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Someone asked me how to build a capital efficient business.
@magoosh we've been able to build an 8-figure profitable (and growing!) business on 6-figure funding.
Here's what worked for us:
@magoosh we've been able to build an 8-figure profitable (and growing!) business on 6-figure funding.
Here's what worked for us:
High gross margin
We aim for exceptional service. Even with that, as a software business, we have high gross margins (~80%), which means when someone paid us, we could reinvest most of the money in product or marketing.
We aim for exceptional service. Even with that, as a software business, we have high gross margins (~80%), which means when someone paid us, we could reinvest most of the money in product or marketing.
Quick payback period
We're mostly a one-time payment business which means the model is super simple: we capture the entire LTV upfront.
While there are downsides to this, we knew exactly how much we could spend on customer acquisition.
We're mostly a one-time payment business which means the model is super simple: we capture the entire LTV upfront.
While there are downsides to this, we knew exactly how much we could spend on customer acquisition.
Low CAC
With a hard constraint on our LTV (no recurring = no false retention optimism), we needed to be creative with with customer acquisition.
Enter Content Marketing. We had some upfront cost but it paid major dividends over the long-term. Some blog posts made us $100K+
With a hard constraint on our LTV (no recurring = no false retention optimism), we needed to be creative with with customer acquisition.
Enter Content Marketing. We had some upfront cost but it paid major dividends over the long-term. Some blog posts made us $100K+
High Net Promoter Score
We consistently measured NPS and improved the product. This resulted in lots of word of mouth over time which decreased our CAC with time.
We consistently measured NPS and improved the product. This resulted in lots of word of mouth over time which decreased our CAC with time.
Low startup costs
We raised no capital for the first 1.5 years, so we didn't have much money to spend. We were scrappy with how we built v1.
- Prioritized features rigorously
- Overseas development for $15/hour
- Licensed initial content, paying on a future royalty basis
We raised no capital for the first 1.5 years, so we didn't have much money to spend. We were scrappy with how we built v1.
- Prioritized features rigorously
- Overseas development for $15/hour
- Licensed initial content, paying on a future royalty basis
Luck
There was absolutely luck involved. We almost didn't make it because we spent in places we shouldn't have. We also found a number of people who were willing to take a chance and work with us. We also didn't fully understand these business fundamentals early on.
There was absolutely luck involved. We almost didn't make it because we spent in places we shouldn't have. We also found a number of people who were willing to take a chance and work with us. We also didn't fully understand these business fundamentals early on.
