Note: in order to understand this article, you need to know the differences between bootstrapping your small business (i.e. funding it yourself) or raising venture capital. Check out this post I wrote about why we decided to bootstrap Less Annoying CRM, and how raising venture capital works.
When we started Less Annoying CRM I’ll admit that everything felt a bit overwhelming. I was pretty confident that I could build a great product that customers would love. I wasn’t quite as confident that I knew how to get our first customers, but I at least had some idea of where to start. But then I’d think back to the last company I worked at (a small, venture-backed startup at the time), and it seemed like there was an entire world of other... stuff.
I say “stuff” because I didn’t even know what it was. What was the accountant/bookkeeper doing all day at my old job? Was there really enough of that stuff that it was a full-time job? What kind of stuff goes into writing a business plan, and what do you even do with it once it’s written? What goes on at a board meeting? The CEO/CFO seemed to have hours worth of stuff to do just to prepare for those meetings. It seemed like we were constantly consulting lawyers about various stuff and the executives would use all kinds of terms and acronyms that I didn’t understand. That’s even more stuff that I’d have to figure out if I wanted to run my own startup, right?
Luckily, it turns out that all that “stuff” I’d witnessed other companies doing isn’t actually necessary. At least not at first. If you’re a very early-stage business, and especially if you’re bootstrapping, you can avoid a ton of that complexity. Some of it you’ll have to deal with eventually but not yet, and some of it you can avoid indefinitely if you just keep your business simple.
In this post, I’m going to explain why you might not have to worry about all the complexity, and then I’ll give some specific suggestions of things you can do to dramatically simplify your business and stay focused on the things that really matter.
Let’s start with the type of complexity that you might have to deal with eventually, but not right away...
Things you don’t have to worry about yet (a.k.a. “You aren’t going to sue yourself”)
Note: this section is mostly meant for entrepreneurs who are in the very early stages. If you’re already running a business with revenue and employees, you’ve already been through this and it won’t hurt my feelings if you skip to the next section.
If you’ve never started a business before but you’ve looked at other businesses and had that “yikes there’s a lot of stuff I don’t understand” moment that I had, I’ve got good news: most of that isn’t necessary when you don’t have employees or revenue. I’m sure you’re eager to be a giant company with thousands of employees and enough money to go swimming in it Scrooge McDuck-style, but for now you should appreciate the fact that you don’t have revenue or employees messing things up.
Why does revenue mess things up? Well, revenue means taxes. And it means setting up bank accounts. And figuring out credit card processing, and understanding cash flow, and so many other things that are important, but aren’t really related to the core mission of your business. I can’t tell you how much time my co-founder and I have spent trying to perform seemingly basic tasks (like setting up a checking account) with major banks that have presumably done this before, although they certainly don’t act like it.
And that’s just the tip of the iceberg. Once you start hiring employees, you’re suddenly responsible for the livelihoods of other people. The government understandably wants to make sure you take that responsibility seriously, and they aren’t afraid to make you jump through a ton of hoops for the privilege. All of a sudden taxes get much more complicated and you have to start worrying about payroll, insurance, and more. At the time of this writing, Less Annoying CRM is seven years old and employs 11 people and I still am not 100% confident we’re doing all this stuff correctly even though we’re certainly trying.
But if you’re a founder without any employees, you really don’t have to worry about any of that stuff. For quite a while, I used my personal credit cards to buy everything and all of our revenue went directly into my personal checking account. The company’s taxes were just me personally claiming some extra income in TurboTax. That’s not a good long-term approach, but it worked fine when we were just getting started. I didn’t have to worry about myself getting mad if we had a bad month and couldn’t pay out as much as planned. I didn’t have to worry that if I tripped while walking around the office (i.e. my studio apartment) and broke my arm that the company would get sued. You aren’t going to sue yourself.
If your company ends up being successful, then you’ll have to start dealing with some of this complexity eventually. But for bootstrapped companies it happens gradually, so you should have time to adapt (note: VC-backed startups need to grow so fast that they might immediately blow past this “simple” stage). It’s similar to getting older. Adults have all kinds of responsibilities that would be completely overwhelming for a kid. And kids don’t become adults overnight. They just gradually learn more and more stuff and before they know it, they’re doing their own taxes, paying down a mortgage, and saving for retirement. As a new entrepreneur, the key is to make sure that you take advantage of the freedom of being a kid, and don’t worry about adult business until you start growing up.
Things you might not ever have to do
I’m going to let you in on a little secret: a tremendous amount of the stuff that normal companies spend their time on is done for the benefit of the investors. This is one area where bootstrapping can be a huge advantage, because if you don’t have any investors, that means you don’t have to do any of that extra stuff.
