Author created FeedbackPanda and sold for large sum of money, making $55k/month with just his girlfriend
This wasn’t an overnight success. Had many failures in the past
His girlfriend was an English teacher in a Chinese school, but often spent a lot of time outside of teaching to create feedback reports
Author created prototype system to save time and made it a SaaS business. Girlfriend spread news on Facebook (after some time from launch) and got traction
Automated & documented as much of the business as they could and grew well
As online education grew in China, author started to feel the pain of entrepreneurship (lots of stress). Sold it when an attractive offer came
What is Bootstrapping?
Bootstrapping: creating a business from nothing without any outside funding or assistance
Bootstrapping is not the same as:
Self-funded: company gets a lot of investment from personal founder capital. Bootstrapped businesses are always self-funded, but not every self-funded business is bootstrapped
Customer-funded: if you use customer revenue to pay for your service, you are customer funded. Boostrapped companies should aim to be customer-funded, but not every customer-funded business is bootstrapped
Indie-funded: business recieved funding from independent and non-traditional sources
Semi-bootstrapped: got a little bit of outside money to help with business, but otherwise the same as a bootstrapped company (eg. getting funding from Clearco)
The Four Stages of a Bootstrapped Business
Preparation stage: focus is on finding an audience, their biggest problem and a solution that solves the problem in a way that people will pay for it
Survival stage: focus is on finding a repeatable way to make money. Learning how to work on the product, listeningto customers and start building out automation
Stability stage: focus is on offering a stable and matur product, hiring people and building good customer relationships
Growth stage: coming at crossroads of selling or continuing to grow
The Preparation Stage
The Preparation Stage and You
Idea → product → business (a system that enables you to sell the product again)
This stage ends when you start selling to audience. It needs the following:
Finding a niche audience
Finding an validating their critical problem
Invent and validate a solution to their problem
Build a product to implement that solution
Build a business that can repeatedly sell that product to audience
Revenue: 0 or even negative (pre-sales expenses)
Expenses: low, can usually use trials and free tiers
From Idea to Product
Founders tend towards solution thinking, which doesn’t lead to much success. For example, ProductHunt launches (especially mine) fizzle out ecause they address unvalidated problems for possibly non-existant audiences
Successful businesses are built by solving critical problems for audicences that will pay for a solution
Once business starts, it’s hard to change, so best to get it right first
Tip: when conduction conversations with prospects, record to analyze later (rather than being under influence of biases)
You Probably Have It Backwards: Starting a Boostrapped Business
Many businesses start with idea and then try to find market that is willing to buy product and fail because there were not enough customers, solved the wrong problem, solved the wrong way, etc.
Audience research, problem analysis and solution validation should happen before you even think of a product
Most successful boostrapped business start with a very specific audience (niche) → find critical problems and provide valuable solutions they would pay for
Questions you should be asking (in order)
Who am I helping?
Why do they need help?
How can I help them with that?
What can I create to help them that way?
Step One: Your Audience
Boostrapping an Audience
Niche audiences are gold: the tribe-like structures can be leveraged by boostrapped founders in unique ways
You want your audience to be in the Goldilocks zone: not too small and not too big and should be growing
The Power of a Niche
Niches have less competition and it’s easier to automate marketing and sales
Niche: specific subset of a larger population
Specification can vary, but they are inclusive of some and exclusive. Usually reasonably similar
Marketing and sales is different because you can hyper-target the niche, spending less money
You want the niche audience to share certain properties, which makes building products convenient because it is easier to predict what everyone else wants
They will have common critical problems, common ambitions and common parlance
Niches are tribal: they have influences/leaders, which you can leverage (you can become a leader yourself)
If you can make your product as something that people in the tribe use, you will have higher adoption rates in the niche
Niche populations are measurable
Opportunities when dealing with niches:
Low-cost marketing: can have very specific content and ads, partnerships within niches are more valuable. If you are a leader and have following, people will do marketing for you. Word-of-mouth marketing is far more common in niches
Referral systems: only really works for shareable products, but this is loads easier in a niche because people tend to know each other
Influencer marketing: influencers generally carry more clout in niches and are cheaper to partner
Easy differentiation: analyze competitors for what they do well and what they don’t do in your market and fill in the gaps
Look especially at makeshift solutions
Your target niche size should be small enough not to invite large competitors and big enough to sustain business
Remember: a good niche will allow you to build a product that solves one problem well, with that problem being a critical problem for everyone in the niche
Deciding on a Market for Your Business
The audience you are building for should be large enough to sustain your business and support competition
Do the research to figure out the size (asking experts)
You don’t want your audience to be too big, because it will be harder to reach customers
Add constrainst to make it smaller (teacher → math teachers teaching k-12)
Smaller the market, the better the network effects
Payment
If you go targeting the big guys because they are willing to pay, you can be sure that there are other businesses targeting them as well. Low switching costs as well
Underserved markets have the opposite problem: you will need to spend time convincing people that your product derives significant marginal gain over pre-existing scrappy solutions
They will be loyal once you convince them
Other factors to consider but shouldn’t be considered as red flags for entering a flag if they are missing
Adjacent product opportunities: author focused on self-employed teachers who had lots of other problems
Ease of scale: if there are untapped segments within niche, that can help you grow
Sales vs marketing: know which one you will have to rely on in order to survive
Good market traits:
Quickly changing becuase there are opportunities that were never there before
These new niches are often exciting and not that regulated
Many deciders with own budgets is a good market, because they can try out product and decide to use it without too much oversight
Underserved
Bad market traits
Lots of requirements and decision making needed in order to buy a SaaS product (eg. enterprise)
Monopoly markets
Large number of bottom feeders indicates high competition
Market turning
Good markets turn bad often due to influx of competition, technological changes, shrinking, new regulation (eg. GDPR)
Bad markets may turn good because of new technological changes, growth
Determining the Size of a Market
You want to determine the size of a market in order to determine if it can support your business
This may take time (weeks - months)
Enterprise markets: public info often available, but quality depends on institution that you are reading from
Industry reports are also usefulm, even if paid. A few hundred in advance will save thousands later on
Look at the number of deciders and not just the number of buyers
Ask people in the industry that you are targeting about their opinions, the industry size and growth potential. Should do this after you have already done cursory research
Look at industry magazines & podcasts and note the number of ads and the circulation. This should give you an indication of the competition in the industry
Conferecnes and search terms are other decent ways of sizing the industry
B2BC: customers are freelancers or small businesses. Usually in the supply chain of B2B
Often very community-based. Look at social media community groups and that represents a tiny sliver of people that are actually part of the niche
Talk to the influencers in this market & hosts of podcasts
B2C:
Look at sales reports of companies in the field to determine audience size.
