16 Bootstrapping Tips and Techniques from MailChimp

Mailchimp Bootstrapping Tips

Email icon MailChimp is a hero to bootstrapping entrepreneurs, and appropriately so. The company’s story is inspiring: the founders have grown its software-as-a-service business in Atlanta (not Silicon Valley) over the course of 17 years to reach $525 million in revenue, all without venture capital.

INC magazine has just named MailChimp as its “Company of the Year.” And there have been plenty of other stories written about MailChimp over the years. We particularly like the 2016 New York Times narrative.

We love stories too. But what are the lessons for would-be bootstrappers? Here are 16 quick tips and techniques we’ve gleaned from the MailChimp story.

1) Severance Seed Money

MailChimp founders Ben Chestnut and Dan Kurzius were working together at Cox, a large Atlanta media company, on a music internet project when the dot com crash hit in 2000. They were laid off and received “small severance checks” according to the New York Times. That small amount of financial wiggle room allowed them to start a web design company for local businesses.

Severence checks have launched more than a few businesses. Other unexpected financial windfalls such as inheritance can also provide just enough seed funding to help entrepreneurs start – if they have other pieces of the puzzle in place.

2) Marry Well

Ben Chestnut’s wife was a pediatric nurse, and her steady income also provided him with some financial wiggle room to endure the inevitable times when founders must forego paychecks to keep a young business afloat.

Would-be entrepreneurs don’t typically marry for income stability, but it does help!

3) Consulting First, Product Later

MailChimp didn’t start out as an email product company. They designed web sites for paying clients. And not just in year one – web design consulting was the primary source of income for the first five years.

Consulting First, Product Later is a time-honored bootstrapping strategy. Income can be small and irregular in the early years of innovative product businesses, and consulting or other services businesses can provide some financial balance.

4) DIY On the Job

Technical co-founder Dan Kurzius was not a software coder when Ben Chestnut hired him at Cox to program. But he managed to teach himself quickly, on the job.

Ben Chestnut didn’t have an MBA when the company launched, but he read lots of business books over the years to try and learn how to run a company.

Lots of bootstrapped company founders have to do things they’ve never done before, because they have no money to pay others to get it done. Continuous learning is inexpensive in cash but expensive in time, one of the many time versus money trade-offs in bootstrapping a company.

5) Never Lose Money

MailChimp has been profitable since it was started. Ponder that for a moment.

Never. Lost. Money.

MailChimp’s founders were imprinted with the urgency of profit from a young age. Ben’s sister tried to launch a salon like their mother had, but went broke. Dan’s father owned a bakery that crashed when Wonder Bread came to town. Ben and Dan knew up close and personal that profitability is always critical.

Contrast this with the equity-funded model. Usually there are unprofitable years as an angel- or vc-backed startup develops product and figures out marketing and sales. This leads to the next tip…

6) Learn How To Make Money, Not Spend Money

More than one entrepreneur has suggested that raising equity can teach first-time entrepreneurs more about how to spend money than make money. MailChimp’s founders learned on the job how to make money, by necessity.

7) Side Projects

The MailChimp email product was not the primary business when Ben and Dan launched in 2000. Instead, it was a side project that brought in a tiny amount of money in the early days. The extra pocket change was appreciated, for sure, but the founders learned that helping small businesses grow through email marketing was also their passion.

Importantly this side project didn’t become their primary business until it had grown enough for the two of them to make the leap.

Turning a passion into a side project into a company is another time-honored bootstrapping technique. Figuring out how and when to make that leap from part-time to full-time is hard. But it can be done!

8) Recycle / Leverage Your Assets

Chestnut likes to tell the story about how the MailChimp product was recycled. The software code was taken from a failed attempt to launch an e-greeting product, and the chimp mascot was recycled from the animation of their top e-greeting card.

Creating value from discarded objects is another time-honored bootstrapping technique. Cost of goods (or cost of product development) is close to zero.

A different way to view the same technique is that the founders were trying to make the most of whatever assets they owned. Sometimes bootstrappers leverage relationships; sometimes it’s technical skills or valuable knowledge; or in this case it’s pieces of failed products. Turn your assets into cash.

9) Pivot Towards Growth

The early years of MailcChimp were tough. Their initial targeted customers were hit by the recession, so they had to shift. And shift again. They slowly grew the web consulting business, but realized it wasn’t scalable.

It was only by paying attention to the growth of their at-first-small email product business that they uncovered the big opportunity. Ben Chestnut said they were pocketing the monthly income from the email service, and it was through that choice they noticed the income was growing, even though it was a small base at first.

Good bootstrapping entrepreneurs pay attention to revenue growth, whatever the source. Actual behavior of paying customers provides the compass.

10) Hire Cheap and Smart

MailChimp has built a creative company culture.

“The co-founders and their employees still talk a lot about hiring artists and reaching out to the creative community.”

