The case for bootstrapping, w/Mailchimp's Ben Chestnut

The very best founders I know are brilliant at building systems. They connect teams, they remove bottlenecks, and they eliminate single points of failure. And yet When it comes to their own wealth. Most are running a disconnected stack. A tax accountant here and a state attorney there, a wealth manager who doesn't talk to either one of them.

Creative planning was built to fix exactly that. One integrated team of tax professionals, state planners, investment specialists, all coordinated by a dedicated wealth manager who sees your full financial picture and keeps every piece working together. Proactive tax efficiency, state strategy, investments all under one roof. Creative planning where wealth works together. Learn more at creative planning dot com slash masters of scale.

Hey folks, Jeff Berman here. I am thrilled to share some of the new names who will be joining us at this year's Masters of Scale summit. This may be our biggest stage yet. Reed Hastings, Meredith Whitaker, Van Jones, Amjad Masad, and more. Will be there with us October 20th through 22nd in San Francisco. If you're building something great, or you want to build something great, We want you there with us too.

Join us at masters of scale dot com slash apply twenty six. That's mastersofscom slash apply. Twenty six. To be an artist. Has always require

That you find a way to solve for the financial equation of the cost of producing your art. In the old days, it was a sponsorship system, right? In medieval times, which was one of the greatest explosions of art culture on the planet, it was all about finding a rich patron to support you. Right? That dynamic Has

Always been present. in the creation of Art and the stories that are so important to the advancement of culture. If you grew up in the 80s or 90s, you probably recognize that voice. From Star Trek the next generation.

Or the kid show. Reading Rainbow. It's Lavar Burton. Over the years. He's emergenciz as a steadfast champion of literчі.

And the arts. He has a podcast now called Lavar Burton Reeds. And a company. Called Lavar Burton Kids. He thinks a lot.

Абата по сторіс. It is literature that ultimately connects us to our imaginations, and our own innate birthright as storytellers. Like artists and writers through the centuries, Lavar has grappled with an age old question. After you find your calling, how do you fund? You're calling.

You're a painter in Renaissance Italy. Trying to compete your grandfresco. you might turn to a rich family of merchants. But an actor and educator in 21st century America looking to fund your reading app for kids? You might find yourself cast.

in an unlikely role. Ha Oh me becoming an entrepreneur, I laugh because I've never seen myself as a businessman.

And even given the last uh what, five, seven eight years of my life I s Still don't see myself as a businessman. Despite his protest. Levar Burton.

He is a business person. He runs a company called Lavar Burton Kids. He's also a realist. And when he wanted to raise money to create this kids app He did just what I tell people to do.

He went looking for investment. We got no love. From Silicon Valley. I mean No. Love.

Okay. So this is part of the story we sometimes gloss over. I always encourage entrepreneurs to seek investment, but I also know That sometimes You just don't get the love.

After months of meetings and courting and you know the dog and pony show, I just really came to the conclusion that this is not gonna happen. What happens when you realize Funding's not gonna happen. Lavar took a gamble that many entrepreneurs have made over the last 10 years. He threw his fate into the hands of his fans. and launched a Kickstarter campaign.

to raise a million dollars. It was all sort of a shot in the dark. It was it's gambling at the highest Level. Right? You are rolling the dice. The difference is

You're betting on yourself. And I will. Always. Bet on me. I have.

Absolute Faith. in my ability to get it done at the end of the day, no matter what. It takes The gamble paid off.

At the end we got a million we got a cool million from Seth McFarland, which was amazing. Seth refers to his childhood as having chain smoked books, right? I l I love that image, you know, of a child Seth just chain smoking uh books. But it was mostly small donations that helped us raise six point four million dollars. Lavar had one of the biggest kickstarter successes at that time. And allowed the Reading Rainbow app

to boldly go where no reading app had gone before. I was unprepared. Really genuinely Unprepared had No idea.

The Sentiment. That existed in the hearts of that entire generation of human beings who had grown up on the show and were down. For Making it possible for a generation of kids that they would never know.

LeVar Burton and his team showed all the scrappiness you need to succeed as an entrepreneur. When V C funding failed to materialize, he found another way to raise money. And this kind of ambitious iteration Can take you to scale. But what if you can't or won't?

Raise funds of any kind. What if you forego Any investment. VC, Angel, or crowdfunded. Well.

Then you have just one option remaining. It's not a route. I wholeheartedly recommend. And it isn't. For the faint of heart.

But it is an option worth considering. Under special circumstances. It's bootstrapping. And I believe you can bootstrap your way to scale. But you'll have to catch the crest.