Look at companies in the field in general: are they burning cash? Do they have a reliable revenue stream
You can also look at government statistics to size the population
Step Two: Their Problem
Identifying a Critical Problem: Working on the Right Thing
The great thing about a niche that it is highly likely that everyone in the audience shares the same problems, so you just need to find the right problem
Your focus should be on the most painful problem, a problem that the audience has to put up with and desparately want to change
This also increases the chance that the audience will pay for it
You need to build a need-to-have, not a nice-to-have
The most crucial problem is one which the customer’s minds are on all the time. It has the most impact on their lives
Note that you might have a skewed view of the most important problems in the industry
How to determine if something is a critical problem:
Find the critical problem where ignoring something causes a lower quality of life
They are unignorable and consistently reduce quality of life
Find critical problems at the intersection of something mandatory and something wasteful
The problem seems like a huge waste of time/money but there’s no choice
Find critical problems where people would love to opt out, but can’t
Find the critical problem where people need to do the same thing over and over again
Find the critical problem where solving a problem takes a long time every time the problem occurs
Usually solutions require batching
Find the critical problem where people are solution aware and have already created their own simple systems to solve the problem
Bonus: find a problem that companies pay others to solve
Customers are more thrilled to pay for critical problem solutions because it can save them time & money and might even make them money
If your chosen problem is not critical
People are not interested in paying or stop paying
Too much churn: ask why they canceled
Nobody talks about the product
How do you figure out these critical problems? Talk to users
Ask them what annoys them, where they want to be, what keeps them from being the best at what they are doing
Focus on intended outcomes & problems, and then you can figure out the how
Don’t go into these convos with preformulated ideas. Go in empty
Identifying the Most Critical Problem in a Market
Painful problems have certain types of pains, intensity and awareness. These three charactersitics will determine what questions to ask
Types of pains
Time: people feel like they are wasting time
Resource: people feel like they are wasting effort or money
Self: people want reputation, accomplishment, advancement and empowerment
Types of intensity: basically look at Eisenhower Matrix
Most intense pain is important and urgent
Second best: tedious (not urgent, but important)
Third: pressing (urgent, not important) → people find it hard to pay here
Fourth: annoying (not urgent, not important), these are luxuries to pay for
You want your product to be the last subscription to be cancelled
Awareness:
Author faced this issue, as many peope didn’t realize that the problem they were solving was actually a problem
You will have an additional task of raising awareness about the problem
Don’t overlook these people! Reason why awareness of a problem is low is usually because they have little exposure to outside industries
Problem avoidance is a key pattern to observe! If they are using Excel to do certain tasks, users might say it’s not a problem, but it’s a golden opportunity. Seek discomfort
There might be companies that tried to solve this problem before. Ask around to find the people who tried and why they failed
Ask entrepreneurs in adjacent spaces if they are solving a similar problem
Look at industry influencers and see what they are complaining about on social media
Competition shouldn’t be too big of a worry, because if the problem is still critical, that means the competition isn’t solving the right problem correctly
Author put a whole list of questions to ask customers
Be organized about your customer talking prospects and make a list of problems with their intensity, awareness of both problem and solution
Combine and rank to get the most critical problems
After you have a candidate set of problems, call up a random subset and verify if it’s real, if they are aware of it and if they are interested
Problem Validation: Talking to the Right People
You not only have to speak to customers, but the right ones too!
Make sure that you are talking to customers whose goals are in alignment with yours, which you can only decide through
Best case: in-person convo with industry expert who has skin in the game and aligned with goals
Face-to-face: more presence and can detect emotions
Conversation shouldn’t be too scripted
Experts can probably surface problems much better
When talking to customers, listen as much as you can and don’t seed the customer with problems that you are hypothesizing about
You will primarily have to use cold outreach strategies
Call! If they don’t have time, ask to connect to someone who does
Try to ignore compliments as much as possible
Try to avoid people who don’t have have skin in the game (no impact on decisions). Ask for intros for people who do have ownership instead
Try to avoid people who solution as much as possible. You can ask why they thought of those solutions and try to steer to problems
Try to avoid people who complain as much as possible, as it is really hard to prioritize their pain points
Limit the scope of their questions and answers or ask them to name the most important pain
Avoid quantitative methods like surveys because its limited