How we got to $1 million in annual recurring revenue with $0 in fundraising
In March, 2016, Josh and I each took $2,500, put it in a bank account, and filed the paperwork to found Gruntwork. That $5,000 — the minimum you need to open most business banking accounts — is the only money anyone has invested in Gruntwork to date. Today, we’re excited to share that, about 2.5 years later, with no fundraising, no debt, and not even a single ICO, we’ve hit a big milestone: $1 million in annual recurring revenue (ARR).
Update, March 29, 2021: we’re now up to $4.5 million ARR!
This is a big deal for our tiny startup, but instead of a self-congratulatory, rah-rah-rah, look how awesome we are blog post (OK, we’ll do a little of that too, we’re human after all), I thought this would be a good time to pause and share 3 lessons that helped us get here:
Money isn’t your most scarce resource
$1 million ARR is great, but it isn’t the money that we’re excited about. Money is not why we started this company and it’s not why we get up in the morning. To paraphrase Tim O’Reilly, money is like gasoline during a road trip: if you’re heading across the Utah Salt Flats or Death Valley, you don’t want to run out of gas, but you certainly don’t think of your trip as a tour of gas stations!
While every road tripper has to worry about gas and every founder has to worry about money, we’ve found that there’s something you have to worry about even more in a startup: time. The time it takes you to get a product to market. The time it takes you to close a deal. The time you wait until a customer pays their bill. The time you spend in front of the computer, day after day, coding away. The time you can never find to pay off that tech debt. The time you need to pause, think, and make decisions. The time you need to take vacations and relax.
Peter Drucker had this very much right in The Effective Executive: in startups, and perhaps in life in general, time is the most scarce resource. You can raise, earn, or borrow money, you can buy or build products and tools, you can find more customers, you can grow your knowledge, and you can hire people, but you cannot rent, hire, buy or otherwise obtain more time.
The supply of time is totally inelastic. No matter how high the demand, the supply will not go up. There is no price for it and no marginal utility curve for it. Moreover, time is totally perishable and cannot be stored. Yesterday’s time is gone forever and will never come back. Time is, therefore, always in exceedingly short supply. — Peter Drucker
That’s one of the reasons we’re so excited about recurring revenue. We earn non-recurring revenue too (our expected total recurring + non-recurring revenue for this year is roughly $1.5 million), but recurring revenue is special. It doesn’t exactly buy time, but it does give you better control over how you spend it. That’s because every new bit of recurring revenue you earn is added on top of all of your previous recurring revenue, rather than starting from 0 every year.
This allows you to grow revenue without perpetually having to grow your marketing and sales teams, as the sales effort you put in last month keeps paying dividends for many months after. At Gruntwork, Josh and I have done just about all the sales and marketing, and just by adding a handful of customers every month, month after month, the revenue really starts to add up. This has allowed us to spend more time focusing on our products rather than always looking for the next sale. It has allowed us build strong relationships with existing customers and to prioritize making them more and more successful (so they increase their recurring spend) rather than always chasing new customers. And it has allowed us to weather the occasional month where business is slow without going into panic mode or laying people off.
What can you not fail at?
Even with recurring revenue, it still feels like you never have enough time. There is always more work than you can do. There is always another product you want to build, another feature you want to add, another bug you want to fix, another conference you want to attend, and so on. If you try to do them all, you’ll fail. As Bill Gurley wrote, “more startups die of indigestion than
starvation.”
The fact that you can’t do everything is a good thing. It forces you to evaluate what is truly important and valuable, and to focus on just that. Of course, when you’re faced with a thousand interesting opportunities, it doesn’t feel that way. It just feels like you’re drowning. Here’s one strategy we’ve come up to help us ruthlessly prioritize:
Let’s say you’re trying to decide which of 20 projects you should do over the next year. Should you try to do all 20? Should you do just a handful? Or maybe just one? To answer this question, pause for a minute, imagine the year has gone by, and it was a total disaster. You weren’t able to complete any of these projects. Here’s the key question to ask:
What is the one project from that list that you absolutely cannot fail at? What is the one project that, if you didn’t get it done, would mean total disaster and ruin?
Typically, once you think through things this way, one of the projects will jump out at you. That’s the project you should focus on. In fact, you should focus on it, and little else, until it’s done. Chances are, you just won’t have time for anything else anyway.
The founder’s secret
OK, with all the advice about time and revenue out of the way, I’m now going to let you in on a secret known to all startup founders — and for that matter, all Fortune 500 execs, all world leaders, and all people you think of as experts:
None of us have any idea what the hell we’re doing.
There’s no instruction manual for how to build a successful company. There’s no proven formula for building world-class products. There’s no mathematical equation for how to lead a team. We’re all just making it up as we go along, occasionally bashing our heads into walls, and generally just trying our best not to look too stupid. That’s the founder’s secret.
On the one hand, that’s terrifying. On the other, it’s incredibly liberating. In Steve Jobs’ words:
Life can be much broader once you discover one simple fact: Everything around you that you call life was made up by people that were no smarter than you. And you can change it, you can influence it… Once you learn that, you’ll never be the same again. — Steve Jobs
Josh and I started Gruntwork because the world of DevOps was clearly broken. We looked around and no one seemed to be doing anything about it, so… why not us? We’re no smarter than anyone else, but sometimes, just being willing to try is enough.
We started by writing a little infrastructure code here and a little more there, and now we have a library of over 250,000 lines of reusable, battle-tested infrastructure code. Then, we realized that every single company was building nearly the same tech stack from scratch, which seemed wasteful, so we created a reusable AWS Reference Architecture. After that, we noticed that many Dev teams were struggling to work with Ops teams, and both teams were struggling to build a mental model of how their infrastructure actually worked, so we started building a radically better DevOps experience in the form of Gruntwork Houston.
There was no magical oracle that convinced us that these would be good products to build. We didn’t visit a wise guru atop a mountain who prophesized that our business model would work. Sometimes, we made mistakes. Sometimes, we got lucky. Perhaps the biggest luck of all was convincing an incredible group of people from all over the world (New Jersey, Arizona, Massachusetts, California, Ireland, England, Nigeria, etc.) to join the Gruntwork team. We’re all committed to making it easier to build software; and we’re all figuring out how to do that as we go along.
We could’ve failed at any time. We might still fail at any time. And we’re OK with that. Which brings us to one final lesson:
Confidence isn’t about deluding yourself that you’re always going to succeed. It’s about realizing that you’ll be OK even if you fail.
If you want to learn more about Gruntwork’s story, check out How we built a distributed, self-funded, family-friendly, profitable startup.
Your entire infrastructure. Defined as code. In about a day. Gruntwork.io.
