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Cooking For Founders

With COVID-19 forcing many of us indoors and cooking more (yes, this post took a little longer to go live than I planned), there’s never been a better time to really learn how to cook. I grew up not learning much about how to cook and taught myself as an adult. Over the last 5-7 years I went from someone who could do the absolute bare minimum (boil pasta, cook chicken breast, etc) to genuinely quite a decent cook. I can easily whip up dinner for 4-6 friends without stressing, cook healthy dinners at home most nights of the week, run a barbecue for 12 people, and have a small quiver of fancy dishes to impress friends, family, and my wife from time to time. This post is mostly about what works for me, but I’m calling it Cooking For Founders because I think it will resonate with a lot of entrepreneurs who think like me.

The goal of this post is not to teach you how to cook but to provide fairly comprehensive, but also minimum viable, roadmap for going from a cooking noob to solid home chef.

Why you should cook

Until I was about 25 or so I really didn’t cook much. I lived in places like NYC and London where restaurants were always open and ubiquitous and especially in these cities, it’s a perfectly reasonable position to just not bother learning to cook well. But I want to make the case that even if you have world class restaurants and food delivery services on demand, you should learn to cook.

Social: Home cooked meals are an awesome offer that people are very likely to take you up on and really appreciate. Cooking well is sexy and makes for an awesome date night. Dinner parties are fantastic well to meet new people and create a vibrant personal and professional network. Taking charge of a meal is a great way to bring your family together or impress your in-laws.

Physical Health: Even if you aren’t bothering with any particular diet (low carb, paleo, etc), cooking at home is almost always going to be more nutritious than food from restaurants. Getting actually healthy food from restaurants/delivery is almost always expensive. Cooking at home is an affordable way to get great nutrition.

Mental Health: This may be more specific to me, but I find cooking to be fantastic for my mental health. In my house I’m the one cooking about 90% of the time and I’m not into the mega meal prep strategies where you cook food for the whole week. So, most days, I’m cooking something fresh for dinner. The need to start cooking prep in time for a reasonable dinner puts a natural stopping point in my work day and then I get to switch to a very focused mono-tasking activity. This routine is, for me, a kind of meditation that separates the work day and let’s my brain process the events of the day.

Meta-learning Tips for Learning to Cook

Learning to cook is not exactly easy. There is an infinite amount of recipes, techniques, resources, diets, and on and on to consume. It can be overwhelming. Learning to cook is almost always laden with failures along the way. You’ll screw up some recipes, ruin some dishes, and get halfway through a complex recipe before realizing you’re missing some essential ingredient. Here are some lessons I’ve learned on how to learn.

Find your YouTube & TikTok muses

There is an infinite amount of cooking content on the internet, but when you find a particular chef or channel that really speaks your language, subscribe and binge their entire backlog. Lots of channels out there will skip essential explanations, use overly exotic ingredients, or complex unnecessary techniques so when you find one that consistently speaks to you, lock it in. Some ones I like:

Have a backup plan

Learning to cook and feeding yourself can be two different things, especially when you are first starting out and failure rates are high. If you are going to try a new recipe for the first time on a busy week night that’s supposed to be your dinner that night (1) go for it! (2) have a frozen pizza or some other quick and easy back up plan ready in case you end up ruining the dish. It’s a really negative feedback loop to mess up a recipe and having to end up eating cereal for dinner, so have a backup plan.

Read/watch the recipe several times well before cooking

Read or watch your recipes carefully, several times, in preparation for trying a new recipe. It’s easy to miss, especially at first, that the recipe actually requires marinating over night, or needs buttermilk or some other ingredient you don’t typically have on hand. Don’t just plop open the recipe book at 7p and start with Step #1.

Stick to a few core cookbooks

Again, it’s easy to get overwhelmed by the millions of cookbooks out there. Like YouTube channels, I recommend finding a few comprehensive cookbooks that work for you and sticking to them for years until you get very confident with a wide variety of techniques. With cookbooks, Kindle will work but having the physical copy can also be really helpful (or honestly I usually get both). Here are some that I recommend:

Essential Concepts

The books and channels above all have great introductions to all of these concepts so I’m not going to try to actually cover them here, but I think it’s useful have a few simple concepts to check off as you read/watch through the first few.