Let’s look at business plans as an example. Most people know (or think they know) that you need a business plan before starting a company. If you ever watch Shark Tank or take classes on entrepreneurship or read business books, this comes up regularly. Business plans can be long, complicated, and incredibly intimidating to write, especially if you’ve never done it before.
But have you ever wondered why you need a business plan? I’m not talking about a “plan” as in “an idea of what your business is going to do”. I’m talking about a physical stack of papers with sections on market analysis, competitor analysis, go-to-market strategy, and so on. If you know what your business is going to do, why do you need to spend a month putting it together into a neat little booklet? Who is the audience?
The answer is that investors are the audience. Business plans exist almost entirely for the benefit of investors. If you’re going to ask someone to dump hundreds of thousands of dollars into your business, it’s reasonable that they would want to understand what your plan is. So in that situation, it makes sense for an entrepreneur to spend a lot of time perfecting a written business model, a slick slide deck, and a tantalizing elevator pitch.
And that’s why being a bootstrapper is so great. If you want to write up a business plan for your own benefit, then go for it. But you don’t need to worry about impressing any investors with it. And business models are just one small example of areas where “normal” startups are very complicated but bootstrapped companies don’t need to be. Many successful entrepreneurs claim that raising money is so time consuming that it should be the full-time job of one of the co-founders. Just think of all the time you’re saving and complexity you’re avoiding by bootstrapping.
All of the other startups out there are running around Sand Hill Road trying to schmooze with investors, putting together board packets, sending quarterly updates, tracking overly complex metrics at the request of an investor, and “maximizing shareholder value”. That’s why running a business looks so complicated. If you’re a bootstrapper, you can forget about all of that and instead focus singularly on the one thing that matters: providing value to customers.
How can you take advantage of this?
In many ways, bootstrapped companies are at a disadvantage compared to traditional VC-backed startups. Investors can give you the resources to hire employees, spend more on customer acquisition, and lean on expensive lawyers and accountants to help you through the crap you don’t understand. As a bootstrapper, you don’t have those luxuries.
If you try to do the same amount of work as the competition with fewer resources, you’re almost sure to lose. And since there’s nothing you can do to match their resources (without joining them on the VC rollercoaster) your only option is to reduce the amount of work you need to do. That’s why it’s so important for you to be aware of the two categories of complexity mentioned above and only work on things that really matter. It’s tempting to try to “play startup” and pretend you’re a bigger company than you are, but you have to avoid that temptation.
Every time you take on a project, ask yourself if it really needs to be done. Do you really need to spend time on that pitch deck? Is that networking event actually going to help your business? Do you really need to track that metric? If you’re disciplined about avoiding things that aren’t core to your business, you’ll end up flipping the “resource vs. amount of work” equation on its head and you’ll actually be at an advantage compared to your competition because they don’t have the option of ignoring most of the complexity.
Specific ideas for simplifying your business
So far I’ve just talked about high-level concepts. Now it’s time to dig in and talk specifics. It would be impossible for me to cover all the different ways you can apply these concepts, so I’ll just talk about three things we’ve done at Less Annoying CRM that have allowed us to keep growing without getting bogged down in complexity. Even if these don’t apply specifically to your business, hopefully they give you some ideas that you can build on.
Limit the number of audiences you have
When thinking about how a business operates, I like to think about how many audiences the business has. That almost always correlates to the complexity of the business model. I want to be clear: I’m not talking about the size of your audience, I’m talking about the number of different audiences you have.
In this context, an audience is any group of people that matters to you. Anyone that you need to impress, take care of, or work with in order to succeed. Different types of audiences will have different needs and objectives (everyone you deal with can’t be lumped into one big group).
Every business has at least one audience: customers. Someone has to pay you money eventually, so you don’t really have a business without this audience. Most businesses will end up having employees as their second audience, although it’s certainly possible to run a solo business. Another audience might be investors. Businesses that don’t make money directly from their users (like Facebook and Google) probably have the “user” audience which is separate from the “customers” (who are advertisers in this case). Some businesses act as brokers or marketplaces (think: AirBnB or Uber) and each side of the transaction is a different audience (hosts vs. guests and drivers vs. riders respectively).
My general rule of thumb is that the more distinct audiences you serve, the more complicated your business will need to be. Each audience has different needs and interests and you need to appeal to all of them in order to succeed. So each additional audience is an extra thing you have to spend time on and an extra reason you might fail. That means that if you’re bootstrapping and have limited resources, your goal should be to have fewer audiences so that you can run a leaner, simpler business.
By deciding to bootstrap, you’ve already implicitly removed one major audience: investors. By not having to worry about all the stuff that goes along with raising money and managing relationships with existing investors, your business is already much simpler than most. But you should also think about if there are other audiences you can remove.
