One of the hardest moments of Josh Pigford’s career came with the surprise news that Baremetrics had just six to eight weeks of runway left.
He searched for ways to cut costs. Hard conversations ensued. Faced with the reality that were no options left, Josh had to ask his employees to take a 15% pay cut – and a 30% salary reduction himself. Remarkably, the team stuck around with few exceptions. It came down to the culture they had created together, which against all odds overcame the fact that the company was entirely remote.
I hosted Josh on the podcast for a conversation that ranged from the benefits of launching as quickly as possible to the pros and cons of accepting funding series. If you enjoy the conversation, check out more episodes of our podcast. You can subscribe on iTunes, stream on Spotify or grab the RSS feed in your player of choice.
What follows is a lightly edited transcript of the conversation. Short on time? Here are five quick takeaways:
- Josh’s goal with Baremetrics was to get it up and running as quickly as possible, following Reid Hoffman’s suggestion that if you’re happy with the product, you haven’t launched early enough. He craved thoughtful feedback from real customers (instead of free beta users) and rushed to market.
- One of your first hires should be someone who can nerd out on your company’s finances. After Josh brought on a part-time CFO, they made the unfortunate discovery that Baremetrics only had six to eight weeks of runway left and had to act quickly to keep the ship from sinking.
- A lot of companies mistakenly think that hiring leads to rapid growth. In reality, you may not see a positive return from a new hire for 12 to 18 months. Hiring is the hardest knob to adjust because you can’t turn it down.
- Funding is great fuel for a fire that’s already going. Before taking it, you should prove that you can make money first – and in the early days you should put the money toward initiatives like marketing that return $2 to the $1 you put in. If it’s not working, it’s easy to change course.
- When you see a company pull $10 million in funding and hiring like crazy, it’s easy to want the same for your startup without understanding the stress that comes with it. It’s better to be patient and grow at a modest rate, which also keeps you from making potentially catastrophic decisions.
Adam Risman: Josh, welcome to Inside Intercom. It’s great to have you. Just to get us started, can you give us the story of what led you to start Baremetrics, and what problem you’re solving there?
Josh Pigford: I have a background in graphic design. That’s what I went to school for in the early 2000s. At that same time, I was also teaching myself programming because I wanted to build stuff. That set in motion 15 years of me exploring and building things on the internet, and Baremetrics is just the current incarnation of me figuring out how to make stuff.
About five years ago, I had a couple other SaaS products in the survey space, and at the time getting things related to SaaS metrics was an exercise in futility with lots of Excel spreadsheets or hacking to get these little internal tools. Or you had to go to the other extreme of spending hundreds of thousands of dollars on some massive analytics software with this enterprise-y sales thing. There wasn’t anything at the time, and I needed it, so I built it. I threw it out there not thinking it was going to be much of anything. I had no intention of stopping the survey software stuff. I thought I’d have this for a year or two, and something would come along, and I wouldn’t do it anymore. But five years later, we are still here.
Adam: What was that early reception like that made you feel this could actually be a business?
Josh: With the survey software, I made the mistake of not differentiating myself enough from SurveyMonkey or the 10,000 other survey apps out there. I charged too little, and I just made a series of mistakes on the business side. When Baremetrics launched, and my first customer was a $250 a month user I just realized: “Wow, okay. People need this.” The very first version of Baremetrics was unbelievably simplistic. And the fact that somebody would pay $250 per month when it hardly even did anything validated a lot for me. Within a few months, it had surpassed the survey products I had as far as revenue goes. At that point I realized: “There’s something more here than these other things I’ve got. Let me just keep throwing my weight after this, and we’ll see what happens.”
The case for launching quickly
Adam: It seems like this is a case for just getting something out there and getting it in the hands of potential customers as early as possible, rather than getting stuck in that ongoing cycle of validation pre-release. Is this something you’ve done with all your products previous to this, or was this your first time taking that approach?
