Our SaaS Start-up’s Expenses, Equity Allocation, & Marketing Results After Six Years
Exactly six years ago today—on January 10, 2017—I published Outseta’s launch announcement, publicly sharing what we were intending to build with the world for the first time.
Today’s post follows what’s now become an annual trend. It includes updates on:
- Equity allocation
- Unknowns (this we're thinking about or unsure of)
All things considered, I think it’s fair to say that 2022 was Outseta’s first big year.
We still have a long way to go, but SaaS compounds and this was the first year that we felt that in a big way. This tweet from Chris Cantino almost perfectly reflects our journey to date.
Let’s start with the juicy stuff that everybody loves.
Equity Allocation Update
Perhaps the most notable happening of the entire year came when we shared that we’d standardized our unique payment structure and organizational design. To say that the response was overwhelming would be an understatement—it’s clear that we struck a nerve with an awful lot of people. The basic concepts of the model are:
- A full-time salary at Outseta for all employees is $210,000 per year.
- Everyone can elect to work anywhere from 1 to 5 days per week.
- Everyone can elect to work as much or as little as they’d like to earn equity in the business. Everyone earns equity at the exact same terms as the founders.
This has easily become the most effective recruiting tool I’ve come across in my career—it's helped us build a backlog of crazy talented folks that want to work with us. The irony here is that we want to keep Outseta intentionally small, but nonetheless this is a good problem to have. I am hyper motivated to grow Outseta that much faster, as I’m eager to work with so many of the people that have reached out.
With all of that said, our team is now five people—and we have a sixth who took advantage of our model and built a feature for us completely to earn equity in the business.
Outseta Equity Allocation (end of 2022)
- Dimitris Georgakopoulos (32%)
- Dave Wong (31%)
- Geoff Roberts (22%)
- Bernard Chen (11%)
- James Lavine (4%)
Perhaps most interesting is the developer who built a feature for us completely to earn equity in the business. That person invested 92 hours of work into the project—they now own .34% of Outseta, which is roughly equivalent to the equity grant many VP level roles will earn over 4 years in most tech companies.
Here’s an overview of our non-payroll expenses as a company from 2017 through 2022. As with most software companies, the lion's share of our expenses are related to payroll—we've been focused on steadily increasing the pay for our team as our revenue permits. The remainder of our operating expenses grew significantly for the first time in 2022. The cost of our software tools, web hosting, and affiliate payouts naturally scaled up alongside our growth.
Compared to other SaaS businesses, our expenses are even more heavily weighted towards payroll. This is because we pay relatively high salaries, have abnormally low software related costs (largely due to our own use of Outseta), and generally don't invest much in paid marketing like sponsorships or ads.
Our financial strategy continues to be running Outseta as in as lean and sustainable of a manner as possible—our expenses continue to reflect that. Some general comments:
- Business software, business services, and web hosting represent expenses related to the tools and services we use to run our business. This cost us about $28,000 in total in 2022, which is more than a 100% increase from last year. This was driven largely by the growth of our customer base as well as investments we made in improving Outseta's performance and scalability. Also of note—these expenses include our own use of Outseta.
- It cost $967 to attend Webflow Conf.
- Our total marketing spending for the year was about $35,000. Most of this represents payouts to affiliates (who refer business to us)—after that we paid a freelancer $1,000/mo to help with SEO. We also had two "engineering as marketing" projects (building our Bubble plugin and a React demo) for which we paid external developers a total of $8,500. Those were the only significant marketing expenses incurred.
All in all, we've had just over $175,000 in non-payroll expenses over six years. When I consider our expenses each year they continue to tell the same story—aside from payroll, the cost of running of software company if you bootstrap and focus on sustainable growth is very low! There are extraordinarily few types of businesses with such accessible start-up costs.
This year Outseta matured as a product dramatically. It was the first full year of having Bernard on the team and James ramped up his involvement significantly, so we had that much more product building capacity.
There were a few major themes that ran through our product strategy in 2022.
Improvements in performance, scalability, and error monitoring
Coming out of 2021, we grew fast enough that we knew we needed to start preparing Outseta for scale—especially as a mission critical software product. As such, a major theme in 2022 was making improvements to Outseta’s performance, scalability, and error monitoring procedures. This is an area where Bernard in particular spent a lot of time.
While these changes will go largely unnoticed by most of our customers, they were absolutely critical in laying a solid foundation for future growth—all of our customers benefit from these changes. If you’re interested in this topic, it’s covered in greater depth in our March 2022 update.
Deeper integrations with complimentary technologies
One of the key aspects of our product strategy has been the idea that you can deliver your product or content using whatever technologies you like best—Outseta can integrate with those tools to give you a powerful engine to monetize and grow your business.
As a tech stack agnostic product, we’ve seen Outseta integrated with just about every development framework under the sun—and complimentary products like Webflow and Circle have been critical in driving our growth, too. We’re increasingly looking at our growth through this lens. What are fast growing technologies that we can integrate with or deepen our integration with? With that in mind we launched:
- A learning management system (LMS) built with Outseta and Webflow.
- A bot so you can manage Discord communities with Outseta.
- A Bubble plugin.
