Disclaimer: What follows is a comprehensive and tactical guide to building a fast-growing, self-funded company. The tactics listed in here are practical and exactly how we turned SwagUp into an 8 figure business with over 1000 customers, in under 3 years, while maintaining 100% of the equity
This approach is not for everyone and for some, VC makes more sense. Grow your business on your terms.
. . .
The playbook for startups over the last 10 or so years seems to be pretty consistent…
- Pick a hot category or model
- Sell the story to investors
- Raise $1 million + before launching a product
- Go hard on PR
- Grow at all costs with little attention to margin to “get to the next round”
- Raise every 18 months to hit milestones to impress investors
- Pick your head up a few years later, with little equity left, bloated overhead, praying your unit economics work
Now that may be a bit harsh and over-generalized, but the path above seems to be the rule as of late, not the exception.
You can’t blame founders; why take things slow and risk your own money when investors are throwing money around at record rates and failure is celebrated.
The stark reality is that you can’t buy your way to a successful business.
When it comes to starting a new venture, entrepreneurs have the option to self-fund it or go the venture route, bringing on outside capital. Certain business models absolutely require venture funding, similar to how certain career paths absolutely require a college degree. Take Quibi for example. They’ve raised close to $2 billion pre-launch to build up their content library. There’s no way to get that business off of the ground through sheer willpower, you need money to play that game.
I’m a firm believer, though, that most startups do not need to, nor should they, bring on outside capital in the early stages. Over-capitalizing early on leads founders to give up some of their greatest advantages…discipline, resourcefulness, focus, and creativity.
Nothing gets you to focus on what is important quite like the fear of going out of business everyday. Everyday you are radically prioritizing and figuring out what will have the biggest impact.
“Nothing gets you to focus on what is important quite like the fear of going out of business every day.”
We’re no stranger to this at SwagUp. Since launching in May 2017, we’ve grown to over 100 employees, over 1000 customers, growing at triple digits. Doing 8 figures in revenue, all while maintaining profitability and 100% of the equity.
Sounds great, right? Well actually, it really sucks. Growing a business at that rate, with no capital beyond reinvested profits and some lines of credit is incredibly challenging. The hours are long, single bad decisions can put you out of business, and the stress will leave you with much less hair than you started.
Yet, I firmly believe, for most startups, bootstrapping is the right way to get a company off of the ground until you’ve built a strong foundation that is truly “venture-backable”. We’ve made a ton of mistakes along the way, but we’ve also done a few things right. What follows is a list of the 14 most important lessons we’ve learned and tactics we used to bootstrap our way to 8 figures and beyond.
. . .
1. Don’t quit your job until you have traction
Being a great entrepreneur is just as much about limiting downside risk as it is being aggressive.
Disclaimer: Different companies have different policies on how they treat employee’s side project and IP created while employed by a company. Check your employment contract and/or discuss with your employer before going too deep
Remember, it’s about staying in the game long enough to get our at-bats, not hitting a home run the first time up.
This mentality needs to start from day 1, if you don’t have traction yet, and you don’t have a bank account big enough to bankroll your startup and life for at least 2 years, keep your job and work on your startup on the side.
Ultimately, making your company successful will require 100% of your time and attention, but there are practical ways to get started and get real feedback on your idea without having to jump ship from whatever it is you’re doing.
I say real feedback deliberately. You can’t just ask your friends if they like what you are doing or would buy it, you need to go to the market, anonymously, and see if someone/company cares enough about what you are doing to either sign up or give you money.
You don’t need a full product or anything fancy to get this level of validation. Simply put up a landing page with a form up, run some ads to it, and see what the reaction is. Test different wording and different ad platforms (Google, Facebook, Twitter, and LinkedIn are all super easy and low cost to try out). If you don’t know how to use them, watch a Youtube video or sign up for a low-cost uDemy course.
I started SwagUp this way. While I was working at a small VC firm called Brand New Matter, I was running Facebook and Google ads at night to a wix site.
Within days I was getting inbound requests from companies as large as Soylent and Labdoor and knew there was something here to explore further.
After 2 months, I was able to get to a point where leads started to come in at a predictable rate and we began closing some deals and shipping orders out of my house. Once I saw that I ultimately left BNM to work on SwagUp full time.
And that gets me to my next point…
2. Start by using free/low-cost tools (even if you’re a developer)
Early on it’s all about getting feedback from the market and iterating.
DO NOT overinvest early inexpensive software and tools, invest solely in figuring out if the market wants what you are/plan to offer.
I built our initial site myself on Wix and used it for the next 2 years. For $13 a month, Wix gave me the ability to run a full-blown website without having to hire a dev team or wait days coordinating changes. I could make landing pages, iterate, throw some ads up, test, and revisit.