I wanted to have paying customer feedback as soon as possible
Josh: My goal with Baremetrics when I first started was to get the thing out the door as fast as humanly possible. First, I didn’t think it was going to be anything. Second, I realized I had made so many assumptions on previous products that would just drag out the launch – let’s say it took six months or more to launch one of the previous products. Third, you make all these mistakes when you make a lot of assumptions, and with Baremetrics I wanted to make as few assumptions as possible because I figured I would be wrong. The goal was: “Let me just throw this out there and get it wrong, but get feedback from paying customers on what it should do instead.” I needed something for a customer to pay for so I could get validation from a paying customer instead of having thousands of emails from people who are on a free beta. Their feedback may be useful, but it’s not terribly valid because they’re already not invested in the product at all, right? So, I wanted to have paying customer feedback as soon as possible.
Adam: About two months later, you scrapped the code and started over. Was that the result of this process?
Josh: I had the idea in October 2013 and launched it mid-November. It wasn’t even like I worked on it for a month; I probably worked on it a total of a week. I had two other SaaS products I was running. I was also doing some consulting stuff, too. Then in January, a couple months later, I had all this feedback, and I realized people wanted it to do a lot more than I had in mind, which was fine, because it should have done more. It was essentially just this static dashboard. So I completely scrapped it and started a new Rails project from scratch and rebuilt the thing to do a whole lot more. But it still wasn’t anything good. I’m not a good developer, but I know enough to sort of be dangerous.
Adam: I think it was Reid Hoffman who said that if you’re satisfied with the first version of your product, you’ve waited too long to release it.
Josh: I had actually recently read that quote from him, and it was so spot on. I very much was not proud or happy – at least on the code side of things.
An organic approach to customer acquisition
Adam: Within six months, you’re at $16,000 MRR, and things are going pretty smoothly. How did you approach getting your earliest customers in those days? I imagine that was not sort of a scalable model from that first experience.
Josh: At the time in 2013, you had some nasty terms like growth hacking and all sorts of sleazy things people did to get new customers. But to get my first few customers, I wasn’t trying anything weird. I was posting stuff on Twitter, almost live-tweeting me building this thing. That in and of itself generated the first handful of customers. I’ve also been building stuff on the web since the late ’90s, so I already have something of a community. I wouldn’t say I had built an audience per se; I just knew other founders because I’m a founder who has been on the web for two decades. That alone got me a decent chunk of new customers, just because there were other founders who happened to use Stripe, and they wanted this same thing.
I did not send any cold emails to get the thing off the ground. I didn’t have an email list I had built up. I don’t think I even sent any emails at all to anybody. You have to remember that in 2013, Stripe itself as a company had just gotten out of their beta phase and were just starting to see some traction. When I launched Baremetrics, I think they were 90 employees, and they’re a thousand people now. But 2013, they were just a handful of them, and they also loved the idea of Baremetrics, which the first really big thing built on Stripe. Nobody had built a complex thing based off of the Stripe API. So they loved sharing it. If you emailed Stripe asking for analytics, they would point to Baremetrics. There was this organic thing that just happened because of the right timing and people sharing it around. There was no really intentional stuff going on, which isn’t very helpful to people who want to apply it to their business. I don’t know that you can apply it, other than that I was cognizant of the fact that this was sort a unique opportunity where Stripe wasn’t going to always be this small. They happened to be taking off at the time, and I happened to be able to hop on that wave.
Adam: That’s incredibly fortunate from a timing perspective. But I do think the idea of finding a platform that has an audience you can leverage is still very applicable from a builder perspective.
Josh: Totally. I think, though, that the dangerous part is becoming completely reliant on that platform. One of the mistakes we made was not expanding outside of Stripe fast enough.
Adam: How did you mitigate that?
Josh: The funding we took came with a few caveats, and we had to stay exclusive to Stripe for a little bit. I do think that was probably the one mistake we made early on – not that we weren’t expanding to other platforms – but we didn’t have an API where you could build on top of Baremetrics even if you didn’t use one of the platforms we supported. There are pros and cons, right? Being the product Stripe was recommending was a massive pro. And so I don’t regret that at all.
What to do when you’re running out of money
Adam: You mentioned the funding you took. Your team has been a massive success story, and I love how candid you’ve been about this rollercoaster ride because after two rounds of funding, you look at the analytics and discover that you’ve got eight weeks of runway left. Can you paint a picture for us of the twists and turns that led you to that point?
Josh: In late 2015, about 18 months after we had taken on $500,000 from General Catalyst, we had spent almost all of it. We had grown, but as is often the case with funding, you spend it a lot faster than you think you’ll grow. We were running out of money, so we added on to that same seed round an additional $300,000 – making it $800,000 thousand total. Growth was still there, but it wasn’t the 10% to 20% month over month it had been.
