Four big changes have arrived in the software business in the last five years that didn’t exist 10 or 20 years ago.
- The cost of making a quality software app has gone down 10X.
- You can reach your target user and buyer efficiently without expensive advertising and enterprise salespeople.
- The average size of venture funds has doubled or tripled, increasing investment sizes and exit expectations at the same rate.
- Even smaller SaaS companies with $2M-$5M ARR can get 4-10X multiples of revenue when they sell.
This means you can get your software company up and running without big outside funding, in most cases.
Professional VC investors know this too.
That’s why most wait until you get above $1M in ARR before they get interested in funding your company.
But at that point, you don’t often need their money on their terms.
You have the optionality to take outside funding if it makes sense to you on your terms. Or not.
If you moved to San Francisco in 2013, you probably did the incubator/accelerator routine and then raised seed, Series A, and Series B venture rounds.
That’s what Esben Friis-Jensen did with his Danish friends when they started Cobalt, a cybersecurity platform and services company.
They added lots of employees and they grew. Adding lots of employees is what you do with big VC funding. What else would you spend it on?
Esben got tired of the big teams and their big goals, so he left to start a new software company in 2019 called Userflow.
Userflow helps product managers and support staff build useful onboarding tools into their own software products without coding.
This reduces or eliminates the need for people to help users to get started and be successful.
Now Userflow has 600 customers and $3 million in ARR—with just 3 full-time employees. And it’s growing fast.
Esben handles growth (marketing, customers, success) and his cofounder Sebastian coded the entire application. And they have a product designer too.
You can get a lot done these days with 3 super employees. Having 30 or 300 employees doing it the old way just slows you down.
Esben says they will add more employees someday, when they need to. He knows it will slow them down and not speed them up.
Userflow is a product-led growth success story.
Make the product experience great enough and you don’t need lots of people or funding to grow a big and valuable software company.
It’s starting to occur to some of Esben’s founder friends in San Francisco that they don’t need big funding and big teams to do big things, with less risk.
The practical founder way is becoming more obvious to serious founders, even in Silicon Valley.
The times they are a-changing.
Listen to the interview with Esben-Friis Jensen on the Practical Founders Podcast.
Thanks, Esben, for sharing your story about the useful differences of the funded and bootstrapped approaches.
#practicalfounders
