Here’s what I learned while leading a bootstrapped startup to $40M ARR

Building a profitable business during a period of economic uncertainty is nothing short of intimidating. But contrary to popular belief, it’s not impossible. Bootstrapping a startup is one of the effective means of building a self-sustaining and successful business, especially as VC investments slow down.

If you’ve been considering bootstrapping, now is the time to commit. To help you set your business up to thrive during economic turbulence and beyond, I’d like to share some of the strategies that proved successful when building Hotjar, the company I lead. It all starts with creating a product, testing it and finding the right market fit.

The journey to $40M ARR

Building a business from the ground up comes with its fair share of learning experiences and missteps. But, one of the greatest challenges we were able to avoid was starting with a finished product. We decided before even coming up with a name, that the most important thing would be to start with a minimum viable product (MVP). In other words, the bare minimum required for someone to use it and get value out of it.

From previous projects, the team knew that waiting to finish the product and then releasing it would invite challenges. Had the team waited to finish the product and then attempt to collect feedback, we would have risked spending a long time moving in the completely wrong direction. Creating our MVP allowed us the flexibility to build and release as we learned, and it proved successful.

Since our founding in 2014, we’ve reached $40 million in ARR through bootstrapping. From there, it was off to the races.

Since our founding in 2014, we’ve reached $40 million in ARR through bootstrapping. From there, it was off to the races. We continued to see exponential product-led growth (PLG): When we officially launched, we had 27,562 users (including customers), and we were growing at a steady 10% per month with a PLG strategy.

The influence of the larger product insights market and our relationship with customers enabled us to move quickly and pivot regularly.

When beta testing, don’t start with a finished product

Product-led growth should play an important role in any business model for bootstrapped startups. If you’re depending on yourself to raise the funds from the ground up, your product should meet a specific demand in the market to essentially sell itself.

To create demand, even in a saturated market, listen to the people who matter the most — your target users. Developing and iterating your product based on feedback from target users is the best way to ensure you’re building something they will commit to.

It’s easy to rush product development, but starting with a finished product won’t do you any favors. Six months is an adequate time frame for beta testing, because it builds trust with a set of users who can provide constructive feedback to troubleshoot and advance the product.

One piece of feedback we received during beta testing that helped change the course of our business was a request to introduce sub/cross-domain tracking. In retrospect, this was an obvious improvement, but until our users asked for it, we hadn’t realized how common this need really was.

Proper beta testing can surface needs that are seemingly obvious to your target users but fall under the radar during product development given the sheer amount of tasks to complete.

Don’t set prices too low

Bootstrapped companies should self-finance their growth and make sure gross margins are high. This strategy will ensure you make enough money from each customer to sell your products. It is also how you can achieve long-term growth and profitability even in periods of economic uncertainty.

Pricing should not be set in stone but rather an ongoing exercise that is reviewed every 6-12 months. For example, when we first started, we set our product rate based on the features we currently offered. As your product evolves and capabilities improve, consider changing prices to balance the value customers receive with the new investments you’ve made in your products.

Additionally, through the beta testing period, you should be able to estimate how much the average customer is willing to pay based on the value you provide to them. Don’t undervalue your own product or undersell it for fear of customer reactions — providing value to customers at reasonable prices is a deciding factor when faced with cost-cutting measures.

Bootstrapping grants you the flexibility to make these strategic decisions yourself rather than under pressure from outside investors.

Keep launch marketing costs as close to zero as possible

Entering the market with strong testimonials and customer-proven worth provides startups with a significant head start. But sometimes, as was the case with Hotjar, you’ll need to create your own demand to get the ball rolling.

The initial goal of a formal launch should be keeping marketing costs as close to zero as possible, and there are many ways to market for free, like word-of-mouth and referral marketing. As long as you’ve listened to feedback from users and applied it where possible to improve your offering, you’ll have a great base of initial users who are likely to convert to paying customers.

To drive initial sign-ups, we created an early access “waiting list.” As soon as someone requested access by entering their email on the site, they’d end up on our list. We would then ask users to refer us to their friends using a unique signup URL.

The more friends they referred, the higher up they would move on the list. We also offered incentives such as six months free for referring five friends; a T-shirt to the top 200 positions; and a free lifetime account to the top 20 positions.

We also made it easy for visitors to share Hotjar with their friends by adding links to share on Facebook, Twitter, LinkedIn and email. This fueled word-of-mouth, which in turn was responsible for 60% of the 60,000 sign-ups we received throughout the entire beta phase.

This waiting list helped us generate scarcity and demand before Hotjar was fully available. It also created a fun and competitive environment for early adopters who were eager to get access to our offerings. We created a community of users and testers who become pivotal in constructing the first version of the product that would be sold.

When creating an early-stage community for your product, you must nurture these connections as much as possible. They’ll become your biggest product advocates with an initial network you can tap into to gain additional traction later on. Providing early adopters with freemium incentives and unique referral links to share online won’t just help you reach a wider audience — it’ll also lay the foundations of a loyal and lasting customer base.

Early users are members of your product team

Ultimately, building a successful startup through bootstrapped efforts is no easy feat, but it can be incredibly rewarding if you do it right. Throughout the entire process, it’s imperative you remember the most important decision-makers: your users. Your product’s success depends on their experience and how well you can meet their needs.

Your first users will also become your initial product team, helping to develop your offerings into a market-ready version. They will be your scrappy marketing team who first spread the word to your target audiences and ultimately, the loyal customers behind your profitability and success.