What heat does (chemistry)

Make sure you pay attention to the sections on the basic chemistry of heat. The vast majority of cooking is just different ways applying heat to food and it’s critical to understand what heat is doing to different kinds of foods. For the most part heat is either (1) denaturing proteins or (2) producing a Maillard Reaction. Denaturing proteins is the slow gradual cooking process that turns eggs from runny to scrambled or steak from rare to well done. Different foods have different kinds of proteins which denature at different temperatures and in different ways. The Maillard Reaction is browning (mostly on on meats and vegetables) and happens at very high heat and low moisture environments. Read up on these carefully. Cooking for Geeks covers these the best in my opinion.

Different kinds of heat transfer (physics)

Similarly to understanding what heat does, it’s really important to have a basic grasp of the various methods of applying heat to food. Baking, broiling, roasting, sautéing, braising, searing, sous vide, boiling, and so on, are all just different methods for applying heat. Some, like baking, use convection where the air is heated up around the food, and others, like searing in a pan, use conduction where the heat is transferred directly surface to surface. A cast iron pan takes a very long time to heat up and stays hot for a long time, whereas the air in your oven can dissipate its heat quickly. Understanding these basic concepts will give you the architecture for understanding for why you should keep the oven door closed as much as possible, dry your meat before searing, and pre-heat your heavy pans for longer than your light ones.

Keep it simple

When you are first learning to cook I recommend avoiding complex recipes in favor of simple two or three-part meals where each component is cooked individually. The vast majority of our home-cooked meals involve cooking (a) a protein like fish or meat (b) a vegetable cooked simply, like roasted in olive oil and (c) a starch like rice, potatoes, simple pasta. This let’s you build a healthy meal with simple individual components, master the same techniques with repeat practice, and minimize the risk of blowing up the whole dish.

Make it taste good

This may seem obvious, but it’s important that the food you cook actually taste good. Home-cooked food is almost always healthier than restaurant food, so don’t try to learn to cook and cook the healthiest possible version of each dish. Most veggies taste better roasted in a generous amount of olive oil than they do steamed, so roast them! Baste your chicken in butter. Salt your food generously. Learning to cook by producing dishes that just aren’t that tasty is a very bad feedback loop, so do what you need to to make it taste good.

Don’t cook everything evenly

This is a little more specific but I feel like it needs to be specifically counter-programmed. For some dumb reason a lot people (including myself 10 years ago) got the notion that food needs to be cooked evenly. That it’s really important to constantly turn and shake and rotate your food so that it’s cooked the same all the around and through. This is a great way to make gross food. Stop touching and turning your food. Most dishes are better with a substantial amount of difference in how cooked different sides of the food are: steak with a crunchy sear and medium rare inside, roasted potatoes with a waxy crust and fluffy inside, carrots or asparagus charred on side are all much tastier and mostly produced by having uneven cooking.

Baking is really hard

Really. Baking is much harder and less forgiving than any other kind of cooking. If you’re just starting to get into cooking, don’t start with baking.

Essential Gear

Okay, obviously you can spend and absolute fortune and fill a kitchen with mountains of cooking gear. That’s part of the fun of getting into cooking, let’s be honest. But if all you’ve got is a crappy 10-piece Wal-mart cooking set you got as a wedding gift or a hodge podge you inherited from your roommates, and you need to build your kitchen from scratch, this is the minimum kit I think you need. (Disclosure: most of these are Amazon affiliates links. Don’t click them if that’s a thing that will make you mad).

Pots and Pans

The essential workhorses of cooking. Different kinds of pots and pans provide really different value for money, so I’ll specifically recommend below which ones I think it makes sense to invest in something great that will last versus just get something cheap and replace it every few years. I’ve got a bunch of Amazon links below but I also highly recommend looking up a local restaurant supply store, where you can find high quality equivalents, often for a lot cheaper.