We utilized similar low overhead tools like Typeform for web forms, Trello for project management, and Zapier to tie it all together. All of these tools were either free or super low cost and no code.
Since we started in 2017, more and more platforms have become widely used to get startups from zero to 1 with minimal effort and cost, such as Webflow, Bubble, and Airtable. Do some digging and you can pretty much find a tool to do anything you need to get started, without the need for custom development. Spend the early days talking to prospects and getting buy-in, not building a product that may or may not ever get used.
3. Use freelancers instead of full-time employees
Every dollar you spend is precious.
It’s easy to fall into this trap to hire new people every time a need arises. However, not every problem or position requires a full time employee. Salaries and wages add up quickly, not to mention benefits and insurance that are added on top.
Early on, we tapped freelance designers to help us create product mockups for our clients. We paid them on a per project basis which allowed us to only pay for what we needed and keep costs low.
Before you hire someone, think to yourself; do I have enough work for someone full time? If not, fill in the gaps with freelancers.
4. Don’t be quick to delegate early on
Startups/founders that fail to reach profitability don’t lack resources they lack resourcefulness.
I originally heard that from Tony Robbins at some point, and it’s so true.
As a founder, early on you need to get your hands dirty, you need to know the ins and outs of every piece of the business. A trap I see a lot of founders fall into is over-delegation. Doing this early on is a recipe for disaster as it gets you in the mindset that you are always lacking something and need either money, people, or more product development to fix it.
As a founder, very rarely is it the case that your lack of something external is holding you back, you need to look inward and get it done/figure it out. Both Helen and I (2 of the partners in the business) have basically done every single role in the company at some point.
“As a founder, very rarely is it the case that your lack of something external is holding you back, you need to look inward and get it done/figure it out.”
I built our website, created our first digital marketing campaigns, sourced products, vendors, did some of the graphic design, answered customer calls and chat, delivered packages, product managed the dev team, ordered from vendors, earned how to integrate different tools through Zapier, did (and still do) a ton of sales. Helen too has done all of that and more.
As a startup founder, You need to be a generalist.
You need to be malleable.
You need to solve problems.
You are not above any task.
Trust me, there will come a time for delegation a year or two in, but in the early days, constantly depending on others to get things done for you will put you out of business quickly.
5. Ignore PR/Twitter etc.
Don’t get distracted by the noise.
Spend too much time on tech Twitter or reading Techcrunch and you’ll quickly feel inadequate. This company just raised $20 million, this Founder was just named to Forbes 30 under 30, a similar company just got accepted to YC, this company is on the Best Places to work in NYC list etc. etc.
Two things to keep in mind:
1. Most PR is either untrue or doesn’t tell the full story.
2. The only things that matters are having happy customers and strong business fundamentals.
Keep your head down and do the work each and every day.
One day you’ll look up and you’ll be amazed by what you’ve built…plus, if you do it right, you’ll have more journalists and investors knocking down your door than you’d ever want.
There will be a time for this, just not yet.
6. Stay on top of your expenses
Knowing your business inside and out is essential.
As with most things, it’s hard (impossible) to optimize something you are not watching or measuring.
For the first 2 years, I reviewed every single line item of every single credit card statement we received. I wanted to know what exactly we were spending money on and why. Additionally, you will be shocked by how much money is wasted on nonessentials or incorrectly billed for things you never actually purchased. The occasional vendor will be shady, and in many other cases, mistakes in billing happen.
This also spills into checks. Write your own checks! Getting billed on a credit card for $3k is one thing, handwriting a check for $3000 is something totally different, it’s gut-wrenching, especially when funds are low.
There may also be room to barter your product or services in exchange for things you are already spending on. Given your margins, that should drive down the real cash costs by 40-50% or more. We did this with a few companies early on.
Lastly, easy to just put things on automatic bill pay, direct deposit, or just press pay, but I promise you, by simply looking at expenses regularly, you will spend less money.
7. Skip the fancy office
A fancy office does not make a business successful.
When we first started out, I was lucky enough to set up shop in my mom’s house. Now, I get not everyone has that privilege, but if you do, take it! There’s nothing better than free rent.
Not long after starting the business, we decided to get an office at a WeWork in downtown Manhattan and if I’m being honest, it’s one of the stupidest decisions I ever made. The expense, while only a few thousand a month, almost put us out of business and forced me to pay our first employee in equity rather than cash compensation.
Not only was that office expensive, it was distracting and counter-productive. Working at my house, I could roll out of bed and get to work. With the Manhattan office, I was commuting +/- 3 hours per day. Not only was I paying for that commute for me and our first employee, that was 6 hours (3 for me and 3 for him) that we weren’t working on the business.
