Hexbyte Hacker News Computers Growing Our SaaS Company To $1M+ ARR: 7 People, 3 Years, No VC Money. Key Lessons Learned

Hexbyte Hacker News Computers

MRR overview chart

Product: Everhour

First paid client: Sep 2015

Team size right now: 7

HQ: Minsk, Belarus

Investments: Bootstrapping

$1 million by itself isn’t a big thing. But it’s a certain bar and any founder on the way to it faces similar questions and problems. I’m not an exception and therefore would like to share key lessons I’ve learned.

We started in 2010 as a small outsourcing company — Weavora. The idea of ​​the product was born here from our internal needs. We needed to report and invoice our clients based on actual hours spent. At first, we used existing tools, but soon realized that we could offer a better idea.

In September 2015 we signed our first paid client. Today we crossed the $1.3M ARR mark (growing x2.2 times per year) and used by 2,200+ companies from 70 countries. We have accomplished all that without external investor and with a small team (7 people).

Here is how.

1. Competitive advantage from day one

Your product should have a clear advantage. Something that will help you to stand out and ideally not so easy to copy for a competitor. This cannot be for example 10% lower price.

In our case it was how deeply we connect with the most popular project management tools and how nicely we embed into their interface.

And while we did not have a free plan, had much less features compared to competitors, didn’t have a mobile app etc. many users still preferred us. Why? Because we did one important feature very-very well.

Of course, we gradually react to requests from our customers, add new functionality, but at the beginning, we did not have much of it and could not do everything overnight.

2. You must use your product

I can’t believe in making a good product if you don’t use it by yourself.

In our case, doing outsourcing business, we had to report to our clients, make project assessments, issue invoices. And we relied on Everhour to see what projects we underestimated and why, what projects were more profitable, find out where we can save our time and money and how else we can simplify and automate our process and operations.

In addition, by using your product daily you will be sure that everything works. Synthetic testing can sometimes fail to detect a serious problem.

3. Venture capital isn’t a panacea

I cannot say that making a product from personal finances (or from the operating revenues of different business) is better or worse. This is possible and even has a number of benefits.

What has guided us?

As I mentioned, we started with outsourcing. This is much easier and faster to organize than a profitable product. When the company began to earn and we had the opportunity to reinvest profits — we did it. All the free time we focused on the product. We were more interested in doing this rather than looking for investors, pitching and reporting.

In addition, consider that we are not from the US, where such ecosystem is more developed.

The last factor is probably the fear of borrowing and the need to meet high expectations. If you already have some historical data, it is easier, but in the very beginning — scary.

Bootstrapping, on the other hand, forces you to launch sooner and validate your hypotheses. Spending own money would make you way more careful about costs and forces to set priorities correctly.

But I must admit that it‘s difficult to do outsourcing and product in parallel. The main problem is defocusing. We have to equally devote time to current projects, communication with existing customers and the product.

Would early investment help us?

I doubt. We did several “pivots” because misunderstood market demand. Some good ideas need time to mature (same to us). Having received the investment early on, we wouldn’t know what to do. It is unlikely that this would help us to be where we are now faster. Most likely we’d simply flush money into ads, bigger team and would not care as much about early releases. We could find ourselves in a situation when we add feature by feature until realize that we neither have a good product nor the money.

Investment is like a rocket fuel. It can help a lot, but this requires a very good product/market fit, understanding key metrics and a growth strategy.

4) Freemium can put you on the wrong track

We once decided not to have a free plan. We did this for several reasons.

Our competitive advantage is integrations. But they all have API limits. We can have a paid customer with 5 projects we should sync and a free user with 100 projects. I.e. free users can easily eat much more resources.

In our experience, free users more often contact support (due to their larger number), they react more sharply to your failures, they ask absolutely different features rather than those who are paying, etc.

And the conversion from free to paid is very low. Expect about 0.5–1%.

5) The advantages of annual billing

In the beginning, we did not want to offer annual subscriptions. Probably there was some kind of self-doubt. But then we tried and it turned out to be a very good idea.

This will significantly increase your cash flow, approximately +10–15% to your MRR. In addition, this reduces the number of monthly failures and delinquent churn.

There are customers who want to limit themselves to only one invoice a year. It’s probably some kind of savings on bookkeeping.

If users on average use your product for less than a year, the annual subscription will increase your LTV. Because money has already been paid.

Last but not least, it’s kind of “reputational” thing, showing you as a serious company.

6) Find your promotion channel

For any product, it is very important to quickly find a stable and cheap channel of attracting leads. For us, it was partner directories. For example, Asana or Basecamp both have an integration section on their website. You can post information about your product there.

Do not hesitate to contact these companies. If your integration makes something useful to their users, you thereby make their product better and make their users stay with them longer. And for you, this is a high-quality traffic! Lead conversion from a partner directory is about 30%. So it’s a win-win scenario.

We tried Google Adwords several times, spent several thousand dollars and received 0 paid customers. Of course, it doesn’t mean that the channel is bad and we won’t use it one day. But keep in mind that this is not easy and costly. CPC for the best keywords might be up to 10–15 USD. Consider your funnel from visitor to lead and to the paid client. Plus you should constantly optimize your landings, banners, texts etc.

Another great channel for us is organic. This is great, but a long-term investment in content and SEO. We wrote an article comparing us with two other time tracking tools. People searched for articles comparing these two companies and learned about us. The first year, this article brought us up to 1,000 new visitors a month.

I’m sure there are plenty of great pieces of advice that I’ve left out. In the comments, feel free to share your thoughts or any tips. I’d love to hear them!

Cheers!

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