Of multiple waves. You gotta have incredible talent at every position. There are fires burning when you're going out. Such an idiot. And then you go back to this is totally gonna be amazing. There are so many easy ways. I have no idea what to do. Sorry, we made a mistake. But you have to time it right. Oops. Working out of a three-bedroom apartment. Just how you do it.

This is masters of scale. I'm Reed Hoffman. Founder of LinkedIn. Partner at Greylock and your host.

And I believe. You can Bootstrap your way to scale, but you'll have to catch the crest.

If you're a regular listener to the show, you know that I generally favor blitzscaling. or super fast growth. In order to blitz scale. You need a war chest. Not just of money.

А also experтіze and support. and you need it fast, so you can outpace your competition. This need for speed is why I almost always encourage entrepreneurs to raise money. And in fact to raise more money than they think they need.

But blitz scaling. Isn't for everyone. It's a proven method for getting explosive momentum behind your idea and establishing it before anyone else. Can steal your thunder. But there are millions of entrepreneurs whose plan of attack is to grow at a moderate pace.

They want growth. But with contained risk. We have a lot of those entrepreneurs in the audience from masters of scale. I know that from reading your tweets and emails. This episode

Goes out to you. Listeners like Jason Parker. who's opening a sandwich company. Wasilla Alaska. Maggie Ma in Inglewood, Colorado.

Who launched a home services app called Realtivity. Adam Mitcheson in Manchester, England, who co-founded AI-powered mentorship platform My2Bee. Miral Calagian. Co founder of Children's Learning App Peppy pals.

Even artists who find inspiration for scaling the work from this podcast. like the band Dana and the Wolf. In Burbank, California. And of course. Nine year old.

Eli Smith. From New Zealand. Creator and host. А в Ground Breaking Podcast. I'm endlessly moved.

by your persistence, resilience, and scrappiness. I'm as delighted as you are when you scale. like your better funded rivals. But I also can't resist nudging you here and there. To rethink your decision and to consider how you might grow.

if you took more investment. And you'll hear that. All throughout this episode with a delightful Ben Chestnut, CEO of MailChimp. Ben built a company around a strong, simple service and a quirky brand that sees annual revenue of$600 million.

And he never raised a dollar of outside funding. Ben's story is the exception that proves the rule. A blitz scaling. Ben was immersed in a do-it-yourself ethos. From an early age.

My mother ran a hair salon. In our kitchen. But The word entrepreneur wasn't being used. This was just a way of life. This was called making money.

Paying the bills. Yeah. So the house was always full of customers. I would help.

I like grab the broom and sweep up. hair off the floor and empty ashtrays. Uh and organized rollers. And I joke around sometimes to this day, if I close my eyes and I think about is there smell for business is cigarette smoke and perm. Huh.

I think that's the first time I've heard that. This early grounding helped Ben later in life. And not only in business. It also came in handy with his high school sweetheart.

The first time she invited me over to her house to meet her mother, I I walked in. And she ran a hair salon in her kitchen. No joke. So I knew exactly what to do. I grabbed the broom and I started sweeping the hair Made a really good impression.

Ben married that high school sweetheart, and they remain together to this day. Another childhood experience that served him well was his first business. Making Clip book animations with sticky notes. He sold them to other kids.

My marketplace was the school bus. Mm-hmm. And I would go on and I would show some kids and then you just had to have it and they uh would charge a dollar for each one. I kind of evolved I would make three D comics and three D flipbooks. And you have to draw the same thing with red ink and then blue ink. Uh-huh. Just offset. Yes. Highly unscalable business. Yeah, unscalable, but very creative. And and cool for a kid. It may have been unscalable, but that didn't stop Ben from trying to keep up with demand. Not just in quantity. But also in complexity.

Well with these sticky notes, you know, they would just be maybe a car driving across. And then people would want more, so I'd make a jet flying across and then they want more, so I'd make a jet dropping a bomb on a car and exploding and the tires would bounce around on the screen. This is the kind of rapid iteration Ben would later perfect to give MailChimp an edge over its better funded rivals. But for now.

We're still talking about hand drawn comics. It just got more and more elaborate. I was hand drawing them. In three D. And that became pretty onerous. Later we pivoted to candy and candy's a lot more scalable.

That pivot to candy was short lived. Ben returned to his design roots by the time he graduated college. I got a job as a banner ad designer, actually, which was even more invigorating than web design,'cause it was so fast paced and you got results. Bast. Ben got a tip that the company was in trouble and preparing to close down, so he began to hustle.

