23 rules to run a software startup with minimum hassle

Rule #1: Recurring revenue is the way to go

If your product can be presented as a subscription, a.k.a. a SaaS product, do that. Even if you need to shoe-horn your product into that business model.

Rule #2: Stick everybody on a month-by-month plan

A lot of SaaS veterans will urge you to try to get subscribers to opt for annual billing up front rather than month-by-month billing, by offering a deep discount on annual plans. While this has a cash-flow advantage, it has two disadvantages:

  1. You get less money in total, because of the discount; and
  2. You erode the benefits of rule #1, as your revenues will start to be more feast-and-famine rather than almost completely predictable.

Rule #3: Don’t do accounts receivable

Get your customers to pay up-front, by credit card, and using only a short list of cards that your payment processor accepts. Don’t offer payment in arrears by invoice. There is a lot of accounting hassle and time spent doing cashflow management associated with invoice billing.

Rule #4: In fact, completely outsource billing

At CrankWheel, we use the Braintree payment gateway and the Chargify subscription management platform on top of that. This is a decent solution, but if I was starting again today, I would go with Paddle or a similar software “reseller” (in name only) that takes care of everything related to billing and sales tax/value added tax and pays you a single lump sum every month. Yes they take a larger percentage than if you go straight with a payment gateway like Stripe or Braintree, but it’s a very simple way to outsource and simplify. You get:

  • One lump sum every month means much simpler bookkeeping on your end;
  • No customer support on your end for billing issues;
  • You don’t have to fight back against chargebacks, they do that for you;
  • They handle subscriptions plans, coupons, offers, dunning (retrying credit cards) and lots more.

Rule #5: Don’t do freemium

Operating a freemium model means your sales pipeline will be very long, as users typically have to build up usage over time before exceeding freemium limits, before you even have a conversation about them purchasing. This makes your feedback loop from changing things to improve conversion at various stages of the pipeline to seeing the total effect on overall conversion very long, and this makes it harder to optimize. It also will require more complex systems to track.

Rule #6: Don’t prepare for tomorrow’s success at the expense of today’s prerequisites for success

I’ve fallen into this trap myself at previous startups, making choices that are not the simplest choice for the foreseeable (short-to-medium-term) future, because I foresaw a gilded longer-term future where the best and most reasonable choices for today would not be good enough.

Rule #7: Choose simple, boring technology

Almost by definition, the goal of building a bootstrapped startup is to create a viable business. You might have a secondary goal of learning how to do so along the way — that’s all good. But don’t also make it a goal to learn fancy new technology framework along the way, unless there is no other way to build your intended solution — that adds significant, avoidable technical risk.

Rule #8: Choose a stable, multi-vendor platform

If you’re dependent on a single vendor, I can almost guarantee this will be painful over time. App platforms like the Apple App Store, Google Play, and the Chrome Web Store, and e-commerce platforms like Shopify and Magento, or CMS platforms like WordPress are all examples of this.

Rule #9: Use a managed office

Running your own office is a hassle. Your printer breaks down, you run out of coffee, there’s a leak from a pipe, your cleaners quit, you need to find someone to water the plants while you’re away, and so forth and so on. Most of these things take only a little bit of time, but add it all up and it’s a big distraction from your actual business goals.

Rule #10: Use an answering service

Answering the phone when you’re heads-down doing some coding, or writing a case study, or optimizing your paid ads, is a big distraction. It’s so much better to have 80% of your calls transformed to email messages or customer support tickets, 19% batched up during a part of your day that works well for your schedule, and that 1% of truly emergency calls routed through to ring all support team contacts.

Rule #11: Choose a big, boring bank

I started with a smaller, more nimble bank for CrankWheel, thinking I would get better service. Instead, they ended up making strategic changes where they no longer want to be servicing business customers, which has meant fewer and fewer available services — and switching banks is a huge hassle.