Example one: consider if your business model works like the Facebook, Google, AirBnB or Uber examples I gave above. For all of those businesses, they need to serve two audiences just to make a sale. AirBnB can’t rent out an apartment without cooperation from both the host and the guest. Facebook needs both users and advertisers in order to make money. Both audiences are completely different which in turn makes the business model more complicated. I’m not saying that bootstrapped companies can’t make that work, but in my opinion, the best model for a bootstrapped business is to have one single audience that is both the user and customer.
Example two: one of the most common traps I see entrepreneurs fall into is caring too much about what the startup community thinks. In most cities there are endless networking events, meetup groups, and startup competitions. Participating in those events can feel like progress, but in most cases it doesn’t really do much to materially advance your business. You can win all of the pitch contests in the world, but it won’t do anything to actually get you a customer (unless you’re selling directly to the startup community which has its own set of problems). I like to participate in some of these events because they can be fun, but don’t get tricked into thinking that it’s actual work, or that impressing a bunch of your peers in the startup world will prevent your business from failing.
What we do at LACRM: It can be hard to stay disciplined about narrowing your audience with all the distractions out there, so I have a simple rule for myself and the majority of our team. For us, there are only two audiences that matter: customers and employees. If you’re working to impress someone and they’re not a customer, a potential customer, an employee, or a potential employee, then you should stop and work on something more impactful.
As we get bigger, it has become necessary to bend this rule a bit in order to form relationships with journalists, ad networks, and other groups that could end up providing channels we use to reach prospective customers and employees (our two core audiences). We address this by having one person on the team whose job it is to manage those non-core relationships. He has the freedom to go around schmoozing and nurturing relationships that don’t fit into our core audiences, and that lets everyone else at the company stay focused.
Only worry about metrics that you will act on
For whatever reason, most entrepreneurs seem to be addicted to metrics (myself included). If you walk around startup offices you’ll see dashboards and charts and reports all over the place. Metrics can definitely be useful, but in many cases companies collect and analyze metrics without having any intention of actually taking action based on what they learned.
You might wonder what harm it does to track a gazillion different stats about your business. I have personally experienced three ways in which over-tracking or over-analyzing can hurt.
- It takes time to set up tracking and reporting. Most interesting metrics aren’t available to you automatically. You need to install reporting software, write custom scripts, hire a data scientist, or outsource reporting to a third-party. That can really add up both in terms of time and money.
- Once you have the reports, it can be a huge distraction trying to make sense of everything. I’ve spent hours pouring through all kinds of different metrics about my business and it can feel interesting or fun, but in the end I normally don’t actually have any idea what to do about any of it.
- It’s scary how easy it is to lie to yourself with numbers, and the more numbers you have, the easier the lying gets. If you’re tracking 100 different metrics, it’s likely that some of them will go up and some will go down over any given period, and you can just choose to care about the ones that go up. Venture-backed startups need to do a bit of this to get potential investors excited about the opportunity, but bootstrappers have no reason not to be completely honest with themselves.
Maybe more important than any of those problems is that, as we’ve discussed above, you shouldn’t be doing things that don’t have an impact! Simplicity needs to be the goal, and plastering charts and metrics all over the walls is anything but simple. If you’re doing some kind of analysis without a clear plan for how it’s going to help your business, then you’re adding complexity for no reason.
An example from personal experience: Up until about a year ago, Less Annoying CRM had a data scientist. He was (and still is) an insanely smart math PhD who could perform sophisticated analysis on any topic we wanted. During his time here he built a bunch of reports and other tools to help us understand the numbers driving our business. When he decided to leave the company, I was pretty worried because he left behind a large code base that no one else at the company could understand. I was worried that if his reports stopped working eventually, we’d lose access to that information and the company would suffer.
In the end, we decided to stop using most of the tools he built (we just didn’t have the resources to maintain them) and replace them with two simple reports that I made in a weekend. These reports were incredibly basic and just showed a few key metrics (growth rate, churn rate, total revenue, etc.) so it was a big step down in terms of sophistication.
And do you know what happened to the business when we lost access to all those fancy reports? Absolutely nothing. Things kept chugging along just like always. I now realize that while we were investing huge resources into a data scientist (for a company our size, a dedicated full-time employee is a big deal), we weren’t devoting any resources to doing something with the tools and reports he provided us. It’s like we went to the store and bought all the ingredients to make a cake, but never bothered actually baking it. This was one of the most painful lessons I’ve learned as a CEO because it’s one of the few times we’ve lost focus on our core mission.