I had a month's heads up. About the whole thing? So I had time to kinda plan my life and I thought, Well, this is our chance to start a company. My business partner and I went out and we got clients. We went knocking on doors down the hall. from our office and we got paying projects. We got a$13,000 project and a thirty two thousand dollar project.

Before we even getting a business license. So I was ready to go. Well that that that is probably the definition of hustle. Notice that when Ben and his co founder Dan Curzius started the web design firm. They didn't look for investors.

Instead. They found paying customers. And there's nothing wrong with paying customers. That's a great way to start a business. But this early point.

is why I typically suggest entrepreneurs Also look for angel investors. Whether it's friends and family. Or professional investors. But entrepreneurs.

Don't always realize this is an option for them. They bootstrap. Because they don't think there's another way. And this was the case for Sarah Blakely.

The billion dollar business spanks. From her own initial. Five thousand dollar investment. I talked to so many people and I didn't even know that I could go try to raise forty million dollars read. I think I'd be not quite as tired right now. I'm really tired. But your demonstration of grit is simply awesome. Unlike Sarah.

Ben and Dan knew that investment was an option for them. But the state of the tech industry at the time made them wary. of venture capital. Remember this was also two thousand when everything was melting down and There was a real suspicion of

It's kinda the V C world. Like they were the ones who caused all of this. So it influenced a lot of our style and how we ran the business. You know, we wanted to bootstrap it, we wanted to keep it simple and pragmatic. I admire Ben's desire to keep it simple. And this quality may well have been MailChimp's secret to success. But it was slow going for Ben and Dan at first. And this is the thing with bootstrapping.

It takes time. It was hard. It was a grind. The billable hours game. And we were bad at it and we just weren't natural salespeople. Shy. You know? Shy geeks, I guess. And the name of our business was Rocket Science Group. And with a name like that, you can't make any mistakes. So clients would be really angry at us.

Like those animated flip books Ben sold on the school bus. Web development. was not scaling very well. We had crazy expectations for the consulting side of our business and I think that's why the revenue was always so flat. We were too hard on ourselves there.

Striving too much. This is the point where I believe the right kind of investors could have helped Ben. Because strong investors bring so much more than money. Think of your investors, from your angel investors on, as part of your team. Each person or organization you add to your bench.

brings you key experience and insight. Don McKinnon. is the unsurpassed expert. In finding just the right kinds of investors. And lots of them.

He's done it twice. With his first company. Hear music. Which you started the day he graduated college. And went on to sell to Starbucks.

And now again with his current company Milk. That's milk. With a Q. Like Ben.

Don became a founder of the food. right around the time of the dot com bubble. And he was at Its center. I absolutely remember being in San Francisco.

Driving down two eighty And Seeing all the billboards. Every week it was a different billboard that had been bought by whatever Crazy Internet startup had gotten funding.

So I felt an incredible amount of pressure to do it. And like Ben. Don was wary about jumping aboard the easy money train. Here music was making money and growing at a pace that Don was comfortable with. So rather than seek V C funding

Don went down a route he calls the endless angel route. He just kept adding angel investors at smallish dollar levels and avoided a formal series A investment round. In the very beginning. It was much more of a classic friend and family round. Where you end up with folks who are

Putting in. Modest amounts of money. To sort of get you some exit velocity. But then from then on you really needed folks who understood the industry or at least

Had experience. Growing a business. Dawn eventually acquired. Forty seven. Different angels.

I think this might be a record. And if you're careful about who you bring in, your angel investors can give you the same kind of value. As a venture capitalist. We were super lucky.

To assemble Вот має семь лайк на інсай номер. Of incredibly good angels. different people from different perspectives able to help us with technology. Culture.

Licensing, finance, and they had seen businesses grow. So a lot of what you need from a VC are contacts, strategic advice, and can they be there when you're ready to go to the next level? But even if your angel investors understand your business, you still have the problem of managing all those expectations. We did experience the Challenges of 47 investors with your music who had all different expectations, all different understandings of what we were doing, and particularly

The challenge of We were a business that did not know exactly what it was going to be. And the ground was shifting underneath our feet. It wasn't just that we weren't sure. It was that the actual landscape, competitive landscape was changing beneath us. When there are that many unknowns about your market, your product, and your aims.

The V C path is probably not right for you. Especially if rapid scaling is not part of your plan. I think of VCEs as Booster rockets.