  • A large heavy saute pan. I love this 5.5-quart Cuisinart saute pan. I own two of them and use them in probably 75% of meals. Anything with high straight sides, a heavy base and a lid will do. You’ll use this for searing so it makes sense to get a high quality heavy one here, don’t skimp.
  • A 12″ non-stick skillet (optional an 8″ one too). Non-stick skillets will not last you for decades so I recommend getting a decent quality cheap one. I like these ones from Tramontina. If you only get one, go for 12″ (you can always cook less food in a larger pan but not the reverse) but an 8″ can be useful especially for egg dishes and if cooking for one person.
  • A 12″ stainless steel skillet. If you’re really going for minimalism you can use the heavy saute pan above for everything and skip this. But I find it’s frequent enough that you need to use more than one steel pan simultaneously so I recommend a good one of these. I have two of these from Tramontina.
  • An 8-quart stock pot and 2-quart sauce pan. You need at least one big pot for boiling pasta and potatoes and making stews. Again go for 8-quart or more (if you’re cooking for family) since you can always use less of a larger pot. The sauce pan is slightly less critical but will be used often enough that it makes the cut for essential. This stock pot and this sauce pan, both from Tramontina, are probably a bit nicer and pricier than absolutely necessary but will last. You definitely don’t want tinfoil thin pots here but also there’s not much benefit to getting really nice brands for this.
  • 2-3 baking sheets with wire racks. I use these constantly for roasting veggies, doing messy food prep (prepping a whole chicken is a lot easier in one of these) or for letting meat dry brine in the fridge. You don’t want to get super cheap ones here since they tend to warp which will make all your olive run to one corner when roasting veggies. I like these Nordic Ware ones which come with their own racks. I currently have 4 of these pans and 2 racks which is more than plenty. FYI, the “half sheet” size is actually the typical size that fits most ovens.
  • Optional but cool: a cast iron pan. I think you can honestly skip cast iron when first learning. Cast iron is hard to take care of and can really hold its high heat too long for many beginner cooks. You can use the heavy saucepan above as a substitute for any recipe calling for cast iron. But if you want one, go for it. I have this 12″ Lodge which is cheap enough to just grab it even if it’s not strictly necessary.

Cooking Tools

This is the minimum viable set. No need to get anything fancy.

  • 2-3 sets of stainless steel tongs. This is the essential tool most likely to be missing from basic kitchen setups. I use tongs for every meal and it’s infinitely easier to move food around with tongs versus pushing food around a pan with a spatula. Get at least two in case you touch raw meat with one you don’t have to stop and wash them mid-cook. These ones are fine but honestly anything will do that has this basic shape. I don’t bother with the square wire-shaped tongs which are useless. I also have a set with non-stick tips but there are tons of situations where only the stainless steel will be able to easily grab the food so prioritize those.
  • Fish turner spatula. Not just for fish! Similar to tongs this is the most likely to be missing from basic kitchens and I use it all the time. Get stainless steel for scraping nicely browned food off stainless steal pans or baking sheets. I have this one.
  • Basic set of wooden spoons and spatulas. Literally any of these sets will do fine but make sure there is a flat-tipped spatula in there. Mine is a hodge podge a hodge podge but here’s a decent set (I would add a soup ladle to this too).
  • Micro-plane zester. Yes, you will use this all the time and it’s cheap so it’s in the essential list.
  • Instant read digital cooking thermometer. You need at least one when learning to cook meats. I have this hand-held one and this “probe” style one that can be left in during long slow cooks.

Prep

Almost everything on this list, just get the cheapest version you can find.

  • Stainless Steel Mixing bowls. Just get the most basic set possible. Here’s a ridiculous good deal that includes a bunch of the other items on this list.
  • 4-6 “mis en place” prep bowls. Pre-chopping your ingredients is really helpful when you’re starting. I have eight of these but again the cheapest things you can find will be great.
  • Measuring cup set and large heat-safe glass measuring cup. You need a full set of measuring cups and one of these glass pitcher measuring things (I have a set of 3 but if you only get one go for the 2-cup one).
  • Strainer. You need at least one (I also have a few smaller ones). Get at least one that is large enough that you can lay it across your sink, giving you two hands to pour into it. This is a great one.
  • A dozen or so bar towels. Having these on hand for clean up, drying, and a quick alternative to hot pads is indispensable and will really cut down on your paper towel use. I have, a lot, of these.

Knives

You need just a few knives but you should get decent ones.

