$100m in revenue, completely bootstrapped.

Bootstrapping doesn’t mean you have to be any less aggressive about growth. I know there is a stigma around bootstrapped companies - they’re slow to grow, less ambitious, cute, whatever - we’ve all heard it.

But it’s a lie.

Mike Salguero built ButcherBox from the ground up, completely bootstrapped from $0 to $300k to $5mm to $33mm to $100mm. That’s big and fast for any company with any amount of funding.

Now that might be an extreme case but the point is it’s possible. If you’re aiming to build a 6, 7, 8, or even 9-figure business you absolutely can fund your own growth.

And that’s why we’re doing this. A quick playbook on bootstrapping growth.

Last week, we started with pricing and structuring our product to sell and recur efficiently and profitably. This week is the other half of that equation: 

COST

Getting costs low, flexible, and productive.

We need to make sure we’re not leaking hard earned cash to things that aren’t bringing value or driving growth

1. Ruthlessly cut costs

In our pricing exercise we should’ve gotten a good sense for the breakdown of our product cost. You should have a stack that shows all the costs that make up a product from the point where it is an idea all the way into a customer's hands - both in terms of dollars per unit and percent of sales price.

Don’t forget the hidden costs - all of your sales calls that don’t result in a sale, defective units you made but can’t sell, non-billable time, etc. All those count so it’s important to know your conversion rates, defect rate, utilization rate, etc. to appropriately account for the true cost of each product that gets delivered.

*quick note here, I use product universally for whatever you provide for money - services, software, physical products whatever - it’s all “product” to me

Once you have that stack, look at the brand story you’re telling and determine what is most critical to the customer experience. Rank these things and categorize as:

• Critical to the experience

• Somewhat important (or more often the case, important to some but not all)

• Not important to the experience

If you’re selling premium products, the experience of opening the box may be really important to feeling the purchase was worth the price. Or maybe it’s irrelevant. If your brand is eco-friendly, then sustainable packaging and materials is critical. 

Look over that list and start at the bottom. Anything not important to the experience cut to the bone. Anything at the top, go above and beyond. 

Be very honest about what is in that top category because you can’t use that bucket to justify spending on anything. Think about it as lowering your costs elsewhere like customer acquisition. The more memorable the experience, the more likely they are to share and return - both important for cutting sales costs. But make sure it matters and gets real returns on that spend.

For that middle bucket, remember intentionality goes a long way. You don’t need gold plated boxes to show premium, maybe it’s just a cleverly designed package with a fun greeting when you open. Be intentional, make a great experience, and do it as efficiently as possible.

Finally, collect feedback and revisit these buckets regularly. You may think packaging is critical but then find your customers don’t care as much as you thought. You may think something is unimportant but discover it’s key to customer retention. Pay attention, adjust these buckets, and continue to hack away costs accordingly.

2. Stay flexible

Low cost is the first thing, but flexible cost is a close number two. Keep your direct costs and overhead as flexible as possible. 

When you’re starting out and growing the path is rarely linear. Some things work, some things don’t, there are stops and starts, and smaller volumes early on are more volatile - adding 10 to 20 is a big difference as opposed to adding 10 to 100. Big swings either way can crush your margins.

Go back to your cost stack from above and look at the largest items - probably labor, maybe rent, software, things like that. Find ways to make each cost as flexible and tied to revenue as possible. It’s not always possible, but if you’re creative enough you can probably make a meaningful difference.

Here are some specific tactics for the big items that are sometimes harder to flex:

Products - While cost of goods is variable and flexes with sales, the cash going out to inventory is not. Once you’ve spent it, regardless of what sales look like, that is your cash sitting in inventory. So getting flexible could include using pre-orders early on while it’s unpredictable.

Marketing - Marketing costs should flex with sales but early on it’s hard to know what will work and you often have to pay up front. See if you can sell through affiliates or on commission rather than spending on fixed ads. Tie your cost of acquisition to actual sales wherever possible.

Labor - The hidden killer of cash flow and profitability in service businesses is waste from under utilization. You can’t see it when you estimate unit costs, it only shows up in the aggregate. So you may think you’ve planned for healthy margins, but they never seem to be there.

Here’s an example:

$150/hour for billable work

$50/hour paid to staff.

= 33% direct cost

Great, your model shows a healthy margin… IF they work at 100% efficiency.

At 75% capacity that cost climbs to 44%.

While you’re growing it is hard to staff perfectly so wherever you can, staff to be flexible, and where you can’t, make sure your price assumes a reasonable utilization rate.

(*quick note here - there are a lot of rules around who can be a contractor and who should be employed so make sure you’re checking with an employment attorney as you implement these tactics)

Where you can’t, be flexible with labor costs - see if you can structure your products to accommodate the stair steps in cost. For example, onboard customers in cohorts and wait list prospects until you can get to a reasonable capacity for a new hire. 

Sometimes lower cost and flexibility are at odds and it isn’t a clear choice about what to prioritize. There isn’t any rule or secret here, it’s just going to take some analysis and ultimately a judgment call about what would be more valuable.

3. Stay lean but don’t lose $100 to save $10

Keep your expenses low but pay up for things that boost your output. 

A boxer wants to get as light as possible while still packing a punch. That’s your goal too.

Bootstrapping a business isn’t about never spending money, it’s about spending intentionally and making sure you get utility from every dollar. You should be spending to either boost margins or grow and ruthlessly cutting anything else.

Examples:

• Contract labor at a higher per unit cost but more flexible so utilization and thus margins are higher.

• Hire professional services or consultants to speed up the time to launch or get to results.

• Pay for better software if it can save you time each month you can spend on additional sales calls.

• Hire a virtual assistant to free up time for you and your staff to improve utilization and growth.

• Pay a premium to make key features in your product stand out so you drive repeat business and word of mouth referrals.

Don’t get carried away here and make sure you’re actually tracking these returns to make sure they’re real. Companies spending recklessly rarely do so without any rationale. They all believe they’re spending money to make money. The difference between the ones slowly bleeding out and those spooling up a flywheel is tracking that spend and the return on it.

4. Keep a close eye on the dashboard

Which brings me to the final point on cost savings: know your numbers.

Getting your margins dialed, optimizing marketing spend, and managing your costs all requires knowing what those numbers are and tracking them regularly. Maybe you get lucky and a few things just work, but building durable, sustainable, and consistent growth requires keeping everything in the black.

To wrap things up, I’d highlight a couple of things. 

1. Be disciplined. This isn’t complicated, there’s no advanced formula that if you’re smart enough you can do it. It’s simple, but not easy. What makes success here hard is the discipline and intentionality required.

2. Be intentional. A lot of places here the rule is to do one thing… until it isn't. And it’s not obvious when to follow one of these principles or when to do the opposite. Being thoughtful and intentional about what is important within your own circumstances is where it is won.

3. Know your numbers. You can’t be disciplined and intentional unless you know your numbers.

4. Know your numbers.

5. Know your numbers. 

Chase… box 1 profitable… Spenst

If this all sounds good and you’d like to work with a finance team that can get you into fighting shape, reach out to us and let’s get you leveled up.