And if you've calibrated your trajectory and you know exactly where you wanna go, I wanna bounce off the gravitational pull of the moon and end up over there at Mars, and I just need the fuel to get to my destination with some good smart people. Алонсад then I would have felt totally comfortable doing that. But VCs come with A very understandable.

time frame on which things have to happen. And so you end up failing fast or Succeeding fast. If your aim is rapid growth. VCs are the rocket engine.

But like any explosive form of propulsion. Timing. Is key. Now, I'm not gonna recommend you take the endless angels route. But the right team of angel investors can certainly help you break through the moments.

When you're spinning your wheels. Which brings us back to MailChimp. Recall. Ben and Dan had found themselves in a trap. They were struggling to scale their web development business.

They were running as fast as they could. But they were in a hamster wheel. Going nowhere. It's a trap. Many early stage founders.

fall into. You might not even realize you're in that trap until it's too late. You're expending energy. There's motion. And you can mistake the squeak of the wheel for the sound of progress. You'll die on that hamster wheel.

Unless you gather the courage. To make a death defying leap. This is when an experienced investor can be invaluable. They can help you see that wheel for what it really is and show you where your energy and skills

can be put to far better use. As you might have already guessed. Ben and Dan. Found a way off. That hamster wheel.

We noticed every customer, big or small Ask for the same thing. Email marketing. Every one of them. And we would use whatever software they had. And we hated the software.

Ben hated the email marketing software available at the time. So they built their own in house email software. For their clients. and let them build email lists and campaigns efficiently. But it was almost too efficient.

We would use it, it would take us ten minutes to send them an invoice for ten minutes worth of work. Even if you round up to an hour, these are tiny checks. And honestly, I ran out of Deposit slips for my bank. Because I had so many little checks and I Hated.

This is embarrassing. I hated getting out of my car, out of the drive through lane in the bank. And going in to get deposit slips. I hate it so much to read. And so I said we've got to find a way to Except credit cards online. And that was what turned MailChimp.

From a product that we use internally to basically one of the first SAS Companies is Two late two thousand. A SaaS company is one that offers software as a service, that term was first used in 2001. By accepting credit cards for MailChimp.

Then it solved two problems. First. He no longer had to deposit piles of small checks. But more importantly, Customers now had direct access to MailChimp. Ben and Dan had turned this internal tool into a product.

That could scale. It was their escape from that rickety hamster wheel of death. This is the kind of discovery that changes the course of companies. It's the Eureka moment, every scale-focused entrepreneur lives for. So Ben and Dan immediately double down on this idea, right?

By two thousand five. We had kind of sort of forgotten about MailChimp. They set MailChimp into motion? And then pretty much ignored it.

They got straight back on that hamster wheel. Because they thought As many early stage entrepreneurs do. That the hamster will. was their real business.

So five years later, uh MailChimp is just the side project running on its own. And the thing is The income we were getting from MailChimp We weren't watching it. And the hamster wheel?

It was wearing them out. the billable hours game got to be too hard for us. The agency just wasn't scaling. And we were thinking about giving up actually. We were talking about winding down the business. Then they remembered Their little side project.

And so my partner, he looked at MailChimp and he did our first ever Excel spreadsheet. for our business. And it was Mailchimps revenue. And it was climbing up and to the right. And the consulting business was just flat. and maybe even declining. And he said, That's it. Have faith in the math. This is what we should focus on. This is what we should focus on.

These are the words that mark every great pivot. in a company's path. You find those moments. When you watch key metrics. And

Yes. Build spreadsheets. I suspect well matched investors. might have helped Ben spot the potential for mail chip sooner. They definitely would have given Ben the confidence to go all out in pursuing it.

And that confidence matters. All Ben and Dan had were those figures. Promising as the numbers were, They still hesitated. It took all year to really convince ourselves to do it.

Because it felt like oh my God, you're gonna go from twenty five thousand, fifty thousand dollar website gigs to twenty five dollar MailChimp accounts. It was very scary to make that jump. So it took all of two thousand five, I think, to kinda work up that courage. That's right.

It took them another year to make that leap. Remember, their product was already out there. Yes, it had huge scale potential. But it was also easy to replicate. And improve on.

And any potential competitors could do this. Competitors who may very well have had a blitz scale mindset and access to VC funding. Finally. Ben and his team made the decision to go all in. on MailChimp.