A different way to think about this strategy is Hire Cheap and Smart. Artists and creatives tend to command lower initial salaries than software developers and MBAs. Some types of businesses can give smart but undervalued people an opportunity to DIY On The Job. It’s one way to keep payroll as low as possible.

I saw how this worked at my first job out of college, as a telecom analyst at The Yankee Group. Founder Howard Anderson liked to hire “diamonds in the rough.” In other words, cheap and smart undervalued people who could DIY On The Job.

11) Focus on Growing Profits

In a 2010 blog post Ben Chestnut said:

“For eight loooong years, we were focused on nothing but growing profits.”

Notice that the focus was growing profits, not revenue. Bootstrapping businesses depend on profits to fund future growth. In fact, retained business earnings are the primary funding source for about 2/3 of all established businesses.

We haven’t yet read the book Profit First, but it was recommended by one of our successful subscribers. She was a soloprenuer when she took my online entrepreneurship class in 2012. She recently made the INC 5000 list. Focusing on profit is powerful!

12) Customers As Channels

MailChimp moved to a freemium pricing model in 2009 and experienced tremendous success. A critical contributor to the subsequent growth was careful attention to how “free” customers could become marketing and sales channels for future customers in a positive viral feedback loop.

Importantly, all free customers sent emails that included the well-developed MailChimp brand at the bottom of every email. Those branded links included calls to action that made it easy for email recipients to become MailChimp users.

And, MailChimp offered all its customers goodies if they helped sign on new customers. Those goodies included credits for more free emails, and discounts if those free customers decided to upgrade and become paid customers.

Clever plans to turn customers into marketing and sales channels can be much cheaper than traditional marketing.

Even today, MailChimp spends far less than many software and software-as-a-service companies. Their marketing budget is now reportedly $10 million a year, which sounds high. But that’s just under 2% of their $525 million revenue in 2017!

By contrast, their arch-rival Constant Contact spent $103 million on marketing and sales to generate $274 million in revenue for the 9 months of 2015 leading up to their acquisition. That’s about 37% of revenue. Not a bootstrapping approach to marketing!

13) Just Say No to High Cost Customers

Speaking of Constant Contact, MailChimp decided that its always-profitable approach meant it couldn’t afford to serve customers that need a lot of hand holding. Here’s an excerpt from a post written by a CEO who decided to “do a MailChimp”:

Around 2012 I saw something really interesting on MailChimp’s web site. I can’t remember it word-for-word, but they basically said something like this:

If you want a simple, beautiful DIY email marketing product, use us. If you need your hand held and want lots of support, go use Constant Contact.

They even linked you to Constant Contact’s web site.

Customer service can chew up profits. If you are focused on maximizing profits instead of revenue, sometimes you have to say no to large customers whose bigger contracts come along with much higher demands for customer service.

14) Be A Pricing Scientist

If profit is your funding source, you need to get pricing right. Ben Chestnut says the company has experimented frequently with different pricing, then studied the data from those experiments. That’s what scientists do! From a 2010 post of his:

Ever since inception, I’ve been fascinated with the art and science of pricing. I’ve tinkered with pay-as-you-go and monthly plans for $9, $9.99, $25, $49, $99.99 and so on. We’ve changed our pricing models at least a half-dozen times throughout the years, and along the way we tracked profitability, changes in order volume, how many people downgraded when we reduced prices, how many refunds were given, etc. We’re sitting on tons of pricing data. When we launched our freemium plan in 2009, you betcha we used that data to see what would happen if we cannibalized our $15 plan.

Pricing is a passion, not a mystery!

15) Continuous Improvement as R&D

Bootstrapped companies don’t have the dollars or the time to spend on upfront product development. MailChimp didn’t. From the INC article:

Chestnut says, “when you serve small business, the churn rate is awful. Fifty percent are dead within five years. You’re constantly having to innovate really, really fast. You just have to tinker, tinker, tinker, tinker, tinker.

16) Action First, Planning Later

Like so many startups, MailChimp didn’t have a coherent business plan at the beginning. They just started selling their services. They just started a side project based on what customers were asking them for. They tinkered with the product.

Eventually, though, as the company went from “startup to grown up” the company had to start planning. It likely took them longer than it should have to start the culture shift towards processes and planning.

Scaling a business that has some critical mass goes much better if there’s a plan. But startups? Action beats planning almost every time.

Are MailChimp’s Tips and Techniques For You?

As you can see, MailChimp didn’t just do one thing to bootstrap a $500+ million profitable company. They did lots of big and small things along a very extended pathway.

We count 16 different bootstrapping tips and techniques, and likely there have been even more. Now the question is: which of these will work for your company?

Don Gooding

2 comments

    • That’s a good point Vinko. A bunch of these tips and techniques do crossover even when you’re on the equity pathway. However, the focus on profit growth versus revenue growth is where bootstrappers and equity backed companies often diverge.

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