Would you like to successfully bootstrap your way into a thriving agency? Rich Kahn has been fascinated by the internet since its very beginning in the 90's. He started a newsletter to talk about new internet developments and grew his audience to a point where he got offers to advertise products. He realized with a relatively small investment in hardware and his home internet connection he could make profits of thousands of dollars. From that point, he made sure every little success in his business could lead to further success by testing his ideas small and not going over budget. In his conversation with Jason, they talked about his formula for bootstrapping a business into success, why a bootstrapper should always be willing to learn everything they can about a business, and the importance of differentiating between profit and profit margin.

3 Golden Nuggets

Bootstrap from success to success. The internet has been a passion for Rich from day one and led him to start his first business, a newsletter. He quickly grew his following and started advertising on it. He did this with a very small investment, some hardware and the internet connection he already had. So he turned a couple hundred dollars into thousands in earnings. “That’s how I’ve always done it,” he explains. “You just kind of take one success and roll it into the next.” When he gets a new idea, he tests the waters small to see if there’s approvability. Then he runs a bigger test and, if that works, he just keeps growing that and scaling that as fast as you can with budget you have.
Learn as much as you can. If you’re planning to bootstrap a company, you should try to minimize costs wherever you can. Of course, at some point it may be better to look for investors, but at the very beginning, when you're first figuring out your business model, margins, and everything else, you have to be a sponge and be willing to learn. For his first company, Rich took a week off from work to learn everything he could about HTML and web design and started making websites for his clients. “You gotta be working 70, 80, 90 hours a week to learn everything and do everything that needs to get done because you can't afford to bring in a high-end CFO to help you manage funds,” he insists.
Profit vs. profit margins. Something he always makes sure his team and clients understand is the difference between profit and profit margin. A lot of times people get hung up with trying to make 70 or 80% margin on a campaign that at margin level there will be not enough room to scale it. In the end, you may have a killer margin but are making $2 on a campaign. It’s important to try to maintain a balance between the profit and the profit margin. Although it’s hard to talk in general terms when there are so many business models and variables, Rich recommends proving something that works and find the scaling point and always keep in mind that you pay the bills with the profit, not with the profit margin.

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Be Willing To Learn Something New and Bootstrap Your Way Into a Thriving Agency

{These transcripts have been auto-generated. While largely accurate, they may contain some errors.}

Jason: [00:00:00] What's up, everybody? Jason Swenk here. And I have an amazing guest where we're going to talk about bootstrapping your agency and how to grow it. I'm excited to get into it. So let's jump into the show.

Hey, Rich. Welcome to the show.

Rich: [00:00:18] Hey, thanks for having me.

Jason: [00:00:20] Yeah, man, excited to have you on. How have you been able to bootstrap a lot of these companies? So let's talk about some of the companies that you've done and how you bootstrapped them and grew them over the years.

Rich: [00:00:32] I guess bootstrapping is done regardless of the business. So we've done everything from email newsletter, right? And email marketing, basically back in the nineties, early nineties, like 93. I ran an ISP out of my house with 300 phone lines coming in. I've ran click networks, I've ran contests search engines, and now an ad fraud solution. And the bootstrapping technique for me has always been the same.

Take what little resources you have, and most of my companies have had just a couple thousand bucks to get started, and really do as much of the work as you possibly can yourself. Even if it comes to web design, learn it yourself, or you hire some people that can do it very inexpensively because you've got to protect that what little budget you have. And get the company started, right?

As I've started to see a little bit of success in small pockets of each of the different companies and each company's a little different. But when you start making a little bit of profit from something that I zero in on that, to make sure it's actually profitable and it's not just a fluke and slowly start to scale that up.

As I was able to scale up stuff like that, go back to 93, my email newsletter. I was writing a newsletter because… it actually, it wasn't for profit. It was just fun. I was thrilled with the internet. It was launched in 91 for public consumption, I think it was September 1st of 91.

93 I got started and I started writing articles on all the new things that were happening and what was making it… Because I knew this was going to change the world. I just, I was hooked day one. And so I started with just writing a letter because I thought like a newsletter that I thought it was interesting. And I thought people would be interested in it.

Back then with a couple of months I had over 20,000 subscribers, which back then was a lot, considering the makeup of the network and everything, there was more…

Jason: [00:02:14] Were they all AOL email addresses?

Rich: [00:02:17] Yes. Yes. What ended up happening was I was a big chatter in the AOL chat rooms and I would jump to the chat room, just say, hey, I've got a newsletter talking about the changing internet. If anybody's interested, sign up here.

And that's all I did. And I ended up getting 20,000 subscribers that way all up. Back then they didn't call it opt in, but it was all opt in. I just started writing because it was something that I found interesting. And I'm not a writer by any stretch of the imagination, but it was something that I wanted to do.