End of 2005, we kind of had an official vote. four people at the time. We decided, hey, we're gonna do this thing. We're gonna take the leave. In 2006, we said goodbye to our consulting clients, we found new vendors for them. kind of tried to get them all to consider male chimp. And then in 2007 we started as a software company. That was our day one, January 1. Now they had a promising product.

that was scalable and already generating revenue. But they needed to grow it. And they were still determined to do it without outside investment. One thing that's actually entertaining is you're in a counterexample to a lot of what I

talk about in blitz scaling because you bootstrap to scale. Which which is Atypical. Right. And there's a question of whether or not it's just a limitation of the blitz scaling theory, or whether or not you're the exception that proves the rule. It's an interesting question, which I hope to discover a little bit in this discussion. Um You were approached by V Cs, you didn't think V Cs were a good idea. Why was that? We had a big competitor named Constant Contact.

And they were doing very well. because they were focused on their business and we were treating it as a side business. I think they might have started roughly the same time that we did in oh one or something like that. Constant Contact is an online marketing company that is still going strong today. So we were looking at

constant contact as sort of inspiration, a competitive inspiration for us. And they had just gone public. And they got a nice IPO. And that is what made Venture capitalists come knocking on our door. Most startups.

Dream. Of having VCs knocking at their doors. Especially this moment. When speed matters most.

When you're trying to catch up. Or to get ahead. This is exactly when you most need investment. But Ben and his team We're already skeptical.

About BCs. And these first meetings Reinforced her belief. That investment. Wasn't for them.

Most of them pitched this idea like What you've done here is great. It's wonderful. It's cute. Let's invest and then we'll help you move to enterprise'cause that's where the real money is. I couldn't stand that. I remember my mother, I thought about building something that would empower small businesses to scale out of the kitchen, you know?

The story these VCs were telling Ben and his team was didn't align with her vision for the company. I think that in retrospect, things didn't quite jive with us because I don't think that they understood SAS. It was still new, right? And they didn't understand SAS for small business.

Like the union economics, it just didn't make sense to them. It felt like they were more like alien beings. From another era? trying to tell me how to run my business and it felt like they were missing some kind of a boat and I just thought No, you're not making any sense. You don't seem to understand

What we're doing here. When you run into an investor who doesn't understand what you're doing, whose logic doesn't make sense to you, or tries to convince you to take a direction you strongly believe to be wrong. Trust your instinct. You'll almost always know more about your product than your investors. And if they feel like an alien being

Do what Ben did. And walk away. Always there was an ulterior motive because of that IPO. Uh of our competitor, they seem to always be comparing us to them. And maybe you can catch up, take our money and go public like them. Or we can help you merge with other smaller players, roll it all up, and be a number two, and being number two wasn't interesting to us.

Ha ha So none of those things were particularly motivating. That was the problem, was that they were not very good motivators. Listen again to Ben's observation on these VCs. They were not very good motivators. Anything that is not a motivator when you're scaling is a drag.

An investor who doesn't understand you is one of the biggest impediments you can have. You have to find investors who are the right match for your product. And your personality. It's one of the reasons I advise founders seeking investment. always to look to take on multiple investors over time.

Not just one. But there was another motivational factor at play here. And it's important. We were eating off the McDonald's value meal. we kind of fantasize about being able to walk to the other side of this retail center and eat at FoodRuckers.

'Cause they had these eight dollar hamburgers and we thought If MailChimp could just make enough money every month to pay our lunch every day, we would eat there instead. It sounds ridiculous now. But that was really all the expectation we had.

When your ambitions Aren't much more. Then an upgrade to your lunch options. You're probably not a good fit for V C funding. I say this with good humor.

Tongue in cheek style. But it's a serious point. Not everyone aspires to scale. Not everyone wants to bring the level of ambition and pressure into their lives that VC funding brings.

And not every business is cut out for it. But also Not every business. That wants funding. Can find it.

And what then? The problem we're working on solving is that there is a complete lack of funding options for early stage entrepreneurs. Only one percent of founders, regardless of their gender, will ever raise venture capital. And so what do the other ninety nine percent of us startup founders do to fund our businesses? The voice sharing these sobering statistics belongs to Karen Conn.

She was an early Googler and is now founder of I fund women. A platform that helps entrepreneurs raise money through crowdfunding. Karen is an evangelist for the power of crowdfunding. To help the ninety nine percent.

But she wants to be clear. It's not an easy path. There are no magical money elves. hanging out on Kickstarter or Indiegogo or Patreon or GoFundMe or any of the big platforms. Waiting to sprinkle money on your campaign.

That's just not how it works. There are no magical Money elves. In any kind of fundraising. Just to be clear.

Боню краудсорс. Karen says you have to be cautious about how much you try to raise. Entrepreneurs Tend to completely overshoot.