  • Chef’s knife. 90% of all knife work happens with this so get a good one. I have this 8″ from Global which is great and I also have the one from Misen, which is considerably cheaper and still pretty great.
  • Pairing knife. Nice and small and useful when the Chef’s knife is too big and unwieldy. Again I have the one from Global but the Misen one is probably great (I don’t have that one).
  • Serrated knife. You need at least one of these. Most folks recommend a bread knife but I don’t find myself cutting huge loaves of bread that often, so I have a serrated utility knife like this one. In general I think you can get by with a cheaper knife when it’s serrated vs a straight edge so feel free to substitute this for something cheaper and prioritize a nice chef’s knife.
  • Honing rod. Get one of these. Learn how to use it. Straighten your knife’s edge before every time you use it. Ceramic ones like this are best.
  • Large cutting board. Get the biggest one that you can reasonably use in your kitchen. There’s nothing more annoying than running out of cutting board space when prepping. I have a comically large one I got at IKEA that barely fits in our sink and it’s a game-changer. This one looks good to me.
  • Smaller plastic cutting boards. Especially if you’re cutting and prepping meat, it can be nice to not have to wash your cutting board mid-prep. I have 3-4 of these.

Storage

Cooking means leftovers so get a good set of storage containers.

  • I have a bunch of these Cambro containers because that’s what chef’s use and I’m a geek. But get any good set of 8-12 containers that nests well.
  • Gallon ziploc bags. I try to avoid disposable things in my cooking but this is the one unavoidable tool for freezing and marinated.

Optional but great

Everything here is not strictly essential but if I had any room left in the budget this is what I would prioritize.

  • Instant Pot. We use this at least once a week to make stews, chili, beans, or rice.
  • Blender or food processor. We have this Vitamix which is about the most lux thing in our kitchen but it’s still going strong five years later and it absolutely handles anything we throw at it.
  • Salt pig and pepper mill. Get yourself some Diamond Crystal Kosher salt and fill up this salt pig. I have no idea why it’s called a salt pig. Fresh peppercorns ground in your own pepper mill (I use this one) is a serious upgrade.
  • Box grater. Handy but very single use so it doesn’t make the essentials list.

And that’s it. It can definitely be a daunting shopping list if starting more or less from scratch but that’s why I started this post with all of the life-long benefits of learning to cook. It’s worth it!

Some Essential Skills & Techniques

Once you have your essential gear, you will need to start practicing some essential skills that are the building blocks of most recipes. All of these are explained in the books I suggested but I wanted to quickly flag the best approach to the most important ones.

Chop & Prep

Don’t re-invent the wheel here. Basically every food item has a well-known best practice for how to chop or otherwise prep it. Just search them on YouTube and learn them one by one as they come up in recipes. Here’s a mega video on how to prep every vegetable.

Searing

Searing requires a Maillard Reaction which means very high heat plus low moisture. Learn how to properly dry your meat and veggies, how to pre-heat appropriately, and how salt interacts with moisture (it pulls it to the surface of meat which can prevent browning). Use high smoke point oils like grapeseed or avocado for searing, not olive oil. Pay special attention this as a good sear versus a mediocre one can make all the difference in some dishes.

Roasting

I love roasting vegetables. Prep them to create flat surfaces that make direct contact with the pan. Minimize moisture so you get browning. Use enough oil. The outside edges of the pan are hotter than the middle so arrange the thicker pieces on the outside. This is a great video with tons of tips for veggies.

Sautée

Pre-heat. Don’t crowd the pan. Learn to test the heat with your hand. Resist the urge to move or shake stuff once you put it in the pan.

Cleaning

Change your sponges regularly. Get some Bar Keepers Friend to deep clean your stainless steel pans. Get this little bottle brush which is made for baby bottles but comes in handy a lot.

Get Cooking

That’s everything I know about how to get started cooking. Get your gear, buy some books, subscribe to some YouTube and TikTok channels and get cooking.

2021 SaaS Market Predictions

I’m an investor now so I suppose I need to start making predictions 🙂

These are not so much predictions as, things already in progress that I feel I’m able to see a little bit earlier than most folks by looking at 1,000s of early stage bootstrapper-minded software companies. So here we go:

Everything is Micro-SaaS now

I think I coined the term “Micro-SaaS”… it’s not all that original, so maybe somebody else did it first. But I mention that here because that makes it sort of matter what I intended the term to imply. In my mind, the “micro” in Micro-SaaS referred not to the size of the company or product, but to the scope of the problem being solved. I would usually define it as a product tackling a problem that could be truly solved with a solo founder or very small team. At the time (maybe 7 years ago now) I didn’t think it was possible to build a direct Salesforce or Heroku or Airbnb competitor with a very small team, but you could build a very profitable Shopify app or highly niche SaaS as a solo founder. The point of Micro-SaaS was to get founders to think about those kinds of problems versus only thinking about massive markets that would almost certainly require a large team and lot of funding.