Rule #12: Choose a simple corporate structure

Do you love paperwork, calls with lawyers and accountants, and learning the intricacies of running a company in different jurisdictions? No? Then choose the absolute simplest corporate structure that you can, and let it develop over time only as it becomes absolutely necessary, so that while you’re small, you’re managing a single corporate entity in a single jurisdiction with a single bank account and so on. You get the picture.

Rule #13: Find an accountant who will be a long-term partner

Trust me: Switching accountants is a painful process. Do everything you can to avoid it. Finding a firm you can rely on for the next 5+ years is a lot more important than whether they are 20% more expensive than some other firm.

Rule #14: Don’t take in any investors

Investors will want a seat on the board, and very often also some special rights or preferences in your company, and once they’re on board you can’t ignore them, and you shouldn’t. They will put a lot of pressure on you to grow fast, very often faster than may be compatible with your well-being, mental health, work/life balance and ability to keep finding your work fun. This is especially true if you take in VC money; their timescales are aligned with their fund lifetimes, and they typically have only 5 years until they need you to either IPO or be acquired. Their fund structure means they aren’t (and can’t be) interested in a company that pays dividends, or building a privately-held business for the long term.

Rule #15: Don’t apply for grants

A typical government grant for research and development will often require you to set a direction for 2+ years and then more or less stick to that direction, or you won’t get all the grant money. This will affect your decision-making process by creating an incentive that is not necessarily aligned with building value in your business as fast as you can. Align yourself with your customers by making them your almost-exclusive source of revenue.

Rule #16: Don’t do partnerships

Any partnership will take a lot of your time, and often requires a significant investment on your end, be it a reseller, channel partner, marketplace, co-promotion or similar partnership. Often, your partner is not similarly invested in terms of money or time (in which case — definitely don’t do the partnership).

Rule #17: No patents

For small companies, patents are unlikely to be of any value unless you hope to get acquired by one of the huge tech companies one day. Filing for patents is a fair amount of effort on your behalf, a big distraction when you’re a small team, and it costs a lot of money. There is not just the initial cost of filing but there can be several occasions where you need an additional outlay of multiple thousands of dollars to continue prosecuting the patent. Even then there’s no guarantee you it will be granted.

Rule #18: No acquisition talks

Once you have a successful business and have built a bit of a brand, various people might approach you asking if your company is for sale.

Rule #19: Don’t use every marketing channel

If you try to market via too many different channels, with a small team, you’ll do all of them poorly. Pick a couple at a time and get excellent at them, or learn early that something doesn’t work for your product, and move on to a new channel.

Rule #20: Invest in marketing rather than spending on marketing

If you can find a marketing channel that rewards product quality and investment over time, prioritize that channel.

Rule #21: Don’t do big launches

A “big launch” such as organizing a launch event at a conference, or finding somebody prominent on Product Hunt to hunt your product, or similar “all or nothing” launches are a huge distractions over several weeks to everything else you should be doing in your business. They also might not help you prove out your business case and find your ideal target customers, as the profile of users signing up in big launches like these is likely to be different from the profile of users you are able to attract through your ongoing marketing activities.

Rule #22: Don’t do trade shows/conferences

Trade shows and conferences are very expensive, and they are a tremendous distraction for a tiny bootstrapped team. Several weeks before the event, someone on the team starts spending part of their time booking furniture, creating marketing materials, doing social media outreach, etc. The last week before the show, it’s all about outreach to warm up leads at the show. The week of the show, you get nothing done except travelling to and attending the show and just barely keep up with email. At least one week after and often many, you’re all going at a crazy pace working through leads from the show, and unless you went to a very targeted show, those leads are more likely unqualified than not.

Rule #23: Don’t respond to anything unsolicited

As soon as your startup has an online presence, you will start getting all kinds of unsolicited emails and phone calls. Everyone and their uncle wants to offer services and products to your company.

A confession, and a caveat

I’ve broken almost every one of the rules above!

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