They'll say, for example, I need a million dollars to fund my MBP. MVP stands for minimum viable product. And really Do you think that's the same. Need a million dollars.

Probably not. You probably need maybe like ten or fifteen thousand dollars to get your app built, like a crappy version of your MVP just enough that like you can have some people beta test it and it doesn't break. Or it might break, that's okay. Karen's advice points to a key difference. Between crowdfunding and the kind of fundraising I recommend for Blitzscaling. When you blitz scale

You want to raise Far more money. Then you need. When you крад source. You aim for the bare minimum.

But there is a place. Where the two approaches Split scaling. And crowdfunding. a line.

Put out a really crappy MVP, build it for cheap. And see what your users are gonna say about it. Like Test, learn, iterate. Even if you are long done with your minimum viable product.

It doesn't mean your crowdfunding days. are behind you. Crowdfunding is great for companies at any stage. In fact, there are Fortune one hundred companies doing R D. on the crowdfunding platforms to see what consumers like. And then of course there are early stage ideas where you don't even have a website yet. Any stage company is right for crowdfunding because what crowdfunding allows you to do

is to prove demand for your product or service to see if they actually want what you're selling before you invest in making it. That is the beauty of crowdfunding. That's the genius of it, frankly, that I don't think is really talked about a lot. But back when Ben was starting to scale MailChimp. There was no Kickstarter.

There were no crowdfunding platforms. What they did have. Was good old fashioned. Customers. Mail Jump was just making lots of recurring income for us.

And we were quite content. So we decided to go to Lone and Bootstrap. Funding choices are often a combination of strategy and luck. when you choose the bootstrap. You have to make your own luck.

After the ad break. Ben and his team. Struggle as underdogs. Hit a few waves of good fortune. and then happen upon the surprising viral loop that helped them bootstrap their way to scale.

When you've built substantial wealth through your business, it's often tied up in a single equity position. The upside is real, but so is the risk, and knowing when to act isn't always obvious. Creative planning works with business owners to build a strategy around concentrated equity. When to diversify, how to manage tax risk, and how to protect what you've spent years. Building.

Creative planning where wealth works together. Learn more at creative plating dot com slash masters of scale. Hey listeners, Bob here. If you listen to Rapid Response on Masters of Scale, you may be missing half the show because every Friday we release a second Rapid Response exclusively in the Rapid Response feed. The guests and topics are just as compelling and timely for From Ford CEO to NASA's administrator to the lessons from The Devil Wears Prada. It takes about 10 seconds to find. Just search Rapid Response wherever you listen to podcasts and hit follow to make sure you never miss an episode. I hope to see you there.

Humans will never be more intelligent than AI. There's gonna be two types of companies. Those are great at AI and those that went out of business because they weren't. How do we build a future? That is human centered. I'm Rana El Chayubi. And on my podcast Pioneers of AI, we answer that question and so many more. As an AI scientist, entrepreneur, and investor, I know what it takes to build AI that works for everyone.

Every week I sit down with the pioneers shaping our future. And we take you behind the scenes of the AI that's transforming our lives. Find pioneers of AI wherever you tune in. Before the break. Ben Chestnut decided to forego VC investment. And instead.

Opted to bootstrap. And when you bootstrap You forego. Cash speed. And support.

You have to be scrappy. And you have to be lucky. Fortunately. As you'll see. Then was both.

For example Nearly every VC had advised them to take the money. And build infrastructure. They would say things like buy servers. Fortunately.

MailChimp was scaling at exactly the time when new hosting technologies were driving down the cost of storage space. It was another lucky wave that Ben and his team took maximum advantage of. Managed hosting was a new thing, right? So anything we looked at The prices just kept falling. And then AWS came out. AWS stands for Amazon Web Services

A cloud computing platform that offers on demand server space. So everything just kept changing. Technology just kept advancing. And I don't know if that's a function of like we were lucky that everything just kept falling in our laps. Or we were always on the lookout to take advantage and leverage new things. I don't know which one it is, but I Well, usually the answer to that question is usually some of both.

Ben was now riding the wave of managed hosting. Which kept his cost down. Even as he scaled. MailChimp Was making money.

But there was a problem. When MailChimp launched as a side project It had been light years ahead of the competition. But they had let it stagnate. In the meantime.

Other competitors had caught up with and exceeded them in terms of features. Mailchim's customers were beginning to desert them for their competitors. That's scary when you commit to something and they're leaving. Then put a toll free number on the MailChimp website and ask customers to call in with their most requested features.