But, by that definition, everything is a Micro-SaaS now.

The scope of what problems can be truly tackled by one founder or a very small team has expanded so much that it includes virtually all SaaS businesses. This is a function of what I call the Peace Dividend of the SaaS Wars. Briefly, that there are so many off the shelf tools, platforms, plugins, and services, that a small team can tackle bigger jobs to be done, well beyond the original scope of what was a Micro-SaaS. I think in 2021 and beyond we are going to start to see small teams tackle really big problems that previously would have been crazy to take on.

True No-Code SaaS businesses go prime time

For a few years now it’s been clear that no-code tools were enabling powerful and complex automations that previously required custom-coded solutions. The question has been asked, will founders be able to build a true software as a service, recurring revenue, profitable, scalable business on top of no-code tools. But until recently, the no-code tools solved discrete internal problems well, but there were gaps between the tools that made it impossible to connect these into something that competed with a custom-coded SaaS product. But those gaps have closed.

At Earnest Capital, we have recently invested in several founders doing exactly that. 2021 is the year this will go mainstream.

The beginning of the end of “Empty SaaS”

In the first few waves of SaaS, the primary innovation was the SaaS aspect: cloud-based, remote friendly, payable via subscription, updates on demand. A lot of successful SaaS products out there are effectively just SaaSified version of prior software products that already existed and were sold in shrink-wrapped plastic. A ton of these products follow a pattern that I call “empty SaaS”: you sign up and are dumped into an empty page of rows, record, contacts, expenses, tasks, projects, etc and told to “fill it up with stuff.” The burden of creating value and doing the work is still pushed entirely onto the user.

I think this is increasingly not good enough and the table stakes for new products will be raised to force products to create more value against the actual job the customer wants done. We’re seeing early versions of this already. Customers don’t want bookkeeping software, they want their books done, so we get Bench and Pilot. I think we’ll see this percolate throughout the SaaS markets created tons of opportunity for new entrants who do a better job of not being empty.

By the way, a few ideas on how to not be empty SaaS:

  • Add a “done for you” service layer on top of your core software
  • Curate an expert network who can use the software for your customers
  • Build in one-click quick-start templates based on key customer goals
  • Build bots, scrapers, and simple machine learning to automatically “fill up” your customers’ data

More funding for SaaS bootstrappers

Im talking my own book here but I think we are going to see an inflection point in funding for bootstrappers this year. A handful of funds and firms now have multi-year successful track records showing that this market of entrepreneurs building profitable software companies is a great one to invest in, even at the earliest stages. This year we’ll see existing firms expand and (hopefully) several new entrants. This is great news for entrepreneurs who will see increasingly more options and a better chance of finding the investment partner that is the best fit for them. If you’re a founder and that sounds interesting to you, start here.

The Entrepreneur’s new path of maximum optionality

“Bootstrap a lifestyle business, strap yourself in to the VC roller coaster, or take out a loan with a personal guarantee and risk losing everything if the business fails.”… For as long as I have been an entrepreneur this was pretty much the menu of options available to most founders of software companies. Before you even tested the business you had to commit to one path and hope you chose wisely. Choose incorrectly and you could kill an otherwise great idea by setting yourself down the wrong path. Raise VC for a business that tops out at $10m a year in revenue; you’re headed for zombie status or a forced acquihire. Carefully build a small profitable business; well you’re obviously not the kind of ambitious dent-in-the-universe founder VCs want to back, so get ready to burn through your savings. Good luck even getting your local bank to talk to you about a loan to start your new SaaS business; you’d be better off asking them to finance the 5th Taco Bell in town.

But recently, a proliferation of new tools and funding options are creating more pathways for entrepreneurs to build and fund software companies while maintaining flexibility and optionality. Let’s follow the path.

