Bootstrap in a Red Ocean and operate as lean as possible

In the book Blue Ocean Strategy, the authors propose that you don't want to create in a Red Ocean. A Red Ocean is where there's already lots of existing competition. The authors say that doing so is a race to the bottom, a zero-sum game. It's too competitive.

They propose you create in a Blue Ocean where the most value you can build is where there is no existing market; it's untainted by competition. This lets you break from the competition.

But, from experience, I can tell you Blue Oceans are HARD to fish in.

They are capital-intensive and take a long time.

The startup I was CGO for took over 10 years before an exit. It required over a million in angel investing and over $25 million across series A and B, as well as debt. And to be honest, the exit could have been better. It was 8 figures, but, like most VC-baked startups, it didn't do stellar; it was more of a break-even event.

In hindsight, I could have bootstrapped a couple of highly profitable small SaaS in that time for a much more significant outcome for me personally.

I'm not trying to say don't do hard, capital-intensive things. But if you're interested in becoming the captain of your own ship, I suggest a contrarian, maybe even boring view.

Bootstrap in a Red Ocean and operate as lean as possible.

What does this mean?

Bootstrapping is more affordable than ever

In 2006, I wanted to create a service that allowed you to back and store your files online. So, if your computer crashed or you were not at home, you could retrieve or access your files.

Yes, that's right, two years before DropBox and 1 year before BackBlaze, I worked on and hoped to launch my own cloud storage service.

But after working on it for a while, I found it to be too capital-intensive for me to do. I would need at least $10,000 in hardware to launch it, let alone data center costs and ramen for my family to eat. All-in, I was looking at $100k+ for the first year.

At the time, it may have been a million.

I didn't have friends or family who could loan me that. And I didn't live anywhere remotely close to Silicon Valley, and with a wife and two kids, moving there wasn't in the cards.

So, I opted for a different path.

Today, with cloud providers and AI code-assist, one person could write and launch that in nights and weekends for $100/mo and scale it up as they grew.

Two orders of magnitude less in costs. And as for code, 3-5x (and growing) faster when using AI to develop it.

The point? Today, you only need a little capital to get moving.

$250-500 for creating a corporation and getting a business bank account (a pain in 2007)
$100/mo for some cloud services to start on
$1k for a great laptop
Then, build word of mouth with product-led growth tactics. Start on SEO, do some SEM, and you'll start getting customers.

The rest of the reasons why Red Ocean SaaS startups fail are the same regardless of whether you are VC-backed or bootstrapped.

Don't be afraid of competition

The discourse around SaaS startups is better than it used to be. But we still often focus too much on Unicorns.

I love what Lloyd says on his podcast Traction.

The media has perpetuated this addiction to unicorn porn. But in reality, the world is built by horses, camels, and donkeys. We glorify the unicorns, but that was because of a black swan event (covid and low-interest rates).

Too true! Let's stop glorifying the 1 in 10,000 startup who becomes a billionaire and start glorifying the boring SaaS companies that make millions for their owners, which are often life-changing results.

Many IndieHackers are afraid of competition. But guess what!? There are 8 billion people on earth. And there are over 334 million companies worldwide. There's plenty of room for you. This is why having a mindset of abundance is so important.

I said this back in issue 13. What does an abundance mindset mean to a B2B SaaS founder?

There are over 8 billion people on earth
They run over 400 million businesses worldwide
32.5 million of which are in the US

That's a lot of businesses you can sell to! You want to sell them something that won't go away in a Red Ocean.

For UserFlow, that's Onboarding software. For 37signals, that's project management software.

Both are very crowded spaces. Yet UserFlow has over $4.5 million in ARR (with just 3 employees!) since they launched in 2021. And 37signals makes tens of millions (with <80 employees) and has over 100,000 customers.

Both of these companies are selling something many need and have done an outstanding job, standing out with the quality of their software. But that's not all.

Use lean tactics like Product Led Growth and AI adoption

The final piece to the successful bootstrapper puzzle is how you operate. Product-led Growth and AI adoption are two themes it'll take in 2024 and beyond to build a successful bootstrapped business. And by successful, I mean millions in ARR.

