Edition #2: Bootstrap and frugality: scaling a startup with scarce resources
by Thibault Renouf, CEO of Partoo
In 2022, the main criteria to assess the success of a startup in public opinion was the amount of funds you had raised so far.
Now that the economy is not as robust as it once was, we're returning to the basics and finally talking more about bootstrapping. Those not-so-small companies that have been experiencing steady growth, away from the glamorous Series A or C rounds, are now reclaiming the spotlight and demonstrating the value of their model: Sylae, Lemlist, Superprof, Lucca… Some have even created their own networks to promote this alternative path, such as the Bootstrap Club – a French association dedicated to supporting bootstrap scale-ups.
From 2014 to 2019, Partoo cultivated a bootstrap business, reaching up to €3M in Annual Recurring Revenue. After raising €15M of debt in 2020, we managed to grow Partoo’s revenues up to €30M. We have always cultivated a bootstrap mindset, and today, more than ever, we firmly believe it is the optimal path forward.
The aim of this article is not to discuss how to expand your business without external funding but rather to reflect on some of the benefits of this type of approach.
For those interested in exploring how to scale a B2B SaaS startup with a focus on sales performance, I have spent the past three years writing a book that summarizes all the best practices we employed at Partoo to grow our business. The book is titled 'Start to Scale.'
Buy the book
Now, let’s focus on frugality
When it comes to spending your money wisely, frugality has four advantages, in my opinion.
It enables you to:
Spend your money only on useful things.
Maximize the return on every investment.
Negotiate better terms with suppliers.
Foster innovation!
Spending Money on Useful Things
As a company scale, it tends to often pay for non-essential items. Maintaining a mindset of frugality while scaling will force you to pay only for things you need!
This principle can be applied to various aspects of your business, including hiring employees, engaging freelancers, and purchasing software, among others.
For instance, when it comes to hiring, a frugal approach will compel you to recruit only for roles that address actual work needs - hiring the people you truly require. While the opposite might seem odd, lots of highly funded startups anticipate hires that are not yet needed, which leads to some employees being recruited for unnecessary job positions.
A similar principle often applies to software investments. Numerous startups purchase gimmicky software that they ultimately never use. At Partoo, if some employees advocate for the acquisition of a tool, they are tasked to implement it within their team as a pilot phase. If, after six months, the software is actively used and shows results, we roll it out more broadly; otherwise, we stop the project.
Maximizing the Value of Each Investment
There are four types of underutilization of an investment:
Adoption is minimal - few people use it.
Usage is very low – people use it infrequently.
Usage is partial – some functionalities are unused.
Usage is redundant – two investments for a single need.
This framework can be applied across any form of investment. The concept is even more evident in software utilization. For instance, 80% of startups, Partoo included, have a partial use of Salesforce. This is notably less common among self-financed companies, which aim to maximize their investment in Salesforce – or any software, for that matter!
At Partoo, our journey began with Pipedrive CRM, which we used until 2018. We then transitioned to Salesforce when the timing was right. We dedicated time to extracting as much value as possible from Salesforce and implemented it by ourselves to avoid the expensive services of a Salesforce Implementation Partner.
Addressing redundancy in usage was also key to making some savings. We used to work with both Intercom and Zoho Desk and decided to rationalize their usage by retaining only Intercom.
Negotiate better terms with suppliers
Being cautious over a few hundred or thousand euros might appear trivial or even pointless. Nonetheless, modest savings in the initial stages can represent large savings in the long term. This principle applies to various purchases, including external services, software suppliers, and office spaces.
Picture this: you wish to subscribe to 10 licenses for a new tool at €50/month, amounting to an annual budget of €6,000. The initial instinct of a self-funded company will be to negotiate this price, as any type of expense is perceived as a significant expenditure. On the other hand, a company that has recently secured funding might effortlessly accept the expense: after all, what is €6,000 when you've raised €2 million?
Fast forward to three years later: with 200 licenses, that identical tool will incur an annual expense of €120,000. However, your negotiating power has become less important as the tool is integrated into your operations, becoming indispensable to your team! The inevitable costs and complexities of switching become additional challenges. Given the budget constraints of a startup, such amounts are better considered from the beginning.
Foster innovation
The concept that “frugality” fosters innovation originates from Jeff Bezos, who popularized it through Amazon's operations: “I think frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out.” The "Frugality Leadership Principle" is even a principle tested in Amazon job interviews, as it's more than an idea; it's a sought-after mindset.
Ingvar Kamprad, the former CEO of IKEA, was also renowned for his stinginess - he drove a 20-year-old Volvo towards the end of his career, despite being a billionaire. It was this frugality mindset that contributed to IKEA's success by providing affordable design to everyone. Another example can be found with the McDonald brothers, who, by designing McDonald's around a time constraint, effectively invented fast food.
Some contemporary large corporations have also embraced this philosophy, adopting “frugal innovation”. The concept of “Frugal innovation” refers to the process of reducing the complexity and cost of a good (such as a car or a phone) by removing nonessential features in order to sell it in developing countries.
As a self-financed startup, you'll inevitably face constraints in terms of time, money, and resources. But it’s those constraints that will drive you to innovate constantly and be more agile than your competitors.
For Partoo, not being able to finance high-cost participation at select B2B trade shows forced us to be innovative in terms of communication. While most of our competitors were present at the same events, we focused our efforts on in-house webinars, co-marketing endeavors with partners or LinkedIn content. Occasionally, we've also developed our own tools (such as the Partoo Wiki, our internal knowledge base), created our own sales methodologies, and conducted internal training sessions based on the expertise of our employees.
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At the end of the day, the resurgence of frugality may be the only positive development the recent crisis has brought to startups. A return to basics - prioritizing what is essential, distancing from extravagant expenditures, and embracing values like simplicity and transparency.
And with frugality and economic constraints might come innovation, encouraging a lot of startups to “invent their way out” and lay the foundation for a new generation of more profitable companies!