- An SSO integration with Softr.
- An integration guide specific to React.
Other major product updates
We also continued making updates across Outseta’s core feature set—this is reflective of our strategy to keep deepening the feature sets that we offer across authentication, billing, CRM, email, help desk, and reporting.
- Ability to set custom subscription expiration dates
- Ability to set a maximum number of users on any subscription plan
- Ability to offer both team and individual subscriptions concurrently
- An enhanced content protection script (content can’t be accessed by disabling JS)
- Double opt-in for email lists (for compliance with EU regulations)
- Improved data import processes—we now offer free migrations from other billing systems
- Customizable cancellation surveys and reporting
These are just a small sampling of the product updates that were made—our team made 395 pushes to production in 2022!
On the growth front we’ve settled into not sharing revenue numbers publicly, but I want to share enough to give you a sense of our growth and some of our most important learnings.
Monthly recurring revenue grew 4x
When I say this was our first “big” year, this is why. While our revenue is still modest, growing 4x in year six was really significant for us as a business. We added 596 new customers in 2022, up from 255 in 2021. While that's a little more than double, our revenue growth was also supported by two other factors:
- We increased our entry level price point from $29/mo to $39/mo
- Our payment processing volume scaled up significantly
In short, many of our customers had breakout years and the quality of projects launching on Outseta improved dramatically. At the beginning of the year I could easily name all of our customers processing over $250,000/year or more in revenue. As of today, I've lost count.
We moved to 7-day free trial, requiring a credit card up front
Offering a freemium product almost killed us as a business—this post about that experience has become quite popular with bootstrapping SaaS founders.
After Q1, we finally settled into offering a 7-day free trial with a credit card required up front. In short, this has worked really well for us. We do hear some grumbling about it and I’m the first to tell you that we’re losing out on the brand exposure that comes from offering a freemium product, but it brought sanity to our business and has allowed us to spend time with more committed and generally better quality customers.
Freemium to paid conversion rate: 8%
Free trial to paid conversion rate: 39%
Stopped tracking a sales pipeline, now only track a migration pipeline
Our target market and focus on building a sustainable business has always been our biggest challenge—we sell a low price point product to price sensitive buyers in a hyper competitive market. All of which means we’ve need to make lots of sacrifices to run a viable business. The two biggest ones we’ve talked about quite a bit—everybody on our team does customer support and we operate without any sales team.
In 2022 we really doubled down on that approach—we actually stopped tracking any sales pipeline whatsoever. We’re now 100% in on product-led growth.
While that’s the case, we are now actively tracking a migration pipeline instead. With our new data import updates we have our data migration process pretty dialed in now—in 2022 we saw migrations from other membership software providers and Stripe Billing scale up in a big way. This drove a lot of our growth in terms of payment processing revenue.
Attended our first Webflow Conf
In November I attended our first Webflow Conf—it was an all around awesome experience. If I’ve learned anything about the business benefits of conferences, it’s that going to a small number of the same events year after year is what’s most worthwhile.
We’ll be at every Webflow Conf until the end of time.
Product updates and growth aside, as I reflect on our wins from 2022 there are two other topics that come to mind.
I went full-time and James ramped up
On July 1—after 5+ years of working on Outseta—I finally reached the point where I was able to focus 100% of my time and attention on Outseta.
While I’d been working on Outseta in a near full-time capacity well before that, I was always doing at least some degree of consulting to make ends meet. After so many years that started to really wear on me—I never felt like I was all-in, even though I was. There was always something else competing for my attention, at least to a small extent. Being able focus exclusively on Outseta was such a huge milestone for me personally.
Best of all, our design lead James scaled up with me. After working on Outseta for years in a very part-time capacity (10-20 hours per month), James scaled up to working on Outseta 4 days per week. He’s had an enormous impact on our software, our marketing, and our brand—I couldn't be happier that he's scaled up his involvement.
There’s a huge desire for all-in-one—holy shit, this exists?
This one is a bit harder to quantify, but one of my biggest learnings coming out of 2022 was that there’s a big market and strong appetite for all-in-one software. Prior to this year, I would have called this at least something of an unknown. I can speak to this in a few different ways.
In Rand Fiskin’s book Lost and Founder he talks about start-ups needing to reach a point where they demo their product and get a “holy shit, I need this” type of reaction from prospects. It can’t be “Oh, that looks great” or “I can see how this is useful.”
Across all of the demos I did in 2022, I’d say at least ⅔ of prospects had a “holy shit” reaction, typically followed by “I can’t believe this even exists.”
To some extent I suppose that’s what happens when you devote 6+ years to building something!
Now, there’s also some degree of rationalization to explore here. If you ask your average person in the tech industry if they want an all-in-one tool or the best software for each specific function, a huge majority will tell you they’d prefer the best in class software. That’s unchanged.
But if you ask them to name all of their favorite software tools, then ask if they could have them all as part of the same platform the answer is unequivocally, yes! Why would you not?
So the question is not so much whether all-in-one is better—it’s whether or not that can be delivered. I’m the first one to tell you that Outseta is not the best product in the market across any of the feature sets that we deliver.