After about 6 months, we cut our lease and moved back into my house. When storage space became an issue, I found us a beat-up warehouse/office on Craigslist for $2300/month. Today we have a beautiful 13k square foot office, but it wasn’t until 2 years into the business did we move in, plus we negotiated a great deal.
There will be a time for the fancy office, especially as the business scales and you look to build out a world-class team, but don’t put the cart before the horse.
8. Limit your personal overhead
Be willing to sacrifice in the short term.
This will be tougher for some vs others based on their personal situation (kids, student loans, mortgage, etc.) but you need to drive down your personal expenses as much as possible.
In the early days, every dollar you take out of the business is 5-10+ you are losing in potential growth based on the return you could get on that money in a startup.
If you have the luxury to control your own expenses, skip the fancy apartment, trade-in that expensive car lease, hold off on that pricey trip, fly economy, go out to dinner less, etc.
This can be hard, especially if other people’s opinions matter to you. You will see friends you went to college making way more than you, posting pics on Instagram of their lavish trips, and you, you’re still in your mom’s house conserving your cash.
Don’t worry about it!
You’re on a different journey than them and you need to stay focused. You need to be willing to sacrifice in the short term, knowing that you are building something meaningful, but only if you give it the best chance of succeeding.
I lived in my mom’s house for the first 18 months, reinvesting as much money back into the business as possible. Fast forward to today and I live in a $1500 apartment down the street from our office, my girlfriend and I share a car, and I take a minimal salary.
If you want to go this route, these are things you need to consider.
9. Find people who are invested in the mission
You need people who want to be a part of making it successful.
Finding passionate people to build your team with is likely the most important thing on this list. Early on, as you look to bring in people to the business, it is critical that you find people who are invested in the mission and the long term growth potential of the company.
Getting your startup off the ground is difficult, and you need people who are willing to sacrifice in the short term because they love the company. You need people who want to be a part of making it successful.
Avoid early hires that ask lots of questions about comp and benefits. Your first handful of employees should be so excited about the company that comp is the last thing they are worried about.
Every early hire is critical, people who are just there for a paycheck will suck the life and cash out of the business. No one is perfect at hiring, and many people will say one thing in interviews but then act differently. Make sure to get rid of toxic employees quickly, if this is the case.
Honestly, we couldn’t have done it without them.
10. Bring on advisors who have done it before
It’s easy to feel alone as a founder, but it shouldn’t be that way.
New entrepreneurs, myself included, spend way too much time figuring things out on their own and making mistakes that have been made thousands of times before. Reading books can help with this but there’s no better solution than bringing on mentors and/or advisors
Chances are, whatever it is you are doing/building, someone else has been in your shoes before, maybe not exactly the same, but similar enough to be able to spot potential pitfalls and accelerate growth.
Look for advisors that are 2-3 stages ahead of you, that way they have relevant and recent context to help you with what you are going through. The entrepreneurial community is small and if you are genuine and go about it the right way, most people are more than willing to help out.
This is one of the few benefits of being VC-backed early on, in being able to tap into that support network early on.
With SwagUp, I had three advisors that have been instrumental to our success, one is Wade, who I met through the networking app, Shapr, second is Helen who I met through Instagram, and the last one is Artem, who I met through a mutual friend.
Each helped in different ways. Wade is that advisor that (aside from his years of go-to-market experience) was/is 2-3 stages ahead of us in his own business. Wade and I would get on calls once or twice a month to go over the state of the business, issues we were facing, managing teams, deals we closed, etc.
Being entrenched in it all himself as well made the conversations super fruitful. He could relate to each thing we were going through and had stories and advice based on what he was going experiencing. Having that sounding board help me understand very quickly that all startups go through the same struggles (aka every startup is a shit show), which made me never sweat the small stuff. Wade continues to be an active advisor to this day.
Helen and Artem were two other advisors I had early on that ultimately ended up joining the company as CMO and CFO.
I learned a ton from Helen about managing teams and could always rely on here to give me the push to make aggressive decisions like move out of my house and into our first warehouse. Looking back, if we didn’t do that at the time, we would have crumbled.
Artem, on the other hand, was pivotal from a backend, legal, and financial aspect. As founders, we like to build and grow but typically neglect the backend. As you begin to scale, I can’t stress how important it is to have someone in your circle that will legitimize your company (insurance, taxes, etc.) and who is financially literate and can manage cash flow.
Make sure you build an Operating plan and financial model for the business and start to understand what will happen to cash if different scenarios begin to play out. Wade and Artem helped a lot here. You don’t need to get super granular or forecast 5 years out, but at least understand the levers that drive the business and the numbers are important.
