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My sixth year as a bootstrapped founder

(mtlynch.io)
1071 points mtlynch | 9 comments | 16 Feb 24 15:07 UTC | HN request time: 0.99s | source | bottom
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tgtweak ◴[16 Feb 24 16:51 UTC] No.39399561[source]▶
I think people (and the founder) are focusing on yearly profits as their remuneration and comparing it to a salary... but the reality is you're creating a company that should be valued (and eventually sell) for 7-15X Earnings - and you really should be looking at that increase in value vs your increase in profits. In reality your net worth went up by over $1.5 million in the last year, in addition to earning 236k - that is the actual value you created for yourself in the last year and not the 236k you cashflowed.

I find it redeeming that despite having a gift for development - software and hardware - the biggest factors affecting profitability and growth here are things that most MBAs would do in a business quite regularly (outsourcing design/packaging/fulfillment, streamlining costs, doing price elasticity experiments, polling customers and markets for product improvement).

I enjoyed seeing the inverted perspective that product/engineering is straightforward and low risk but things like optimizing fulfillment and operating costs is a new exciting endeavor.

One tip I suggest doing is leveraging google ads to figure out features that customers are willing to pay for before you build them... if they're clicking the ad they are searching for it and interested in buying it. Start a few very low cap campaigns calling out features you are thinking of building into the product, and see which one get's the most impressions and clicks per marketing dollar and focus on that. The added advantage is you know it will be easier to buy advertising for it once the feature is done.

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awhitby ◴[16 Feb 24 17:58 UTC] No.39400566[source]▶
You're missing something. From the post:

> I don’t draw a salary, so the total amount I earned from TinyPilot in 2023 was $236k.

and

> Result: I worked 35-40 hours per week, a reduction from previous years, and traveled more than any previous year.

This is a person who is effectively full-time CEO of this business and whose market salary is likely at least $236k. If they sold the business, the new owners would have to pay someone else to put in those 35 hours.

Maybe the new owner could employ a less-skilled manager and pay them less, or maybe there's still lots of potential growth or room to cut costs, but that's all quite speculative: right now the business has a profit, and therefore a valuation, closer to zero.

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1. avinoth ◴[16 Feb 24 18:31 UTC] No.39401065[source]▶
Valuing a profit-generating business that's making $1m in revenue as zero is reductive.

Valuation of business isn't necessarily determined by profits (perhaps for commodity businesses), It's just one of the metric. This is a business that has strong operations, product, assets, and IP, honestly quite surprised with this take.

Also, a nit fwiw, you automatically assumed the entire profit of the business is the market salary for the person running this business

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2. ◴[16 Feb 24 18:39 UTC] No.39401172[source]▶
3. awhitby ◴[16 Feb 24 18:41 UTC] No.39401188[source]▶
I don't really disagree. It's a naive analysis, but ignoring the opportunity cost of the time the owners put into a business, which I was replying to, is even more naive, and yet an extremely common mistake small business people make.
4. gnicholas ◴[16 Feb 24 19:26 UTC] No.39401781[source]▶
We don't know that it is profit-generating, since the author doesn't take a salary. As for the assumption that the profit would be soaked up by the market salary for the founder, the fact that he's a former Google engineer or whatever is a pretty decent indication that this is true.

I would agree that most people would take some job flexibility/autonomy in lieu of part of their bigco salary, but my guess is that this particular Xoogler would be making well more than $236k (including stock) if he had stayed at Google.

EDIT: that doesn't mean he should have stayed at Google, just that his market salary would very likely soak up all of the profits this year. If he can keep up the growth (and ramp down his hours), then it would be clearer that the enterprise could throw of cash even after paying for all the labor.

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5. danielmarkbruce ◴[16 Feb 24 19:49 UTC] No.39402055[source]▶
The point is it isn't profit generating by any reasonable definition of profit and doesn't have some obvious path to get there.

Taking into account all the things you mention, many reasonable people who spend time buying and selling businesses all day would value this business at zero.

The nit is generous - 236k is not going to cover the iq points and hard work required to do the role of this owner.

6. avinoth ◴[16 Feb 24 20:20 UTC] No.39402428[source]▶
That’s the thing though, it’s a Google engineer’s market salary, and likely the author’s as well. But the OP was drawing the conclusion that whoever’s running the business has to be paid the same amount, that’s what I wanted to address.

> I would agree that most people would take some job flexibility/autonomy in lieu of part of their bigco salary

This is one of the point the author has repeatedly stressed the importance of and I very much agree as well. The chance to chart your own journey and the excitement a business could bring is anyday more valuable than the predictable path of employment for many (including myself)

7. mryall ◴[16 Feb 24 20:33 UTC] No.39402582[source]▶
He did pay himself a salary in 2023. See the P&L included in TFA.
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8. gnicholas ◴[16 Feb 24 20:37 UTC] No.39402627{3}[source]▶
The article says:

> I don’t draw a salary, so the total amount I earned from TinyPilot in 2023 was $236k

I assume the salary line is for other people's salary.

9. Aurornis ◴[17 Feb 24 02:09 UTC] No.39405630[source]▶
> Also, a nit fwiw, you automatically assumed the entire profit of the business is the market salary for the person running this business

Not really a big assumption given that the person is capable of operating an entire software and hardware business by themself.

It’s more complicated than that, though: The salary someone receives from a company isn’t 100% passed through untouched. To pay everything from taxes to benefits, the most they could realistically expect to take in equivalent compensation would be closer to $150K (approximate), which is actually below market rate just about anywhere for someone with these qualifications.