Six months later, I’m looking at the numbers. A buddy of mine had recommended a CFO, but we weren’t big enough to have a full-time CFO. I’m not a finance guy; I was doing the numbers every month enough to show that we still had money in the bank. So I decided to reach out to the guy because I realized we should pay more attention to this stuff. We’re supposed to meet back up in a month after he had a chance to look at the numbers and build a spreadsheet. But after one weekend he says, “We need to talk. You’ve got a few weeks of cash left.” I’m thinking: “What? That’s crazy. I would have noticed this!”
There was nobody at the company who was nerding out on the numbers. Major mistake there. I realized, “We’ve got six to eight weeks of cash left. This is a bad situation.” But I couldn’t go asking for money. Six months prior, we’d gotten $300,000 and we weren’t growing. There was no scenario where we could get more funding. And I didn’t want to get more funding because clearly that wasn’t working. That’s when everything started hitting the fan.
Adam: I’m sure there were a lot of uncomfortable conversations you had to have with the team at that point. What were some of the changes you made that ultimately led to recovery down the line?
Josh: I had so many phone calls with our finance guy just trying to figure out what it would take for us to turn the ship around. The first goal was, “How do we not go out of business?” The world of startups is full of people either shutting down or being forced into an acquisition because they’ve run out of money. It’s as simple as that. When you run out of money, you either sell the company or it goes under. So how could we avoid that?
We started crunching the numbers. We could get profitable if we laid off half the team. But I did not want to do that. Nobody would have to take a pay cut or anything like that, but we were already a pretty small team, and if you lay off too many people it becomes hard to keep building the product. So we crunched some more numbers and ultimately figured out a way to cut costs on things like third party software, hosting costs, that kind of stuff. That helped a little bit. But the biggest change was that everybody took a 15% pay cut, and I took a 30% pay cut. And I think it’s important to remember here, we weren’t a bunch of 20-year-olds living on ramen. I have a family and three kids. Other people on our team are married with kids.
Adam: And your team was remote at this time as well, right?
Josh: That’s right. We didn’t have a ton of extraneous costs we could cut. It hurts people who had families to support. But that was the way we could keep everybody on board. Everyone could keep their jobs, and we could still not run out of money. We weren’t profitable from making those cuts, but it extended the runway so that we didn’t run out of money in six to eight weeks. Instead, we were hoping to extend the runway enough to get profitable, which is ultimately what happened within about six months.
Adam: And you were able to keep everyone on board. Given that your team was remote, what type of culture were you able to create to get everyone to buy in?
Josh: Those were probably the scariest conversations I’ve ever had for all sorts of reasons. But to me it was the true test of what we had built outside of the product – the proof of the culture itself. No one had any clue this was coming. I didn’t even know it was coming until days before I had to have the conversation with everybody. It was completely out of left field. I had our usual weekly Monday morning standup, and I had spent the whole weekend crunching every number possible, not sleeping. It was just the worst, most uncomfortable conversation – especially to have over video chat. But everybody took it as well as they could have. No one got angry, which would have been perfectly understandable. Be mad at me – I dropped the ball here. People had questions, but within a couple of days everybody was right back in and pushing harder to make it happen so we could stay in business.
Hiring isn’t how you grow
Adam: Looking back to when you took the funding, what advice would you have for other startups that are in a similar position and grappling with whether to go that route or to go the bootstrapping route? Who do you think this is right for and maybe not so right for, based on your experience?
Josh: I will say I’m not anti-funding. What I typically suggest to people – especially brand new companies that are going back on forth on whether they should raise money – is that most companies should bootstrap at first, just to prove that you can make some money. From there, I think the question is, “What do you want to use the money for?” The mistake a lot of people make is thinking that hiring is how you will grow, or that hiring will somehow have really fast returns for you.
Adam: And I believe you spent a lot of your money on hiring as well, right?
Josh: That is where all of the money went. We didn’t have some massive office space. We weren’t living it up. We weren’t paying obscene salaries. We just hired too many people too fast.