And so they started to call us and they gave us all the features that we lacked. And we had this whiteboard in our office and it was like five columns of features that we needed to build. And we were like, How are we gonna get this done? They had to get All these new features out fast if they were to stop the user exodus.

This is where cash helps. You need to catch up fast. You need to hire fast. You need to pull ahead. That's a problem you can throw money at. Money won't solve it.

But it helps. If you don't have cash, you need stamina. Look, even if you have cash, you need stamina. But without it? Get ready for a grind.

That's what Ben and his team did. We hired a rock star engineer. He came in and he just started to knock them out one by one. Ben and his team also needed to get word out that they had these new features. And that more were on the way.

They lack the money for a big PR push. But Ben stumbled on a way of getting the word out. to their most passionate users. Every time we launched a feature and I blogged about it and tweeted about it, we got retweets and comments. And more sales.

That was working for a while'cause to me it was just a a band aid and real publicity would have been PR, right? But what Ben first thought of as a band aid. soon turned into their most powerful marketing tool. I brought on somebody, a good friend named Neil Bayton. I was telling him, you know, what are we gonna do with marketing? He was like, What what's working? And I said, Well we code and then we blog and then we tweet and he said, Well do that. Do it again.

And I would say everybody's sick of it by now. And he was like, No, they're not. Keep going until it stops working. And that was the lesson he taught. Like, don't be afraid to beat a dead horse. If it's working, keep going and hire people. to keep it going. Code blog. Tweet. Repeat.

Was one winning mantra for Ben and his team. Go with the new. When you're bootstrapping and even when you're not. You have to figure out where you can get the most leverage.

Often it's the newest platforms. For Ben and his team. It was Twitter. Twitter was kinda new at the time. We were getting amazing customer feedback through that. You know, any kind of channel that's new. You need to be there on the ground floor.

Before Everyone else crowds it up. Ben and his team got thousands of pieces of feedback from their customers who love seeing the features they suggested being implemented. From the code blog tweet philosophy sprung a community of passionate MailChimp fans. And these fans help MailChimp hit upon their most important innovation.

It's a common method now. But back then it barely had a name. This is the kind of viral loop that VC backed startups throw money at to discover. And Ben and his bootstrapping team had hit upon it. Almost by accident.

We were actually trying to split our product into two. And then to offer a list building tool for free. And then if you wanted to send email, you would have to pay us money. However The code powering MailChimp. was too old to be changed without serious reworking.

This would take too much time. Ben's lead engineer. Had a suggestion. you need to think about maybe offering the entire product for free, because that would be a lot easier, but just limit the size of the database. It was the ultimate try before you buy.

Users could immediately see the benefits of the full product. It's a model we are familiar with today, but at the time it was just gaining traction. Ben drafted a blog post to promote the new model. I had the blog post ready to go. Uh the title was something like MailChimp, Free Plan, blah blah blah. And then the next morning I came in ready to publish it, and there was a book on my desk.

That book by Chris Anderson Is titled free. It described and helped popularize the term. Freemium. This model of offering a free but cut down version of your service to supercharge user uptake and

had been around in some form or other for decades. But it was becoming hugely popular. among web services around the time Chris Anderson's book came out in two thousand and nine. And I said, That's the word, I'll use that word instead. Mm-hmm. So I said Mailchimp goes freemium.

It was another example of MailChimp riding a wave to scale. Okay, and so this kinda takes off a little bit, right? And then a guy named Charles Hudson email me and he says I'm doing this freemium summit. Can you come out and talk about this? And so I went out there and there was a guy named Drew Houston talking about Freemium. He had this new idea called Dropbox. Yep. Uh Phil Libben was there. I mean you know, it was a it was like a right, of course. And they're they're huge now, right? But this was like the early days of Freemium and SaaS. And that's that's how it all it was all Kind of. Little bit of luck.

The premium model. what's particularly suited a male chimp. Every new customer would be setting up an email list. and each of those recipients would see that their mail was coming from MailChimp. And that they could try it for free.

What did you discover? From That freemium launch. And then How did you refine it?'Cause again, I think part of blitz scaling is getting to this interesting

correlations between the business growth. And the business model. We discovered it was the best marketing you could ever Ever do. It was free marketing and within a year we had gone from like Several hundred thousand users to a million.

And then by the next year we were at two. Two million it's all a blur to me now. Uh but it just kept growing. It just kept growing. Ben and his team now had the flywheel turning. It's the fluid.

Fast moving moment. That entrepreneurs dream of. And if you bootstrapped your way, as Ben did. You might have the mindset. That you've arrived.

