How We Bootrapped Grasshopper to $30M in Annual Revenue

Hello! Tell us about your background and what you've worked on.

I'm David Hauser and I am a serial entrepreneur, having founded Return Path, Grasshopper, Chargify, and also many failed businesses. I am also an angel investor, having made over 50 investments over a few years.

Grasshopper providers a virtual phone system for entrepreneurs and has served hundreds of thousands of customers over more than 12 years. We bootstrapped the business to over $30M/year in revenue with less than 40 employees, before selling the business to Citrix in 2015.

Having sold both Grasshopper and Chargify and taking a year to advise other entrepreneurs and think about what is next, I have decided to find a SaaS business doing at least $500k-$1M ARR to purchase and scale.

What motivated you to get started with Grasshopper? What were your initial goals? And how'd you come up with the idea?

We started Grasshopper because we could not find a solution to make our businesses sound and look more professional by handling all our inbound calls.

Of course there were PBX systems and others that did similar things, but nothing packaged in a total virtual way and designed for entrepreneurs that moved around or were not in a single office. We had little to no money, but we just got started anyway, and we developed the software and started selling as quickly as possible.

Selling was always the first priority. Once we had something that worked well enough, we were marketing. We had no back-end or way to access customer information, so taking customer support calls, which we did ourselves, required writing SQL statements in real time just to lookup customers.

It was clear there was a need for what we had built, but over the years we learned so much and found much better ways to target our customers. What we became very good at was marketing to a target group, retaining customers, and optimizing revenue with a very efficient team.

What did it take to get the initial product out the door?

We had almost no money, yet we were starting a telecommunications company before there was AWS and cloud services and for sure no APIs available for phone-related applications. Thus, we had to get to revenue as quickly as possible.

For funding, we combined our savings from other ventures โ€” we both had done little things that had relative success โ€” so a few hundred thousand bucks. And on top of that, friends and family, which was really just family mostly, for another hundred thousand dollars or something. But in total it was not a lot considering our expenses.

At this point it was myself, and I had one outsourced developer in India who quite honestly was really bad, so I did a lot of the code. It was written in, unfortunately, ASP.NET at the time. We started with a single T1 line with no backups for our inbound lines, and this quickly grew to 2 and 3 and then 4. From there we grew to DS3s and larger, redundant links and backup data centers, but we had to build everything. It took us about 3 months to have a finished tangible product.

Meanwhile my cofounder Siamak, who's not technical at all, was marketing and selling. By the end of those 3 months we quickly became profitable, allowing us to scale a totally bootstrapped business.

David and Siamak in the Early Days

Grasshopper was originally called "GotVMail".

What marketing strategies helped you grow Grasshopper to so many users?

When we started more than 12 years ago, there was no social media, and PPC or AdWords did not exist. We were buying keyword traffic from Omniture for cents and converting it as well as using organic SEO as much as possible. That's how we got a lot of our first customers and started to grow. While these strategies worked, there is no way these same exact tactics would work today.

However, what we learned does apply to any business today, which is, look at as many channels as possible, test them quickly, and get directional information about which can scale as you add more money.

Over the years we changed our marketing, messaging, and of course channel mix many times. We spent a solid year learning and creating a culture of testing with the early A/B testing tools. This expanded to include print, display, social, and then radio. In the years leading up to the sale we expanded from just satellite radio to a very large bet on terrestrial radio. The one constant was always looking to test new channels to find where we could further expand.

Another critical factor for any SaaS business is word of mouth referrals. Lots of people talk about the "viral loop" and other buzzwords, but I think it is mostly garbage. You can try and make your software have this viral coefficient, but what it really comes down to is making something that solves a true problem and that people love, so they tell their friends and colleagues. We were able to maintain and even grow this channel over time by a percentage that was very meaningful.

How did Grasshopper's business model work? What's the story behind its revenue?

Bootstrapping a business is always hard, and when you are doubling revenue each year it is critical there is enough cash to do this. We created a positive cash cycle where we collected revenue from customers via credit card payments well before we paid for the actual usage related to those payments. We extended payment terms and using credit cards to further extend these terms we were collecting 60-90 days before paying out.

When you are adding thousands of customers a month and dealing with hundreds of thousands of customers, churn becomes more and more noticeable. Even at very low percentages the absolute numbers get bigger and bigger. Our teams spent a lot of time monitoring churn and looking at ways to reduce it. Understanding engagement and why customers canceled was only the first step, and our systems became more and more advanced over time by creating predictive models.

Reducing churn involved lots and lots of little stuff over time, but most of it focused on onboarding. What we found was there was a dropoff from saying, "I need this," paying us, and then actually getting set up beyond just the initial stages. The people who churned simply didn't use it, and the reason why was because they weren't getting onboarded, because initially we had no onboarding. It was like, you signed up, here's your login, that's it.

We learned more and more over the years that you really have to step people through the process. You have to prepopulate things, etc. We just tested little by little. We said, "Okay, if we put a greeting in for them automatically that has their name or whatever, does that help?" And we would A/B test that. And we just kept doing that again and again and again.

Also, over more than 12 years we had so many pricing changes that I can't remember half of them. When we started, it was acceptable to charge $10/month for the ability to login online and manage your system, which of course is no longer possible. We A/B tested almost every possible price point and even featuresets to see what the optimal was for revenue mix and optimization, while also accounting for churn. We did the same with price increases, by testing in groups and finding the best mix.

You ended up selling Grasshopper. What was that process like?

Selling Grasshopper was more than a year process from first conversation to closing, and it had many ups and downs. It was also my first sale of a business, so it was a true learning process. Having great advisers and professionals around at every step was not inexpensive but was worth it for sure.

We never expected to sell Grasshopper, we never had an exit plan, and we were not looking to sell. The timing and fit with Citrix just made sense and we had to explore it. As we explored deeper it made more and more sense and things went from there.

Grasshopper Acquisition Image

What are the biggest challenges you faced while working on Grasshopper? Knowing what you know now, what would you do differently if you had to start over?

We faced so many challenges over the years, both big and small and I am sure I have forgotten some that at the time seemed huge. From hiring the wrong people to too many people, waiting too long to launch v2 of a product, totally rewriting a product, having no money to pay bills, and everything else you could imagine.

One challenge was that we spent a lot of time on PR, and we discovered that the process that most people use for PR is broken and expensive. The typical process is to go hire Expensive Firm X or Y, and really it's not successful. We created a program that was very sales-based and about human connection.

I wrote a really long book about this, and just haven't had the time to put it out there, but people have asked me and I send it to them. This buzz process got us covered in hundreds of publications and everything else. But first we went through this challenge of pay Expensive Firm, get no results, hire someone internally from the PR industry, get no results, until we found something that made sense.

My biggest lessons learned that I would apply to anything else I do are: having clear and true core purpose and core values from the start to manage an amazing culture, and getting the right people on the bus at the right time or stage of the business.

What's your advice for aspiring indie hackers who are just starting out?

My single biggest piece of advice is simple and has not changed in years. Just go do something, anything. Talk is worth nothing and action trumps everything. There are so many entrepreneurs that fail because they never start.

As for reading, I think some of the more current books are not necessarily must-reads, like The Lean Startup and stuff like that. I think the concepts are good, but people spend too much time on them, and then they get into this horrible path of obsessing over their MVP and other buzzwords and terms.

Please, stop reading these books. Get out there and do something. And read books that give you higher level ideas about entrepreneurship that you can apply yourself. The books I typically recommend haven't changed much over the years:

Where can we go to learn more about what you're up to?

โ€” David Hauser , Creator of Grasshopper

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