The AI Boom

A bootstrapped company must adopt AI across the board to become and remain successful in its processes and products.

On product strategy

An AI product strategy that will win embraces AI approaches from the bottom up and uses it to solve customer problems.

I'm not talking about shallow adoptions, mere lipstick on a pig. I'm talking about AI that augments people to make money, save money, and reduce pain and frustration (which is time).

The advantage new SaaS has today is that it takes a lot for a larger, established SaaS to retool entirely along the lines that the consumer is beginning to expect. While you can iteratively build AI from the bottom up.

In short, small, more nimble SaaS companies have a competitive edge for the moment. They have fewer established customers to please and less to cover with their implementations.

There's a gold rush going on.

On processes

Then there are all the ways you can be more nimble in operating. There are so many ways AI is making you faster today. Here are a few of the ways I've been using AI.

AI tools can now make fantastic content videos, saving you thousands (if you're overfunded) or hundreds (if you're bootstrapped).
Classifying data sets. A task traditionally taking many person-hours can now be done with incredible accuracy and speed in minutes. Copy your unstructured data (literal web articles for me), tell your AI how to process it, and boom, out comes your structured data.
- I'm now beginning to tie in other automation tools so that the entire process is push button.
- This would have cost me tens of thousands of dollars a year ago.
AI for coding, I use Github's Copilot and ChatGPT regularly every day. It's making me 2-3x as productive as before. But that's been going up as my project gets more established. It's harder with greenfield / unique things at first.
I use AI liberally in my other newsletter, the Infosec Monitor.
I use AI for all the images for ProductFoundry.
Recently, I started using AI to build our SEO strategy (not in ChatGPT, but in Swiftbrief; you can watch them help onboard me).

And I plan to use AI for a whole bunch more:

We'll be using AI for Tier-1 customer support
And for writing knowledge base articles
And for bookkeeping

Every category where it requires a person is now being revolutionized with AI. Either as a tool to augment something or do it entirely for you.

Product Led Growth

What's the equivalent of AI for Sales? Product Led Growth.

Product-led Growth is a strategy where the product drives user acquisition, expansion, and retention.

In other words, your product does your marketing and sales for you.

And when you're operating in a Red Ocean. One where there are competitors, but more importantly there are already people searching for solutions to an exact problem. Marketing becomes infinitely simpler.

You don't need to convince people that staying in someone's spare bedroom is safe and a good alternative to a hotel.

Nor do you even have to figure out how to reach them. They're already looking. You can go with SEO, SEM, and cold DM's. A basic and easy to learn the ropes marketing strategy.

PLG is also often done with freemium or a free trial. I prefer the free-trial variant. I want customers who pay me for software, not use it for free. They're the ones who can tell me the most about what they need because they need it so much they're willing to part with their hard-earned money.

But when the product closes the sale for you? By walking the user through your solution, providing the knowledge they need, when they need it. It makes accepting the credit card even easier (and it does that for you!).

I'll dive deeper into PLG in an upcoming newsletter, as using it will be a primary tactic for both AskJack and Interweave.

But I'll leave you with two books and a great blog post a friend suggested when I wanted to learn more about PLG:

Is bootstrapping in a Red Ocean and operating lean right for you?

There is no one-size-fits-all solution.

But bootstrapping in a Red Ocean and operating as lean as possible is one of the most viable paths forward today.

But it's only suitable for some.

I eventually want to do a startup in agriculture.

I'm interested in modern farming techniques that preserve and enhance the quality of our soils. Since they're a significant determinant of the quality of our foods, which have been dramatically depleted in nutrients.

That will be more capital-intensive than I can muster. I will likely seek out funding to hire brighter people than me.

But I'll still operate as lean and smart as possible.

Bootstrapping also doesn't mean never go for funding.

It's perfectly reasonable to eventually get indie funding or angel funding. Or even to go the VC route later down the road.

So, see this as something other than a do-or-die movement. It's simply a smart tactic that matches today's realities.