Funding is great for fueling a fire that’s already going
Companies want to hire some new engineer who’s amazing, and they think their growth rate will increase within a couple of months or something. The reality is you might not see any sort of positive return on that from a product growth perspective until 6, 12, or 18 months later from that one person. That can be the case for any position. And the problem is that you assume you’re going to hire these people who are make the product awesome, and you’ll grow twice as fast. All of a sudden, we’re going to be making a ton of money, and it’ll be great. But it doesn’t really work that way. Funding is great for fueling a fire that’s already going.
Say you’ve got a customer acquisition channel that works well, where you can put in $1 and get $2 back. If you can get $500,000, pour a bunch of that into marketing and you get back $2 million. But hiring is the hardest knob to adjust. It’s the one that you can’t turn down. You can’t just stop paying people. You can’t just all of a sudden reduce their salaries to 10% or whatever; these things are fixed. And when you put all your money into those knobs and those levers, it becomes hard to make any adjustments there –whereas if something’s not working with marketing, we could just stop spending money. The end.
Comparison is the enemy of happiness
Adam: You’re based in Birmingham, Alabama. As someone who has the benefit of being outside of the Silicon Valley bubble, what do you think it takes to create a culture that has more patience instead of this grow-at-all-costs mindset?
Josh: I think that as humans, we have an innate desire to have what other people have. People are trying to have the same things their parents had – but their parents worked 30 years to get it, and they want it two years after they get done with school. This is the case in the startup world, too: you see some company growing really fast, or hiring hundreds of people, or getting $10 million in funding rounds, and you think, “I want that too.”
Having patience keeps you from making dumb decisions, and it keeps you from burning out
So you start trying to mimic those things without understanding all that went into them. You don’t understand that the person who took $10 million in funding is stressed out of their mind and doesn’t sleep. Or the company that just hired 100 people has all sorts of cultural issues. There are just so many things that come with growth of any type, but we choose to only see what we perceive are the positive aspects of it. We assume we want it too, and we want it as fast as possible because there’s also a culture of “If you don’t get there first, somebody else will.” It turns it into a zero sum game where if they get there first, the end. You’re out of business. Which is not the case in any sizeable industry.
Having patience keeps you from making dumb decisions, and it keeps you from burning out. When people are forced to sell or shut down, sometimes that’s a funding issue where they just run out of money. But a lot of times it’s also stress; they’re just burnt out. They can’t do it anymore because they went too hard for too long, and they can’t sustain it. I’ve been self-employed for 15 years, and I want to keep being self-employed for however long I can work. So I know I can’t do things that burn me out. That’s not good for me, that’s not good for my marriage, and that’s not good for me as a dad. So I have to make changes that let me keep doing this for as long as I possibly can.
Paying it forward
Adam: You’ve got a really unique dialogue with not just Baremetrics customers, but non-customers alike through two outlets: your Founders Journey blog and your Founder Chats podcast where you recently interviewed our own CEO, Eoghan McCabe. Can you tell us about the types of stories you’re trying to tell through those mediums?
Josh: Selfishly, I learn the most from talking to other founders. The Founder Chats podcast just means I get to talk to other founders who have been successful on some level and have something they can speak to. Even if nobody listens to the podcast I’ve still gained something, which is cool. The other side of it being selfish is that Baremetrics benefits from other founders checking it out, because they’re a lot of our customer base. But I do think there’s a certain level of altruism in that people have poured a lot into me by explaining basic things or being really generous with their time and connections. That system only works if you keep also doing the same. The blog itself is about that. It’s me giving back, but it’s also like founder therapy for me where I get to work out what I think. It’s a place where I get to tell people how I’m working through a thing that they’re also probably working through or will work through one day. It’s a way to keep the cycle going of founders helping other founders – because nobody knows what they’re doing. In hindsight, you might know how to do things if you’re a company with 10 customers, but eventually you’ll be at a spot where you don’t know what you’re doing because you haven’t done it before. So, the more resources that are out there, the more people get to be founders.
Adam: The other aspect is that there are no one-size-fits-all answers to any of these problems, but the more angles you can look at to see how people have tackled this, the more informed decisions you can make yourself. Where can our listeners go to keep up with what’s going on with you and Baremetrics?
Josh: Founders Journey is at baremetrics.com/blog. There’s also an audio version we record, which you can check out wherever you get podcasts. And then it’s just founderchats.com for the podcast with other founders. I rant a lot about startup stuff on Twitter @shpigford.