#19. Mailchimp: Lessons in Business – Ben Chestnut - Bootstrapping to $12 billion.
From 0 to $12bn.
“I wanted to build something that would empower small businesses.”
- Ben Chestnut
INTRODUCTION
Last time in this series I wrote about Tyra Banks, Oprah and Tyler Perry, and Kanye West. We examined different business lessons from personal branding, to having self-confidence, and the importance of owning everything.
Today I am excited to bring you the incredible success story of Mailchimp. The business powering over 140 million small businesses, that was recently acquired by Intuit for $12 billion. We would be focusing on how they achieved this through Bootstrapping (without taking any outside investment), and if you should too.
This article is inspired by the podcast episodes of NPR, and Reid Hoffman.
Let’s go!
MAILCHIMP
Mailchimp is a platform that helps businesses to manage their mailing lists, create and automate email marketing campaigns to send to their customers. It was founded in 2001 by Ben Chestnut, Mark Armstrong, and Dan Kurzius.
In April 2000, due to the dot-com bubble, Ben was laid off from his job at Cox Media Group. He and two other colleagues decided to start their own web design consultancy focused on small businesses.
A lot of their clients requested their help with managing their email list, but Ben and his team hated the existing software. In 2001, they built their own: Mailchimp, as a side project that earned a few thousand dollars a month.
LESSON 1: Listen to your Customers
We hear this so many times that it can be mistook as a cliché. By listening to their customers Ben and his team created Mailchimp that solved their customer’s problem, and by extension launched a new business.
This is important because entrepreneurs can easily solve the wrong problem for the customer or create a solution for a problem that doesn’t exist.
From SIDE project to THE project
Eventually, the team were exhausted by the consultancy business’s cycle– of searching for new business, working on that business, and searching for new business again. They had no dedicated salesperson for getting new business.
So, one day, just before they quit, they decided to look at their revenue data. It showed that the revenue from their consultancy business was flat and sometimes declining, while revenue from Mailchimp was increasing.
LESSON 2: Follow the Data
So, in 2006, they followed the data, and focused entirely on Mailchimp.
From charging per hour to SaaS
Mailchimp previously charged customers per hour, and regularly received payments in $100 cheques. Eventually, Ben ran out of ‘cheque deposit slips’ and decided they needed a better way to accept payments. This led to them installing a credit card system on their website, and hence, Mailchimp becoming a SaaS business.
[A SaaS (Software as a Service) business is one which instead of paying a large purchase cost for a software, you pay a significantly lower monthly subscription.]
By solving the problem of payment collection from customers, Mailchimp introduced a product that was convenient, a way to scale their product, and a sustainable business model.
Saying NO to VCs
Now that Mailchimp was a high potential, scalable product that was already generating revenue, they needed investment to grow.
At the time, their closest competitor – Constant Contact - had just gone public, and this drove VCs (Venture Capitalists) interest in Mailchimp. The VC investors saw Mailchimp as another Constant Contact. They didn’t understand their model and wanted them to focus on big enterprise customers, instead of small businesses.
“Most of them pitched this idea like, "What you've done here is great, it's wonderful, it's cute. Let's invest and then we'll help you move to enterprise because that's where the real money is." I couldn't stand that. I remember my mother. I thought about building something that would empower small businesses to scale out of the kitchen.”
– Ben Chestnut
LESSON 3: Trust your Instincts
“When you run into an investor who doesn’t understand what you’re doing, whose logic doesn’t make sense to you – or who tries to convince you to take a direction you strongly believe to be wrong – trust your instinct. You’ll almost always know more about your product than your investors. And if they feel like an alien being, do what Ben did and walk away.”
– Reid Hoffman
Scaling without Investment
After saying no to VC investors, Ben and his team focused on growing the business through sales, and finding creative ways to market the business, and reduce their costs.
They had this idea to separate Mailchimp into a free email list collection form, and charge users if they wanted to email their email list. Up to this point Mailchimp did not have a free trial version.
The engineer working on this project advised that rather than separating the product, they should offer it for free up to a certain point (a contact list of 50 email addresses), after which they then charge.
Coincidentally this was around the beginning of the ‘freemium’ movement.
[Freemium is a business model in which a company offers basic or limited features to users for free and then charge for additional features]
Ben authored a blog post titled - Mailchimp goes Freemium and was invited to speak at the freemium conference. Mailchimp was covered at the conference by tech blogs, and this made them go viral.
Within one year of launching freemium, Mailchimp grew from a few hundred thousand users to a million users in 1 year!
They also leveraged the launch of cloud computing - AWS (Amazon Web Service) in 2006, which reduced the cost of server space, as they only needed to pay for what they used.
Ben also used Twitter which had just launched, and actively blogged about the updates and new features they were releasing. This created buzz and a thriving Mailchimp community.
By the following year Mailchimp had hit 2 million users, and just kept growing.
LESSON 4: Ride multiple waves of good fortune
“I believe you can bootstrap your way to scale, but you’ll have to catch the crest of multiple waves of good fortune.”
– Reid Hoffman.
Mailchimp rode the waves of ‘freemium’, cloud computing, and social media, and this enabled them to scale and build a successful business, without taking outside investment.
RESULT
Mailchimp has grown to $800m in 2020 revenue, with 140m customers. In Sept. 2021, Intuit announced that it would acquire Mailchimp for $12 billion.
Not bad for a side project.
CONCLUSION – Should you Bootstrap?
Yes and No.
When you start out on your business idea, I believe it helps to bootstrap till you have a clear offering that fits with what the market wants – ‘Product-Market fit’. Once you have reached this tipping point, you can then raise investment to grow aggressively. But I agree with Reid that with the right kind of investor backing you, you’ll also receive adequate advice and support, which would enable you to make less mistakes, and grow quicker.
I hope you found this informative and relevant.
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Also, if you have any questions about any topic you would like me to tackle, kindly email me at notesbynero@gmail.com .