Rand Fishkin argues venture capital suits only about 5% of startups, while bootstrapped companies more reliably get founders to a $10m exit.
Rand Fishkin says Moz's board wrongly thought SEO was tapped out, and he later stepped down as CEO after a bout of depression, rating his exit a four out of ten.
SparkToro runs with three people, under $2m in annual recurring revenue and high profitability, showing small markets suit bootstrapped companies that venture capitalists ignore.
Rand Fishkin Swapped Unicorn Chasing for a Profitable Three-Person Company
Rand Fishkin argues that most founders are better off building small, profitable companies than chasing unicorns. Venture investors profit from a few winners and ignore the far more numerous small markets, where a bootstrapped team with an audience can win. His own path from venture-backed Moz to three-person SparkToro is the evidence.
Takeaways
Venture capital fits very few startups. Pablo says only about 5% of startups suit the venture path, and a bootstrapped company more reliably gets a founder to $10m. Rand says investor incentives harm many small companies to produce a few winners, and calls unicorn chasing dumb as hell.
Small markets are open to bootstrappers. Rand says there are about a hundred times more small to medium markets than large ones. Venture capitalists avoid them, and nobody has entered SparkToro's field. He thinks maybe eight in ten companies in such a portfolio could reach profitability.
SparkToro stays small, profitable and founder-friendly. With three people and under $2m in recurring revenue, it is highly profitable, and Rand and Casey work 30 to 32 hour weeks. It raised $1.3m from 35 angels in 2018, repaid them, and plans dividends of 10% to 30% of their stakes.
Build an audience before you launch. Rand calls audience-building a major risk mitigation tactic. Moz's SEO flywheel and SparkToro's PR and social marketing showed it. SparkToro became profitable seven months after launch, starting with an email list of about 15,000 to 16,000 people.
Platform dependence can force a rebuild. SparkToro's earlier product relied on Twitter data and had to be rebuilt after Elon Musk bought Twitter. Getting marketers to adopt audience research as a regular practice has also been really hard.
Product-market fit has no shortcut. Rand sees product-market fit as a spectrum that does not get easier the second time. Games are harder still because they must succeed on day one. Pablo adds that it cannot be gamed, unlike fundraising or hiring.
How Moz grew and why Rand left
Rand dropped out in 2001 to build websites for small Seattle businesses, then moved into SEO after the web design business failed under debt.
He started the SEO Moz blog in 2003. Paid software launched in 2007 and soon out-earned consulting.
Ignition Partners and Curious Office invested $1.1m, and the Linkscape link index launched at the end of 2008.
Growth roughly doubled yearly until about 2014, when revenue passed $30m and growth slowed to about 50%. Rand stepped down as CEO after depression.
The board thought SEO was tapped out, while Rand saw a huge market being eaten by SEMrush and Ahrefs. He left in 2018 and rates his exit four out of ten.
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He and Geraldine kept about 18%, but many employees lost money in the sale, so they wrote personal checks to those hurt.