How to Bootstrap Your SaaS Company to $1M ARR Before Raising Venture Capital
By Parul Singh, Principal
Klaviyo is a marketing automation platform that lets ecommerce companies use their own data to power more personalized marketing. Sound a little boring? That’s not necessarily a bad thing. Klaviyo solves a very important, if not super glamorous, problem: helping growing companies grow even faster by making their marketing relevant.
The Boston-based startup has 80 employees today and is growing quickly. Back in 2016, Klaviyo raised a series A with the intention of using the capital to accelerate growth. Sure enough, they’ve tripled the business last year — but co-founders Ed Hallen and Andrew Bialecki never ended up needing to use the capital they raised, until it came time to put a down payment on their new 25,000 square foot office space in downtown Boston.
So what’s the secret?
Klaviyo is a perfect example of efficient entrepreneurship — the fact that the company has sustained aggressive growth rates without relying on venture capital makes them an interesting case study. How did they do it?
What You Do Is Important — How You Do It Matters Even More
So how do you build a high growth company without relying on venture capital? Make sure you build something people will pay you for. Ed Hallen and his co-founder Andrew Bialecki spent their first nine months experimenting with ideas about how to make email better. They quickly honed in on an opportunity: it was possible to make email more meaningful to the end user — if you used data about that end user to make the message more relevant. F500 companies were already marketing this way. But that kind of data-driven marketing wasn’t accessible to growth companies, because getting customer data on things like purchase history or website behavior synced with your marketing automation platform was a technical challenge, and therefore took a lot of time and money.
Bialecki and Hallen knew that if they could solve could make it easy to allow businesses to segment and user their data — solve the “how” — there were plenty of founders and marketers waiting to pay for it. So that’s what they did: focused on solving the hard engineering problems of creating reliable, real-time syncs between customer data and Klaviyo’s marketing platform. “Our strength was and is in engineering and we realized a lot of people were avoiding the hard problems, so we went at them head on,” says Bialecki. “Contrast that with solving a problem you know you can solve, but so can a lot of other people, and then hustling to find customers. We flipped that around — pick a problem with plenty of potential customers, but no clear way to solve it and then crack it.” Klaviyo built real time syncing for dozens of integrations, automatic error handling, data cleaning and they added a segmentation engine on top of the imported data with a simple interface so any marketer or founder can query their customer data. All of that is combined with a visual email builder and automation tools to eliminate most of the configuration growing companies had to do so they can focus on the creative and content of their messages.
Make the Value of Your Product Really Obvious
Klaviyo decided from day one to offer reporting that went above and beyond the traditional email metrics everyone else in their space was using: they showed customers down to the penny how much money they made from email. This meant building attribution algorithms into their software, which they knew people were looking for. After that, the sales process became a no brainer. “Proving ROI was ridiculously easy,” says Hallen. “We charged on a monthly basis, so we could say to prospective customers, ‘If you pay us money, we’ll help you make more money on the backend. What do you have to lose?’.”
You Don’t Need Eight (Or Eighty!) People to Experiment
The early days of a startup are often marked by fitful experimentation to find the right path. This should be done with as small a team as possible. One or two people should be able to figure out what the company should be doing, before hiring a team.
Make a Million Dollars Before You Hire Employee #1
Despite figuring out a formula that worked, Hallen and Bialecki didn’t let sales go to their head. They waited until they were on a million dollar run rate before hiring anyone else. That meant handling everything themselves and constantly looking for opportunities to automate: sales, development, and the customer support tickets that would fill their inboxes overnight. “If you start by doing everything yourself it’s easy to imagine doing more yourself,” says Hallen. Handling customer support themselves was particularly valuable. “Many of our best insights came from talking or working directly with customers,” according to Bialecki. “We probably would’ve been slower to realize what people wanted if we weren’t answering support emails and phone calls every day.”
Hire People That Amaze You
If you follow the formula Bialecki and Hallen have outlined, you will — without a doubt — feel like you’ve waited too long to begin hiring. “Our business was growing so quickly we couldn’t keep up,” says Hallen. The company went from hiring its first employee in 2014 to its current state of 80 employees and growing in less than three years. But the worst thing to do when you realize you’re behind on hiring is to lower your bar, even subconsciously. You should expect the same passion and drive in your employees that you have yourself as a founder. “When hiring, never settle. Only hire people who will be as passionate as you,” advises Bialecki. “They’ll never let you down.”
The Bad Side of Bootstrapping
The Klaviyo story seems like a storybook startup, but Hallen would make some decisions differently the next time around. As of this writing, Google returns two stories on the company, one in VentureBeat and a local tech website, both related to the $1.5M in seed funding the company raised in August of 2015. Lack of PR hasn’t hurt the company in terms of sales, but when you’re succeeding and trying to hire dozens of employees simultaneously, it makes life harder. “I loved our focus early on, but I wish we’d a bit more time to talking to people in Boston so we didn’t have to introduce people to Klaviyo cold when we started hiring,” says Bialecki. Neither he nor Hallen would trade off their relentless focus on product and customers in the early days for a more well-known brand today, but they both acknowledge that it can make recruiting more challenging.
Beyond branding, bootstrapping can lead to some close encounters of the furry kind. The company started in the Beehive, an underground co-working space sponsored by MIT in 2012–2013. Once they outgrew those digs they moved into the cheapest spot in Boston, which surprisingly turned out to be an office right off Boston Common. While it had an advantageous address, they also attracted some nocturnal visitors. A jar of almond butter lured in a family of raccoons who broke into the office one night. These days they are in nicer office space — no raccoons allowed.
The Bottom Line: Be Relentless in Your Focus
Entrepreneurs need to be focused on solving a problem. This advice sounds trite, but Hallen says if you’re not solving a real problem, for lots of customers, repeatedly, anything else is a waste of time. That includes going to startup meetups and pitching VCs. “We didn’t do any incorporation paperwork until we had sales,” says Hallen. “When we signed our first customer we said let’s go figure this out.” The lesson learned? Focus on creating a great product that solves a real problem first, and the business will follow.
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