The business is now sustainable. And you're free from fundraising. But I'd argue. This is actually the time for more investment.

In VC terms. It would be the series B, Siri C, SiriS D round. bringing higher and higher levels of investment. to enable you not just to dominate one market. But expand into others.

Hitting this correlation. Between business growth and business model is key to blitz scaling. MailChimp got it right through a rare combination of luck. Tenacity. And skill.

However, I believe if they'd found the right VC partner, they could have hit upon it sooner and scaled far more rapidly. Listen to Ben talk about his approach to analytics. When did you start figuring out like Dashboards and and the analytics of all the stuff. Oh when did we start caring about our analytics? Yes, exactly.

Gosh, that's a good question. I think I I think to this day I still keep it very simple. Myself, I think I I obviously have a CFO who cares about it. He has big fancy reports, but I really say, you know How much money do we make this month? Is it growing? Uhhuh. At what rate. And that's all I really care about. I keep it pretty simple. I suspect in the road ahead of you you'll start doing analytics about like how the freemium ties to your virality system. Right and how customers pick up and what that funn looks like and so forth.'Cause that loop is usually what happens in these things. I guess is you'll unlock a new phase of growth as you get there.

And yeah, we have teams working on those. And it's so funny. It's it's almost embarrassing that it's just now that we're having the time to come circle back around a look at'cause it's just been money handed to you hand over fist, you don't count it, you just bank it. Right. But now we're going back and looking at it and we're like, Wow, we did not this is inefficient. If we just make this a little more efficient, we are gonna get Yeah. You're gonna find interesting growth things there. I mean, part of what it is is you you caught a tsunami of email being super important and being a channel of

very broad communication and having a high quality tool for that. Yeah, and that you know. At some point you just kinda Try to stay on the surfboard as the tsunami's going. Yes.

Ben's Keep it simple approach. is part of his charm. And I suspect Part of what's driven his success.

But I'd still argue. That with V C backing, these inefficiencies Would have been ironed out. Far earlier. Fortunately.

Throughout the MailChimp story, Ben kept pulling the correct levers to supercharge the viral loop that brought them more and more users. I couldn't help diving deep into this when I spoke with Ben. I actually look forward to seeing what you do with the business once you start really compounding what the virality curve looks like. Right, because you part of a freemium model is freemium and virality work together. And the instrumentation of

This is a free sign up. They send out email to people. Those people sign up. You know kind of in that classic pattern. Once you start instrumenting, you're getting the benefit already, but once you start instrumenting the tuning will be super interesting. Please tell me more. I'm getting free advice here. Well I the question I was gesturing out with the dashboard is the kind of the analytic of What happens is you pick up customers, they send out emails, some of those people become customers, how they send out to other people, what does that look like that is powered by a free-mean model? Then you begin to look at cohort analysis, A B testing, which things lead to customers trying the product in the first place.

That kind of loop. is a compounding loop. And most massive scale things, intentionally or unintentionally, Get into a compounding. scenario. Now some of the unintentional or at least quasi intentional is probably the right word is to say.

Cat the wave. The internet. Right, like go this is this is the future. Computers are the future. Yeah. But some of it's also where you you instrument it more, like virality is both art and science. Love that. Do I have to pay for this? No. Well you should charge for the stuff.

Wow. That's the thing. When you have the right kind of investors backing you. You really do get that kind of advice. and much more.

And while I greatly admire the tenacity of Ben and everyone who bootstraps, I hope for each of you listening. Is that you give a thought. To what investment? Might bring you

More speed. More support. And yes. More on target advice. I'm Reed Hoffman.

Thank you for listening. Masters of scale. is a white one original. The show is recorded on site in California and produced at the studio inside SY Partners in New York. Our executive producers are June Cohen and Darren Triff.

Our producers are Chris McCloud. Adam Skews. Jenny Cataldo. Dan kidding.

Jordan McLeod and Ben Manilla. Our supervising producer is Jay Punjabi. Original music. by Allison Leighton Brown, Sound Design Mixing and Mastering by Brian Pew. Special thanks.

To Chris Yay, Bob Safian, Elisa Schreiber. David Sanford, Saida Sepiava. Christina Gonzalez, Sarah Sandman, and Lauren Passelle. Visit masters of scale dot com to find a transcript for this episode. And be sure.

To subscribe. or email newsletter.

What you see above is a preview of the first minutes. One unlock costs 3 credits and covers this episode forever: full segment and word-level timestamps on this page, plus .txt, .srt, .vtt and word-level JSON downloads, as many times as you like.