But what we saw and heard every day in 2022 was quite clear:
- The product has matured across its feature set to the point where lots of buyers see the benefits of an all-in-one platform as outweighing the minor features we’re missing.
- There’s a buyer persona out there that’s quite prevalent, who is really frustrated with fractionally used and poorly integrated technology. They actually prefer all-in-one.
It’s been a big win to see our conviction on all-in-one being a better solution start to prove itself out.
Our challenges as a company remain unchanged—we picked just about the toughest battle you could choose. We sell a low priced point product, in a hyper competitive market, to customers that churn at a high rate. And we chose to bootstrap despite building a massively ambitious software product.
Six years in I’m telling you we had a big year for the very first time!
While these wounds are self-inflicted (and things we’ve planned for), we discussed all of this a lot in 2022. Simply put, we still need to find more margin in our business before it can be the type of workplace that we want it to be.
A big topic of conversation this year was how we can scale providing excellent customer service in the context of a small team. We’re not going to be able to simply throw bodies (employees) at the problem as most VC backed companies do, nor do we want to.
Of equal importance, I think we’ve come to accept that Outseta is always going to have relatively high support volume. No matter how intuitive we make the product, onboarding with Outseta is not just setting up a billing system, or a CRM, or an email tool. It’s setting up and learning to use all of those tools!
A great UI and good documentation is certainly the best way to tackle this, but I think there will always be something of a learning curve—and with all of the different technologies that we integrate with, there’s always some degree of technical nuance with each. We spent most of Q4 fixing known usability issues and generally attacking items that cause support volume.
Our biggest challenge now is simple—how can we deflect all basic to intermediate support questions, so that our team can focus their time on the most technically challenging support issues?
This is an ongoing conversation and we’re exploring all options—everything from launching a community where our customers can help one another to exploring whether AI tools could be trained on our support docs. We've hired somebody to start exploring this.
Finally, the unknowns…there’s one big one that we’ve been wrestling with.
As I mentioned, the ethos of Outseta has been that you can deliver your product or content however you like, with Outseta then integrating with your technology of choice. This has been an attractive product direction, for many reasons.
But while that’s the case, there’s no denying that it’s getting incrementally easier for other software products to integrate or build their own billing, or CRM, or email marketing tools.
We launched Outseta initially because Stripe Billing simply didn’t exist. Now it does. Webflow has launched their own membership billing and authentication tools. Circle added payments. While none of these happenings have hurt us in a tangible way, this approach does make us reliant on the growth of the other products that we integrate with. There's some degree of platform risk, although it's well distributed. Nonetheless, we don’t control our own destiny in the same way that we would if Outseta helped you deliver a product of some sort, which begs the question...
Does Outseta need to eventually offer some sort of front end?
It could be basic website builder like Carrd, making Outseta a “start-up stack.”
It could be a platform to deliver courses and community—this is the obvious answer, but the market is already clustered and crowded.
We could pick some obscure industry that’s underserved and runs on a recurring revenue model, then build a front end for that industry.
Or are we best served staying the course?
These are long term questions, but things that we’re thinking about as we consider our 5-10 year plan.
That’s all I’ve got to share as I reflect on 2022. Thank you to all of the customers who have taken this ride with us! We appreciate your support and trust in us more than you know.
Leave a comment
March 19, 2023
Regarding your issues around support, I would ask for the following: As a user, I want to be able to flag a support request as a suggestion so that I can send you "nice to haves" and quality-of-life improvements that do not impair my immediate business case. You, of course, have better insight into whether this would meaningfully impact your support ticket volume or whether this is just a drop in a hot stone. But as a user, I often think about features, functionality, or QOL improvements that I'd like to send your way without expecting any response or immediate support action. Such a feature would also be useful for my own product (and would allow me to collect and group customer feedback, build a roadmap, and notify customers that asked for a certain feature when it is deployed)Reply
March 19, 2023
What's your opinion on if there was just an option in the app to leave feedback and request a feature via input form, as well as view other requ ets and upvote your favorite? This exists btw, the SaaS company can review and post the requests for other users to upvote, and use those as suggestions when determining future enhancements and projects.
March 19, 2023
Great article, the best I've read regarding the news of a SaaS I use. It doesn't mention the profile of your users, which in my opinion can be a startup as well as a freelancer, and that is a huge strength. As for the future, I don't think a website builder or LMS would have a high value, because there are very powerful solutions in this area. On the other hand, increasing the number of integrations would make sense, because we often have to use several tools to build a service, typically Webflow+Circle, but it can also be Ghost+Heartbeat, Typedream+Discord+Notion, etc, and unfortunately there is still no solution that allows us to centralize subscriptions on many different platforms. I think Outseta has a role to play in integrations.Reply
Luke from Deep Space
March 19, 2023
Loved this update thanks Geoff!Reply
March 19, 2023
March 19, 2023
Love having the transparency and depth to learn about the tools we are using!Reply
March 19, 2023
I believe an integration of some sort (I dont know what yet) with Chat GPT or other tools from OpenAPI will set you apart! Good luck :-)Reply
March 19, 2023
I would love to see you build-on something like this for service providers - https://spp.coReply