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My sixth year as a bootstrapped founder

(mtlynch.io)
1071 points mtlynch | 4 comments | 16 Feb 24 15:07 UTC | HN request time: 0.001s | source
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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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holoduke ◴[16 Feb 24 19:06 UTC] No.39401539[source]▶
No way that 7, 15x is realistic. From my previous 2 startups none were sold for more than 4x. And these were healthy growing +10m businesses. I am not sure where you got those numbers from. I am curious.
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solumunus ◴[16 Feb 24 19:45 UTC] No.39402010[source]▶
Ouch. Businesses sell for more than 4x all the time. There are countless examples of that.
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danielmarkbruce ◴[16 Feb 24 19:52 UTC] No.39402097[source]▶
Give the examples. Businesses this size in this market have very few (/0) logical buyers.
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1. t_mann ◴[16 Feb 24 20:07 UTC] No.39402275{3}[source]▶
I can't speak for valuations, but I don't see the 'no logical buyers' argument. This product has multiple competitor products, mostly at far higher price points, any of those manufacturers would seem like a logical buyer to me (if only to get rid of the competition). Can you elaborate?
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2. danielmarkbruce ◴[16 Feb 24 20:11 UTC] No.39402321[source]▶
It's small. There are very few logical buyers of technically complex small businesses. There are logical buyers of small businesses and logical buyers of technically complex businesses, but at the intersection there is not.

Even bog standard SAAS companies struggle to sell at a decent multiple when they are really small, and they aren't especially complex.

3. lozenge ◴[16 Feb 24 21:54 UTC] No.39403475[source]▶
You aren't just buying a company, you're buying a job. In this blog post, the payroll expense is $250k a year. The founder is working for free 40 hours a week, acting as a software dev, managing a $40k advertising budget, developing the product, and overseeing the customer support team.

If you buy this company and hire somebody who can do all those things, that $235k of net profit becomes $0.

Buying it just to shut it down without continuing the product- eh- does your product really address all the needs of the customer base? Or will they go to another competitor instead?

4. hinkley ◴[16 Feb 24 23:07 UTC] No.39404242[source]▶
I think this is one of those areas where a competitor buying you can make sense. Either your product is attractive to higher margin customers, at which point they are buying into a higher end market, or your product is part of the low-end, and by buying you out and shutting you down, they hope to convert some of your lower margin customers to higher margin customers, and let some of your high-maintenance customers go bother one of your mutual competitors (which is honestly the most Sun Tzu-ish, borderline Machiavellian, reason to fire a customer)