0/?You find a unique pain point and have an idea for a product that will solve it

What you don’t do is put together a pitch deck, finagle a multi-billion-dollar total addressable market and spend the next 6 months fundraising. You know that for all the new “pre-seed” funds popping up and all the talk about how “it’s never been easier to raise money” that fundraising on a pitch deck and an idea is a long, hard, time-consuming process that’s unlikely to be successful. Better to just get started on the business without asking investors’ permission. So you do…

1/?‍♀️Launch a minimum viable product and get your first customers

The path starts by just getting started. You work directly with your potential customers and validate that they actually have a problem and want to pay to solve it. Here your options have never been better.

  • You could start a consulting business first. Spin up a simple LLC with Stripe Atlas and use recurring invoicing tools like Harvest or Freshbooks and you have yourself a side-hustle consulting business. From there you can test if there is true willingness to pay in this market and learn more about what kind of product your customers would pay for.
  • Use no-code tools to stitch together a prototype of your product. You could use Makerpad to find the right combination of tools that let you build a software product without code. This could either be a duct taped version that actually does what it says on the label, or a “Wizard of Oz” version that looks and feels like software, but actually you are doing the heavy lifting by hand behind the scenes.
  • You could learn enough code to build the first version. Depending on your learning style, budget, and time, you might prefer coding bootcamps or online tutorial repositories (like Pluralsight or Egghead) or both. Starting with a product to build is the best way I know to stay motivated while learning to code. Even if the product fails, you will have learned a valuable skill.
  • You launch your MVP and get your first customers.

2/?$2-5k MRR (monthly recurring revenue): “rent money” and growing

Your product is live, people are paying for it. Those people stick around (retention) and more people continue signing up (growth). You’re in business now. Once you get to a few $1,000 in monthly revenue, “rent money” level, you have several options on how to proceed.

  • Continue to bootstrap the business on the side. If you can continue to balance a job or freelance work, you can run your business on the side and keep it growing until it generates a full-time income for you.
  • You could go “digital nomad” and move somewhere like Thailand, Bali or Budapest, with a very low cost of living and where your new product can support you full-time. This isn’t an option for many people with a mortgage or family to take care of, but for the right entrepreneur it can be a great way to cut your personal burn rate and keep your options open.
  • With this traction you could raise $50k-150k on a Shared Earnings Agreement (or SEAL) which would allow you to go full-time 1 on your business. A SEAL is designed to bring on investors who will back you early on and let you decide later whether you want to build a profitable sustainable business or a high-growth rocketship.
  • At this point you would likely have a great shot at joining your accelerator of choice. But know that most accelerators’ business model is predicated on getting as much of their cohort funded by VCs as possible. If pivoting the business to larger markets, focusing on short-term growth, and honing your pitch to maximize your raise on demo day isn’t what you want, either skip the accelerators or be very clear upfront that you aren’t sure you want to go down the VC path… yet or ever.

3/ ?$5-25k MRR: ramen profitable + team

You choose a path that gets you working on the business full-time. You start to get initial product-market-fit and feel like your product really solves a genuine pain point. You find a few channels of organic (ie free) growth and begin hiring your first team members. This gets you to “ramen profitable” where you can pay the founders a reasonable salary, at least to where you aren’t burning through your savings or the capital you raised. So what will you do to power the next phase of growth?

  • As always, you can stay bootstrapped, grow organically, hire slowly, and run a Calm Company. This is particularly good path if you have a product with high retention, good free sources of new customers, and you are focused on a niche without too many direct competitors.
  • But maybe you want to make a few key hires—a top tier marketer, the first person in outside sales, or a senior engineer to take the product to the next level—that current cashflow can’t support yet. New funds like Indie.vc and Earnest Capital 2 are ready to back companies at this stage that want to stay focused on building real, profitable, sustainable businesses. You could raise $100k-$500k to see if you can meaningfully change the growth of the business while still planning to return to profitability.
  • You might run some growth experiments, either with your own cashflow or the capital you raised from Earnest or Indie, and discover that there are a ton of ways to turn cash into growth for your business. Now might be a great time to raise a few million in a Seed / Series A venture round on much better terms than before you had this traction.