What we do at LACRM: Now we have a clear guideline that has really helped simplify the business: don’t do any analysis that you aren’t committed to act on. If we want to spend the time to build a new report or collect some kind of data we weren’t collecting before, we need to (a) have an idea of how we might act on it and (b) have resources committed to take that action. If we can’t satisfy both of those requirements, then we kill the project.
Additionally, when looking at numbers to understand how the business is doing, we try to limit ourselves to just the most important metrics. This makes things easier, and it also makes it harder for us to lie to ourselves by picking out just the numbers that look good. Our main office space has a whiteboard wall along one side. Instead of having a big tv screen with a complex dashboard on it, we just write one number on the whiteboard: the number of monthly subscribers we have right now. This number doesn’t lie, and it doesn’t tempt us to go down an analysis rabbit hole.
These changes have made the business significantly easier to understand and have helped us focus our time and money more wisely.
Avoid unnecessary legal and accounting work
As I’ve already covered, the goal should be to reduce or eliminate any type of work that isn’t directly contributing to your core purpose, but I want to call out legal and accounting work specifically. These are particularly dangerous because (a) it would be incredibly irresponsible to ignore these areas entirely and (b) most entrepreneurs are clueless about these areas so they’re not equipped to decide what the “right amount” of legal and accounting work is.
First off, ignore this section if you work in a heavily regulated industry or are somehow taking advantage of some kind of legal or accounting trick that’s core to your business. In those cases it makes perfect sense to invest heavily in these areas, because that’s directly tied to your core mission. But if your business doesn’t really have anything to do with the law or accounting, then this should be viewed as a necessary evil. You have to cover your bases, but it’s unlikely that being really good at this stuff will help your business.
I’m going to avoid going into too much detail here partially because I’m far from an expert on this topic, and partially because every business is different, but I’ll say this: there are a lot of crappy lawyers and accountants out there, and there are even more lawyers and accountants who are probably good at helping conventional businesses, but they’re completely unprepared to work with startups.
The consequence of this is that if you ask most lawyers/accountants for advice on what you should do, they’re going to suggest an absolutely insane amount of stuff. Most of them are used to working with giant companies where everything is necessarily complex and there’s a good chance they’ll try to fit your fledgling business into that same template. This results in huge expenses, unnecessary complexity, and in our case, really crappy results (we’ve had to re-write a number of documents that were drafted by the first few legal firms we tried working with).
I don’t exactly have an answer to this problem, but if you want to run your company simply (and I assume you do if you’ve made it this far) I encourage you to (a) try your best to avoid taking on unnecessary legal and accounting complexity and (b) work to find a lawyer and accountant who you trust and who understand that startups aren’t just tiny versions of giant bureaucratic corporations (if you’re in the very early stages, it might not be time for this yet, but keep it in mind as you grow).
What we do at LACRM: We had enough bad experiences with lawyers that we decided to run a test. We came up with a few small projects and asked different firms to work on them. This was a great way to see how they operate and compare them against each other. I’m not knowledgeable enough to know which firm does better work, but it was obvious which one took the time to understand our business model and gave us advice that was actually tailored to our needs. This test process ended up costing a bit of extra money and took some up-front time investment, but we found the right lawyer so that now we can keep things simple.
Quick anecdote: we asked the lawyer we ended up going with if we should worry about someone who threatened to sue us and she basically said, “nah, fuck ‘em, they can’t do anything to you”. To date, that is by far the best interaction I’ve had with a lawyer. I handed her an easy opportunity to make some money doing work I didn’t need, and she did the honest thing and told me the project wasn’t worth it. The other lawyers I’ve worked with would have ended up taking hours of my time and charging me thousands of dollars without adding any benefit to the business. Of course, this only applies if the advice was actually correct (you don’t want a lawyer who never does anything).
Pulling it all together
The specific examples I gave above are just a few of the many ways you can reduce complexity. Maybe you can apply some of those tips directly, but at the very least I hope it gives you some inspiration and guidance so that you can find your own path to simplicity. Just remember: every minute you spend working on one thing is a minute you’re not spending working on something else. As a bootstrapper, you’re already facing an uphill battle against well-funded competition. Don’t give up your advantage by spending your time working on the wrong things.
Like this post and want more like it? Check out other bootstrapping articles on our blog.
Wow, you made it all the way to the end! Let’s continue this discussion on Twitter (I’m @TylerMKing).
Bootstrapping - funding a business without the help of outside investors. This normally means that the founders use their own money to pay for expenses until the business is profitable, at which point the business is funded with its own revenue.
VC - can stand for venture capital or venture capitalist. The former refers to a type of investment that startups often raise to fund their growth. The latter refers to the people who work at the venture capital fund. VC-backed Startups are funded by venture capital, for example.
Audience - anyone that you need to impress, take care of, or work with in order to succeed. Different types of audiences will have different needs and objectives.