Jason previously founded Smart Bear Software and co-founded ITWatchdogs, both of which were bootstrapped to profitability, grew to millions in revenue, and were sold. He is a mentor at Capital Factory (like TechStars or Y-Combinator in Austin) and the co-host of OnStartups Answers along with Dharmesh Shah. Jason podcasts and blogs about startups and marketing on A Smart Bear and also has recently co-founded his newest startup WP Engine.
Q: You’ve founded 4 startups that all have profited over $1M in revenue, which includes Smart Bear, and your new startup WPEngine. One of your key ingredients to Smart Bear’s results was that profit was behind every choice you made. Can you tell us of an instance where this concept shouldn’t be applied when starting up?
I think startups should always be cognizant of how to be profitable in the long run. Even Jeff Bezos who famously runs a $57B/yr business at essentially zero profit margin is doing so, in his own words, to maximize long-term free cash flow per share. Which is big-business accounting speak for “throwing off tons of cash in the long run, but reinvesting for growth and strength in the short run.”
That’s how a growing startup who isn’t focused on profit should also be thinking. Sure you’re pouring money into growth and removing risk, but to what end? Too many startups decide they’ll “figure out how to make money later,” and then don’t, or at least, don’t figure out how to make enough.
Q: What was the best advice you’ve received about managing your time?
The single most important concept is to do one thing at a time. Multitasking for a human is always strictly less efficient, just as multi-tasking on a CPU is less efficient. You think you’re filling in the minor time gaps with something useful, but your just distracting your brain and preventing yourself from having even a smidgeon of recharge time. You think you’re being “real-time and responsive” but you’re really just making noise and not generating something of value.
If you process email just one an hour, or three times a day, you’ll see how fantastically more efficient you are at email, and how much more you get done outside of email. And the same is true with any other normally-interruptive task.
Q: What challenges did you face when trying to determine the lifetime value of users for WP Engine early on? How did you solve that problem?
It’s actually pretty easy.
Early on you can’t use any of the typical formulas like “1/c” lifetime months where “c” is “monthly cancellation rate,” because you don’t have enough customers or enough time passing to get an accurate idea of “c.” You can do cohort analysis but there again you just don’t have enough quantity of customer to know anything.
So, just assume the customer stays for 24 months. Why? If your company has good retention it should be much longer than that, but being conservative now is good because you’ll have plenty of ups and downs in marketing spend and in customer retention so let’s not assume you’ll be awesome right out of the gate, consistently for the next three years.
If your company has a bad retention rate, of course that’s not just bad financially, it also means something is fundamentally rotten in your business, either in bad service, a useless service, a service people won’t pay for, or a service people don’t actually need for a long time. Any of those problems are far more critical — in fact, likely fatal — compared to calculating your LTV.
Q: A lot of bootstrap startups get to a point where they see traction in their growth and are faced with the decision of continuing or trying to raise capital. What would you advise an entrepreneur in this position?
As cheesy as it sounds, it completely depends on what the founder wants from life. I used to write graphics routines in assembly, so believe me I wouldn’t say something cheesy unless I really thought it was true.
Do you want to build a huge company? Do you want to “make a mark on the world?” Do you want to stick with one thing for as long as possible, maybe a decade? Do you want to trade your baby in for money? Do you want to shift away from what you’re doing today (whether that’s writing code, designing the website, selling the customers) and into managing teams of people who are actually doing the real work, and then managing managers, and hiring and managing executives who themselves are responsible for strategy, growth, hiring, culture, metrics, evaluations, etc within their own departments, and managing your board of directors and CFO and HR director and all the other things which a CEO of a growing, funded company must do?
If the answer to all that is “hell yes, that sounds amazing,” and of course if the business itself lends itself to raising money (i.e. traction and growth in a large and growing market), then raising money is your best shot at all those things. It gives you the fuel and time to actualize that journey.
If the answer to that is “hell no, that sounds like hell on Earth,” then don’t set yourself up for the inevitable. Don’t get too large, or get someone else to be the CEO (who you trust…. hmmm), and keep control of your own destiny.
There are not right and wrong choices. I’ve done both of these things and had a great time with both of them. The only mistake is to not choose — try to straddle the path — or to choose the path which ultimately will not make you happy or fulfilled.
If you have any follow up questions or comments for Jason (available on Clarity), please leave a comment below.Tags: jason cohen, lifetime value, profitability, time management