4/ ?$25- 100k MRR: maximum optionality

You continue growing the business with several proven channels for customer acquisition. You have a minimum awesome team in place that can ensure the product is the best in its class. Somewhere in here you hit or have line of sight to a $1m/year business with a diversified customer base and likely some nice profits. If you’ve gotten here without taking too much outside capital, you have navigated the path to maximum optionality because the number of options for taking your business from here are numerous. You could:

  • Keep funding your business with the most optimally formulated fuel that keeps you absolutely focused on building the best product you can: customer revenue.
  • Somewhere in this range, the traditional banking system3 will finally become helpful. You’ll be able to fairly easily access a $100k line of credit or $50k+ in credit card limits to alleviate any short-term cashflow constraints.
  • You may still want to bring on some more long-term aligned investors for a mix of patient capital, mentorship, and network. In which case the funds from #3 are still a good option, but you could also probably do a large enough raise that a priced equity round might make sense.
  • A huge array of specialized revenue-based financing lenders are now interested in your company. Folks like Lighter Capital, SaaS Capital, Bigfoot Capital, TIMIA Capital, and RevUp will lend upfront capital in exchange for a percentage of your monthly revenue. Unlike traditional banks, these funds do not require a personal guarantee. They are debt instruments and typically become really viable around $50k MRR when the business has become fairly proven and predictable.
  • You might also find that your business has a few “money machines” where you can plug money in and get more money out. Specialized funds like Clearbanc, which will finance your paid marketing budget (ie Facebook or Google ads), or Braavo, which will finance your receivables from app stores, are available.
  • ☝️All the options to this point are not mutually exclusive and can be layered on one another in whatever way makes the most sense for your business.
  • But also, at this point you could likely sell your business for a life-changing amount of money. You’ve kept most or all of the equity in the business. You likely don’t have a board that can block a sale or giant liquidation preferences that make a sale for a few million unattractive. Even if you don’t sell, knowing that you could at any time is a powerful source of freedom.
  • Or, you could look at your $1m/year business and realize at this point you are in or adjacent to a $1B market. You are a proven founder. Your product, sales, support teams are well-oiled and scaleable. You talk it over with the team and decide to shove all your chips in and raise a monster round of VC on far more attractive terms than you could have at the beginning of this process. You could, but you absolutely do not have to.

5/ ?To Rocket or Not

The beauty of all of these options is that most of them can be mixed and matched. Entrepreneurs now have far more choices and paths that allow them to test the market, grow their business and move forward with or without funding. The choice is up to you.

This is the entrepreneurs new path of maximum optionality.

  1. Disclosure: I am the founder of Earnest Capital, which created the Shared Earnings Agreement↩

  2. Again, full disclosure, I run Earnest Capital.↩

  3. at least in the US↩

We need a new default funding model for tech companies

There is definitively a small but growing trend of new forms of financing for early/mid-stage tech companies. As a founder and bootstrapper, I feel like I saw the opportunity before I understood why it was there. I wanted to lay out the simple macro framework for why I believe this is just the beginning of a huge shift in how we fund startups.

Premise 1: Almost all new companies are technology companies now

Anil Dash and many others argue that there is no “technology industry” and that the label is too big to be useful.

Almost all companies use tech in some way, just like almost all companies use electricity.

Premise 2: Most companies (tech or not) are not a fit for VC and don’t have alternative options.

And yet there is this totally out-sized relationship between tech companies, which most new companies are, and venture capital, which is definitionally not a fit for the vast majority of companies. So every founder building in software/web/tech thinks they should raise VC when in reality almost none of them should.

But what should they raise? What about debt.

My father took out a loan in the 70s to start his business. That’s how most of the small business entrepreneurs from that era got started. You took out a loan, bought property and equipment, started your business and if you failed the bank foreclosed on your building and equipment, and depending on the loan, maybe your house and personal assets. Seems pretty risky to me but at least it was a well-known pathway to capital for entrepreneurs starting new ventures.

The problem is most tech companies don’t have collateral and you simply can’t get a loan at the earliest stages.

We’ve seen a precipitous drop in new firm startup rates since the early 2000’s. I don’t think my theory here is fully explanatory, but I think part of the problem is the fact that there is no good default financing option for entrepreneurs.