No matter what people say, there is one common reason why startups die…they run out of cash. You can have a “successful” business, with growing revenue, and happy customers, and still, fail if you are not monitoring your cash flow. Again, great entrepreneurs are always protecting the downside, you need to have someone who’s mitigating the risk of anything that can kill your company. Artem is that and more!You can also learn from failure. We recently added in Frank Denbow, who built a startup in the space that ultimately shut down. Yet, we shared a similar vision. Bringing him on as an advisor meant he was able to share feedback on the things to avoid and give industry-specific intros and context-rich advice.
11. Go above and beyond for early customers
No growth hack will scale your business early on like giving your first customers the best experience possible.
In the early days, every lead is precious, and every customer is top priority. These people/companies are taking a shot on a young company, they are putting themselves on the line for you. These are your early adopters and you must do whatever it takes to make them happy and earn their trust.
Early adopters tell their friends and that’s how word of mouth starts…and best of all, it’s free 🙂
Not only do early customers provide you with revenue and word of mouth, they are also your best source of feedback, they will care enough to put up with your product gaps and be willing to give you the feedback needed to make improvements, take advantage of that opportunity. Leverage these early customers as case studies in conversations with new prospects.
At SwagUp we’ve done some pretty crazy stuff to make sure our customers are happy. One particular situation always comes to mind from early 2019. A client of ours was having a company offsite at a resort in Mexico and we were set to deliver swag for attendees.
Well, production had been delayed and we weren’t sure if FedEx would get it there in time or not and didn’t want to take the risk of them not having anything to give out to their team. There was only one way we could ensure those items would get there in time…We’d hope on a plane and fly them there ourselves. And that’s exactly what we did!
Gary Vaynerchuk’s snowstorm wine delivery story really solidified this customer obsessed belief for me a few years back and it’s what drives us every day. Every early customer compounds, good or bad.
The mistake I see a lot of early entrepreneurs make is that they get entitled. They feel like the customer owes them something, when in fact, you owe the customer respect for the time and attention they’ve given you. Always work under the assumption that you may lose that customer tomorrow because you just might!
12. Don’t neglect margins
Unprofitable growth will kill a bootstrapped company. Review them each month and determine how they can be improved.
What’s funny is that now all of the sudden margins are becoming a “thing” in Silicon Valley. For the last 9 or so years, it was all about growth. Growth is only important if it gets you to a large profitable company one day that generates free cash flow!
When some of the private, unprofitable unicorn startups started to finally hit the public markets, investors weren’t down for broken unit economics and burning hundreds of millions of dollars every year.
When you don’t have the “luxury” of VC-backing, margins are even more important. Margins fund growth because you are (hopefully) reinvesting profits back into the business to hire, develop software, buy machinery, market, etc. Not to mention, if your margins don’t cover your costs you are going out of business. For more on this, Keith Rabois has some thoughts here.
With that in mind, make sure to focus on both gross and net margins early on, and not just growth.
“Unprofitable growth will kill a bootstrapped company”
At SwagUp we monitor the gross margins of each order we work on and report on them every 2 weeks. The more visibility you have on something, the more likely it is to improve. We didn’t focus on margins enough early on, but we should have. Over time we’ve been able to increase gross margins by 30-40%.
13. Stay focused!
With limited resources, you need to focus on what is working and double down.
Last but not least, as a bootstrapped company, you need to stay focused.
For us, that meant doubling down on Google ads and cutting everything else off. It meant focusing on swag packs for new hire onboarding as our niche and forgetting everything else.
As a small company, your biggest weakness (being small) is also your biggest strength. Being small allows you to appeal more strongly to a targeted group. It allows you to build up the expertise to be the best at something specific.
Focus also plays a huge role in product development. Technical debt is a very real thing and it can pile up in crippling ways when you are not focused and deliberate about product development. Early on keep the product simple and don’t jump at every little inbound request from prospects. Take in all feedback but don’t let it throw you off track from the product you know you need to build.
You don’t have the resources to be everything to everyone early on, so don’t!
14. Enjoy the ride
I always go back to those memories of that first year or two of getting things off of the ground. Just going through my old photos to find some to include in this post is making me remember how much fun we had in those days. Don’t forget to enjoy the journey, it should be one of the main reasons you are doing all of this anyway.
Living life on your terms, solving a problem you care about, with a great group of people.
To wrap up…
Bootstrapping a fast-growing startup is extremely difficult. With little margin for error, It requires discipline and deliberate action. You’ll get stressed, you’ll get tired, you’ll envy other companies and founders, you’ll want to give up, but if you can get through it, you’ll be in a much better position as a company and as a founder because of it.
And maybe, when you come out of it on the other side, you might be ready for a venture investment to pour fuel onto the fire that you started, until then, keep your head down and stay focused.
. . .
I’m here to help! You can find me on Twitter @michaelmartocci or via email (email@example.com)
🔥 OTHER BLOGS YOU MIGHT LIKE: