Jeff
Appearances
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
Yeah, a combination of things. It's always a great question in a group to say, hey, what percentage was success and what percent was luck? And it was definitely a combination. I think of it like winning a poker tournament. Sure, it's possible to not even know what you're doing and just go in 20 times in a row and win. I think, one, it was a good idea. It was my co-founder's idea.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
It was ahead of its time. But it was a good idea and we caught a wave five years in, ten years in, that picked up steam. I would say we had a good division of labor in the startup where my co-founder was a brilliant coder. He was technical, I was sales. So if it had to do with code, it was him. If it had to do with the business, it was me. And we stayed out of each other's way, which was good.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
We didn't go too far too fast. If I would have had an ability to raise venture capital early, I probably would have done it. And that probably would have been a mistake. So again, we took the long view on things, short-term generous, long-term greedy, anything we could do to get the product in the customer's hands and using it, we know we would succeed in the long run. We deferred gratification.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
So we didn't have a big fancy office. We had a crummy office for a long time while we were profitable. We didn't get hit by a lightning bolt out of the sky is definitely one. So you didn't get killed. Didn't get killed. Cease and desist letter, sued by a customer, a breach, sued by... I know we never got sued, which is nice.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
So really a combination of things, you know, Rob, over the long period of time, I mean... I don't want to shoo away any credit. I think we made more good decisions than bad decisions. I think we recovered quickly from our bad decisions. We weren't afraid to take certain risks that had favorable payoff conditions. And we weren't in a rush. We went, you know, we went, I call it bootstrap.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
We had a small amount of money from outside investors that got us over the line.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
I think this is one of the benefits of being a bootstrap company. We didn't have a quarterly number that we needed to make. And that means you don't ever sell the product to someone who's not a good fit. You sure try not to. There could be an occasion where
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
there's a prospect and they really should buy your competitor's product, but you need the money or you need to make your number for the quarter. And we never did that. And then there were occasions where maybe the person we were dealing with had a very low budget authority, including our first sale of $9,920 in December of 2003.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
And you think, well, geez, this is a customer that should be $100,000 a year customer, $50,000 a year customer. and the person you're dealing with is enthusiastic about it but they can't convince their management or they don't have the budget and we'd say, what do you got? Can you sign for $5,000? And we would do that. We would do that consistently.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
The way our licensing worked as well was the product did not have a feature that would exclude someone from using the product because they'd exceeded a license count. So we sold on concurrent licenses, there's a number of ways to do it. There was also a generous way to do it was concurrent versus named users, which people liked.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
And then if we thought, hey, you're going to need let's say 50 concurrent users and that's whatever it is, 10 grand a month, we would say, I'll tell you what, first year we're going to charge you for five and take advantage of us. I mean, just rip us in half. I hope you get up to 75 because I'll catch up with you next year. And if that's a problem, we'll work with you from there.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
So you could be sitting around forever trying to get that 50 concurrent license thing, but I'll sell it to you for cheap for five because I know you're going to like the product. I know we're going to take care of you. I would say also, you know, we had a methodology or a viewpoint that like we never tried to avoid our customers. Like we had a phone number that spelled the company's name.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
And you could call that number and one of our people would pick up the phone and help you through a problem. And the idea was always let's try to give great support where no matter what, even if you forgot your password, we're not going to farm you out. to someone else, we're not going to send you through an IVR, we're going to try to get a human to pick up the phone.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
And then after we surprise and delight you with some great service, we're going to take an opportunity to say, hey, by the way, is there anyone else in the, in the company, maybe that could use the product? Or, you know, is there are there other things we could do, we could do better than when once you've done a good job serving them.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
So that's just another example of being generous and greedy at the same time.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
Hey, Rob. Thanks for having me.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
Yeah, it's a great question. I'd say time moved at different speeds in different parts of our history. So the first couple of years crawling over broken glass, it was like time in the dentist's chair. It couldn't have gone slower. The first few years felt like 100 years. Once we got to profitable and had a pretty good sense that we were going to be okay, that part went fast.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
So from 2007 till the time we sold a majority share, that 10 years might have felt like two. Although there were some struggles, of course, along the way. I don't mean to think it was all sunshine and roses during that 10 years. But that time was really good. We had a small team. It was a good team. We worked well together. It was small enough where you knew everybody.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
It was big enough that you could take a vacation and expect that the company would still be alive when you returned.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
I'm happy to walk through the transactions if it's useful, but I think the total was about $88 million. That went to you directly? That went to me from the equity sale in three chunks.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
Yeah, boy, Rob, I could go hours on this. I'll try to distill it as best I can. Everyone has a number in mind, right? If I could get this amount of money, then I'd be set and I'd be done. Mine was $10 million. And I think most people, when you say my number is 10, you really think of 20. So that was life changing.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
I was down there and then first check was 21, second check was about 40, third check was 27, 28. And I remember in vivid detail the day we sold, cashing the check, taking my family out to dinner in a limousine, what we had to eat. I could bring you to the table where I sat. Second time we sold, Rob, $40 million. It closed early in the morning. I was in a conference room by myself.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
I don't remember what I did. that day. I don't, I mean, we might've gotten pizza that night. I honest to God, I don't even remember. And I'm not sure how useful this is to your audience, but I mentioned this on another podcast I was on. I think most people have a default perfect amount of spending, meaning like maybe you can afford to, you know, fly first class and stay in a nicer hotel and, um,
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
I don't know, have a decent car, you know, whatever it is. Everyone has their sort of ideal amount of spend. And when you have less than that, life is of course painful because you're wanting to rise up to that. There's also another side and I can already...
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
feel the eyes rolling in the audience, and my eyes would have been rolling as well, that when you're above that, if you have more money than you can spend, it creates a certain kind of an issue as well. And just some examples of that are feeling the need to maybe go do it again or give it away. And it's just more challenging than you'd think.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
I made a lot of the mistakes that I think people who sold their business make. You do what the world tells you you should do. You go to try to work with nonprofits and you realize how frustrating and slow that is if you're a founder. I bought a bunch of stuff. I had four houses and a jet at one point and realized, you know, stuff isn't where it's at.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
Experience and community and relationships are much more valuable.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
than uh than that and i also grossly underestimated how much i would miss the structure and the purpose and the identity uh that i had in my in my former life and i know i've been talking a long time i can hear myself talking but i just i just want to say to the audience like if you're rolling your eyes right now or you're saying like what a moron just believe me when i say when i was starting i would have said the same thing like how is it possible you know you have this giant pile of money and you don't just write off into the sunset and
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
and spend the rest of your days with frozen drinks and sunsets and boats?
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
I guess the obvious answer would be I must not be that interesting. But perhaps beneath that is I like to keep a low profile just for my own safety and security. And by being anonymous, it also helps me be completely authentic with anything I have to talk about.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
Oh, gosh, Rabia, congratulations, by the way, because you have accomplished something a lot of people in my situation or similar have not. Six months is a, you're much smarter than me and a lot of others that I've worked. And I stood up a group called Beyond the Finish Line It's btfl.org if anyone is in the same situation. But I can kind of distill a lot of the conversation is this.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
I want you to picture a Venn diagram, two circles. One of them is doing something important with people you know and like and trust, right? It's being back in the trenches. It's going to war with your friends and being an important part and being useful in that. Okay, that's one circle. And the other one is absolute freedom and autonomy and independence to do whatever you want, anytime you want.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
And as it turns out, the joke is it's not a Venn diagram, there's two circles. There's no overlap. That's great. And so the key, I believe, is to find something as you did, and I have friends that are in the group that have found something that is worthy of sacrifice of that second circle.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
So if there's something that you feel passionate about, or you feel like you're giving back enough, you're useful enough, you're willing to say, I'm a skier. So I'm willing to say, you know what? We've got perfect ski conditions today. I got six inches of powder. It's blue skies. The lines are short. It's 20 degrees and the light's good. And I have to say, I can't do it. I can't go ski today.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
So it has to be something that's worthy of sacrificing your independence. So kudos to you for finding that. And the North Star I use now or I try to use now is energy. So if I've got something, like I'm enjoying talking to you, I was looking forward to talking with you today. If it's giving me energy, it's good.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
And it doesn't matter how much money you have in the bank, Robin, anyone else listening, it doesn't matter how much money you have in the bank. If you've got low energy, life sucks. It doesn't matter that you can push a button on your phone and have a plane come pick you up somewhere.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
If you're not looking forward to the day and you're not looking forward to what you're doing, your energy is low, life sucks. And if your energy is high, it doesn't, you know, maybe I'm working on a home repair project or something. If my energy is good, life is good. So that's the new scoreboard because it's not money anymore.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
Yeah, so let me start with the negative response on that, which is the real generic ones I can't help with, like, you know, what kind of business should I start? Those I try to write, and I'll need to spruce up my website before this publishes, but I'll try to write a, you know, very basic response. you know, applies to everyone, answer to a very basic applies to everyone question.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
The ones that are useful are people that have a particular situation or problem that I can help with. If someone does, you know, business to consumer or they're trying to open up, you know, a market in Asia or something, I can't help.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
But I've had I don't know how many calls and this brings me energy so I'm so happy to do it which is why I don't need money, I don't have a coaching service, I don't have anything else, it just gives me energy.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
I've been I think an authentic ear for the people who are going through it and that's where I think I can provide some good in the world from people who can't make payroll, from people who are thinking about a big partnership, thinking about selling. their spouses telling them to get a real job. I talked to a guy whose co-founder committed suicide in their apartment.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
I've talked to people who are in the process of making mistakes that I've made. And I think it's really a relief for a founder to be able to talk to someone who's been through it and can say, yeah, me too. You're not alone and it's going to be okay. While not having to sort of like secretly pitch me for an investment, I make no investments. No investments in anything. That's the trade.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
I'll not write a check, but I'll not ask you. I don't want any shares, warrants, options, nothing. I want nothing.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
Thanks for having me, Rob. I really appreciate and enjoy your work. Nice to be in touch with you.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
Oh man, the first word that comes to mind is relief. And following that, probably enthusiasm. As a bootstrap founder, it's very difficult to take a lot of risk.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
So when we sold the business the first time to a private equity firm, and if anyone wants to contact me on Twitter or wherever, I'd be glad to share details about who our banker was, who the private equity firms were, but I'm going to keep those keep those anonymous as well for now.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
But I was excited to work with people and actually be able to put money into the business and pursue some of the crazy ideas that I had as a founder. But when you've got 98% of your net worth wrapped up in your business, it's really challenging to say, hey, you know what, this is a crazy idea. And I think it's a 5x payoff if it works. It's hard to pursue those things.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
But the first thing was relief, man. If I listened to your latest podcast and your guest talked about sleeping for 14 hours. If anyone gets to retirement, I don't know if this is good news or bad news, but the best thing is the sleep. It's just so great to sleep. It's so peaceful. Oh, it's so peaceful. I went a dozen or more years where I was asleep. I was unconscious, but I was still at work.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
You know, my dreams were all involving work and to be able to actually get to sleep is great. So that was the first thing.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
14 is a great, great multiple.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
It was a combination of things. I mean, the market was very strong at that moment in time in early 2022. So that can't be disregarded. But the mental model I use when describing this to people considering selling their business is a slot machine. And I didn't know this going in, or I would have had some better numbers. But
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
you know, just excluding market conditions, you take your revenue is sort of the first reel of a four reel slot machine. And then you take your gross margin. And I'd never really calculated our gross margin. I mean, I knew how the business worked, but I'd never really dug into what our gross margins were. And we were about 90% gross margin. So it was a mature product.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
It was all our own code and open source. We didn't have any licensing costs. So we had high gross margin. That's reel number two. Third is retention. And I knew we took really good care of our customers. It was one of the reasons we had, I think, such a good outcome and took so long was our patience. But we took really good care of our customers. We had 117% net retention.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
So it was a- Negative 17% churn. Yeah, negative 17% churn. That's-
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
And happy to talk about some of the strategies that helped that. My favorite of which is short-term generous, long-term greedy, which I'm glad to talk about later. But the fourth reel is growth. And at the time we sold, the first time, we got seven times revenue. So seven, not nearly as good as 14, obviously.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
But if you think about that slot machine, our growth was only about 20-22% a year when we sold. So if we would have had 100% growth and 90% gross margin... and 117%, that would have been a jackpot. But we were kind of like jackpot, jackpot, potato for that last reel on growth.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
But perhaps the private equity company that acquired the majority stake saw that we had a lot of potential because we weren't aggressively spending in sales and marketing at that time.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
Yeah, we were business-to-business security software. And if anyone wants to find me, I'm not hiding, send me a message online or on Twitter or something. Just like with you, glad to introduce myself. But it was business-to-business SaaS.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
It was an abject failure to get one-time licenses is the honest answer. That's amazing. I'm a salesman by trade, so of course we were trying to get $100,000 for the software. And then the way it used to work is you'd pick 15%, 20% maintenance ongoing. But we weren't able to do that. We were two guys and a dog, and the dog was a loner. and nobody wanted to give us the money.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
It was really Salesforce that I recall as being one of the real earliest pay-as-you-go. The difference in our case, we adopted the pricing model of a subscription, which I think was very healthy for customers and for customers and for the tech companies. But we were still on-prem. So we were shipping servers, still probably shipping on-prem servers to customers.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
But it was really the licensing that was rather novel at that time in 2003. And again, driven out of necessity, not some kind of foresight or wisdom.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
Yeah, I was not working another job. I was unemployable at the time. And for clarity as well, we did raise $350,000 of an angel round. So mostly bootstrapped is how I should call it. And that was the last capital. Yeah, that was the last capital. And I said, I had a previous company that I sold.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
in a dot-com company that we, let's not venture into to waste time in the interview here, but I had a little bit of money left over from that after failing at a couple of things in between. So we were burning money at home for a long time. It was a tough first five years.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
Yeah, it was the first year we did a million dollars of revenue was 2007. I think we were at about seven employees then. So it was just the two of us for a year. We did $9,920 of revenue our first year in 2003. Yes, I remember, and I have a copy of the purchase order I could put my hands on right now. That's cool. That was a big day. Yeah, a million dollars of recurring revenue.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
Yeah, I'll give you one early and I'll give you one late. The one early is sort of a combination of stories, but I remember a year in, two years in, something like that. I mean, we're doing almost no revenue and it's just not working. I think we were a little bit early.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
for the market we were in and it's security software so it's difficult to get a beach head and just thinking, man, if I had any other opportunity, I mean any opportunity, like three grand a month and a dental plan and just like relief from the pain I'm going through, I would have jumped on it.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
And I remember a particular moment where I was fighting with the printer or something like that and I was just really angry and frustrated and I think that's one of the things, I mean I hope your audience takes from me and from each other is that it's hard. Man, it's hard and it's lonely.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
And having somebody to talk to authentically where you're not in pitch mode and talking about how great it is and feeling like everybody else is doing great and you're not. But it's really hard. It was hard and it was lonely. The second one I'll give you was late in the process and was a contributor to deciding to sell the business. And this was 2015, I believe.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
where we were doing well, and I had taken a loan. I built an office building for the company, and I took a loan of $6 million with a personal guarantee. I didn't have that kind of money, but the company had cash flow at that point to support that. And we had a security breach. Nothing was lost. but someone got through the first level of our security.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
It wasn't our software, it was a piece of open source code. I don't remember what it was, but we were stuck. And one of our customers said, hey, we've got a red light on the dashboard here. Somebody broke through the front line of security here and they're checking the doors to the vault. Then another customer, same thing. We were under attack at that moment in time.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
I just signed a loan for $6 million to build this. In security software, one bad line of code could ruin you. It wasn't our code, couldn't fix it, totally out of our hands. That's a moment I won't forget. That's a moment that all the ships were down and we didn't really have any ability to play the hand. Our team came together and when a fix was available, we fixed it.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
That's one that I won't forget.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
Yeah, I've got plenty of weaknesses, but panic is not one of them. Equanimity, I think, is one of my strong suits. But this was a case, I'm a salesman by trade, so I didn't have any ability to understand really what was going on and had to rely on the team. And I believe it was a Friday night and we just got to the point where there wasn't anything else we could do.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
So I think we approached it rationally and then... You talk about the events that just sort of happened to you, there's just a big wheel in the sky that spins and sometimes your number comes up and that could be getting a disease or getting in a car wreck or in this case having a piece of software that you were using that had a vulnerability. Fortunately, we were able to work through it.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
Fortunately, the other safeguards that were present in our software held strong. I don't know if it's interesting, but a lot of security software you could say is like it's an alarm or it's a fence or a moat or a gate or something. We were a vault. We protected the vault. of some very important customer information, casinos, law firms, banks, hospitals, things like that.
Startups For the Rest of Us
Episode 732 | Lessons Learned Bootstrapping to a $615M Exit
So it was not a system that could fail without massive repercussions for everyone. So anyway, glad to have that behind.