Why it’s all happening now

How did we end up in this position? Jerry Neumann, argues persuasively in this post that we are now in the Deployment Age of the internet/web/mobile technology cycle. This is an application of Carlota Perez’s theories in Technological Revolutions and Financial Capital. This podcast is excellent and compelling that we are past the age of bubbles, crashes, and winner-take-all opportunities specifically in the internet/web/mobile sector. We now get to deploy all the new productivity gains of the web to a ton of new sectors in a much lower risk way.

 

During this phase, new kinds of capital are needed with a different risk-return profile. The easiest comparison for me to wrap my head around is this quote from the post describing the creation of tons of new forms of consumer credit starting in the 20s.

Venture capital, as we think of it, is primarily a feature of the current cycle. Other cycles had other funding mechanisms. E.g.:
The consumer boom of the 1920s was financed through a vast expansion of credit, with personal debt nearly doubling as a proportion of income. And since banks did not make consumer loans, new lending channels had to be created. These included installment sales finance companies (such as the General Motors Finance Company founded in 1919), retail installment lenders (particularly department stores), licensed consumer finance companies (such as the Beneficial Loan Company) and Morris Plan industrial banks4.

 

This is just the beginning

Thus we find ourselves in a moment when there is vast demand to fundamentally re-define the default form of capital for entrepreneurs. It’s an exciting opportunity and a great time to be both an investor and a founder in this space.

How I email

In 2019 I’m transitioning into the role of an investor at Earnest Capital. Since we soft-launched in October with a call to collaboratively build investment terms for “funding for bootstrappers” I have received 100x the normal volume of emails that I’m used to processing. Looking forward it seems clear that being an investor in early-stage startups means becoming a professional emailer. As I’ll be spending most of my day in email1, I thought it would be a good idea to explicitly state my email preferences somewhere I can link to.

This should simply be viewed as a list of my preferences, not some list of demands that must be complied with in order to email me2.

Things I think about email

  1. Many VCs seem to view responsiveness as a competitive advantage, replying near-instantly at all hours. I’m not sure that’s a factor I want to optimize for but even if it were, I know I would never be an exceptionally fast responder. So I’m not going to compete on responsiveness. If you’re used to dealing with VCs and getting instant responses, emailing Earnest might seem jarringly slow but I’m okay with that.
  2. I optimize for completeness in a response. I prefer not to trade 25 half-baked emails back and forth when I could wait for all the facts I need and write a detailed, clear, complete response.
  3. I am remote-first and I prefer emails as the default mode of communication. Switching to scheduling a call the moment an issue becomes complex is a habit I don’t share. Let’s be thoughtful, clarify our thoughts in writing, and use a call as a last resort (or just something that’s fun but not necessary).
  4. I don’t do Inbox Zero. I used to, but feel that I frequently need more time for responses to marinate than an instant ‘respond, delay, delegate’ protocol allows.
  5. I do view my inbox as “other peoples’ todo list” and try to allocate my day first toward larger projects that will improve Earnest for everybody, then dive into my inbox.

My email preferences

  • I like long emails. I’m not one of those people who needs to get all the information in the first 3 sentences or I stop reading.
  • Follow-up as much as necessary. If I haven’t responded to your email, it doesn’t mean I won’t. I am most likely working on something else integral to a reply. Feel free to send additional follow-ups if there is new information. I prefer not to get a daily stream of “just bumping this to the top of your inbox”—though one or two is fine.
  • Please let me know explicitly if my default mode is not going to be appropriate. “I really need an answer on this by {datetime} because {reason}” is really helpful for me.
  • Don’t apologize. If we agree that sending me an email does not obligate me to send back an immediate response, there’s no need to apologize ✌️

Myers Briggs for Email?

We all spend so much of our lives writing and reading emails. Many people have radically different styles and preferences. I wish more people would explicitly write out their email preferences. Eventually, we’ll categorize and group them into themes like a Myers Briggs for email. So just as you can short-hand with “I’m an INTJ” and confer a lot of information on how you prefer to interact, you can say “I prefer my email as Correspondence” or “I’m an aggressive Inbox Zero-er” and confer a lot of the preferences above. I view my email preferences as Correspondence in reference to how people used to communicate when hand-delivered letters might take months to be delivered by ship. You had to be thoughtful and clear and close as many open loops as possible.

  1. I’m using Superhuman these days as I write this.↩

  2.  hat tip to @devonzuegel for the inspiration for this↩