates a snowball effect. not only bringing customers back, but turning them into marketers themselves. Start Charging Immediately: Test & Monetize Everything Too many entrepreneurs are scared to charge.You'll be surprised what people are willing to pay for, so test different prices.You don’t know what your product is worth until you know what someone’s willing to pay for it. If you ﬁnd something that works, don’t be afraid to dig your heels in. A common mistake entrepreneurs make is they ﬁnd something that starts to work and instead of going as deep as they can into that technique they look for more. If you ﬁnd a way to bring in revenue, put your energy into getting better at it. Use Variable Expenses Manage Fixed Expenses to Drive Revenue An important aspect of bootstrapping is managing Your variable expenses, however, should mostly be your ﬁxed expenses.Your regular expenses, driven towards making money. Maybe you’ll spend it on such as your rent, employees, server costs... those AdWords, see if it brings in customers. If it doesn’t, are the expenses you want to keep as low as turn it off. Do what you can to leverage your variable possible. expenses for driving revenue. The Best Time to Raise Money is When You Don’t Need It You may not want to raise money down the line, but you never know what will happen down the line. It’s now, when you don’t need money, that you should be forming strong relationships with investors and entrepreneurs, and showing them how well you run a business. Help people, network, build friendships, and whether it’s six months or six years down the road, these connections will help you raise money when you need it most. PERSONAL RULES The 50K Rule Protect Your Downside Avoiding Unnecessary Risks I always dismiss people who say they don’t have enough money to start a business. There is no magic formula for deciding what risks to take. What I do Especially if your business involves the know, is that you should never take on a risk that’s not signiﬁcantly internet, there is almost no beta product counterbalanced by a big upside. Don’t take on one big risk. Give you can’t get off the ground for $50,000. yourself the chance to make several mistakes, and to grow from them. If they really need it, anyone can access Starting a company is like running a marathon in a series of sprints.You $50,000. Take out three credit cards, or if should always be pushing yourself, but you can’t burn out or twist your you’re still in grad school take out student ankle on the ﬁrst mile. Taking on too much risk at once can do this. Be loans. If you’re working don’t go out, move sure you have the resources and energy for the long haul. back home and save up some money. Go to ten different important people in your life and as them for $2,000 that you will pay back in the next couple years. If you aren’t resourceful enough to get your hands on $50,000, you probably shouldn’t be starting a business. One Year of No Salary If you’re just starting out, you’d better be prepared to take little to no salary. Be sure you either have enough saved up or are living in a situation where the pressure of paying rent or bills won’t be hanging over your head You’re Now a every month. To be successful, you need to be Promoter... Deal With It! able to focus your energy and money on your product. No matter what you did before this, whether you’re an excellent You will honestly have to stop spending time programmer, an introverted designer, or you’re just incredibly shy... it’s with people who aren’t bootstrapping because time to face it: you’re now a promoter.You’re a salesperson, the it will put you in a lot of awkward situations number one fan of your product. If you’re not completely obsessed, that you can’t afford. If it’s worth it, you need living and breathing your product day in and day out, how can you to commit to this for at least one year. expect others to love it as much as you do?