And probably once I broke about 10,000 subscribers, somebody said, hey, can I advertise in your, in your newsletter? I thought, sure, why not? And so I tested it on one article. I wrote in, I had one person advertise in it and obviously it was all profit, cause it was, there was no cost to my part. I was just my internet connection. And that was pretty much my total overhead for the month. And it made money.

I'm like, wow, this is pretty cool. And as I'm analyzing saying, wow, this might be a business model, because the Ms model didn't really exist back then. Also, after the first article opposed I got three or four more people said, hey, can I advertise in your newsletter?

So, again, I started the company buying some software to help me manage the list. I had my AOL connection, my normal internet connection, some hardware upgrades that I needed to do. So that was my initial cost. Put a couple hundred bucks into it, nothing crazy. And before you knew what I was making a couple thousand a week, just from people wanting to advertise in the newsletter. That started the growth from there.

And then what was interesting, again, bootstrapping the whole way. Somebody again said, hey, you know, the worldwide web is out now. Maybe you can start a mall. I'd be happy to sign up and have a store in your mall. Cause that was kind of the thing back then. So I put a newsletter, I put a newsletter out, said, hey, we're going to put together a web mall. I'm going to basically build your website, give you three pages, do all the design work, host it for X number of dollars. If you're interested, you know, send me money.

It was, it was that poor of a campaign and I got something like in the first week I got like eight or 10 grand. So it took a week off from work, because of course it was still working full-time, and read 2000 pages of HTML and then graphic design and put together the whole mall, wrote all the 50 or 60 websites, whatever it was. When it was all said and done, I finished it up in a week and the mall was launched and we were up and running.

And that, that's how I bootstrapped into that. And all of a sudden we started growing a web development business. Then the next thing was people like, hey, I see that you guys do web development services. Do you offer a way to connect to the internet? I'm like, all right, I'm sure I could figure this out. So I, I ordered a couple hundred phone lines into my house from Verizon, got a T1 routed to my house.

There was a big story behind that, but. You, just kind of take one success and roll it into the next. And that's how I've always done my stuff. So if I came up with the idea and not all the, not all my ideas were successful. But you came up with an idea, you test the waters small. And if there's approvability, then run a bigger test and that, that if continues to prove itself, just keep growing that and scaling that as fast as you can with budget you have naturally, you know. You don't want to start taking loans and bringing on partners.

I have not had any luck, you know, going after funding and stuff like that. That's, I've always had to bootstrap and you just continue to parlay your success into the next success, until the next success. Until next thing you know, we end up selling that company. So, again, I'll start bootstrapping. You know, one of my more successful companies, we started with five grand and just took a while to parlay each little success into the next and trying to find out what campaigns worked until the next thing you know, you're doing really well.

You know, you’re winning 500 awards, you know, winning Ernst & Young awards. I mean, you start winning all this other stuff and people recognizing what you're doing. And it all started with $5,000 investment. So you can definitely bootstrap your way to big money, but you gotta be very careful with how you do it.

It's always just testing the wins and like, I'll remember the first one, I'll give you an example. I ran a campaign that I was testing and I made 10 cents and I was flipping out. I was like, this is great. My wife's like you made 10 cents, big deal. I’m like, but you don't understand. I only spent two and a half cents to make that 10 cents.

Now, if I could multiply that by a factor of a hundred thousand or a million, we could make some money, but this looks like a scalable... And like, she couldn't understand like initially why I was jumping up and down about seven and a half cents profit. But when it's 75% profit and you start doing the math and you start, and then you start proving that it is a scalable solution, things get a lot more exciting.

But again, testing something as simple as, as a 10 cent campaign. You know, with a seven and a half cent win. To me, I get excited about as a bootstrapper

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That leads me to kind of think about, because… Yeah, I mean, in the early days, I'd be like, well, yeah, who cares about the couple of cents. But how are you able to kind of multiply that by a million?

Rich: [00:08:15] That's the trick. Whenever I talk to clients from an agency voice, I always, I explained to them, there's two things. There's your profit margin. And then there's profit, right?

You pay your bills with profit, not with margin. So a lot of times people are so hung up with trying to kill the margin and make, you know, 60, 70, 80% margin on a campaign that at that campaign, at that margin level, there's just not enough room to scale it.

So maybe you're making two bucks on that campaign for the month. You can't do any with two bucks, even though you have a killer margin. So what I was trying to talk to my agency guys about, and the buyers is there's a good balance between your margin and your profit. You pay bills with profits. So I would rather have give up margin so I can scale it versus focusing on killing the margin and not being able to scale it.

So depending on the campaign, depending on the business model, there's a lot you have to contend with. And again, each there, you know, it's hard to talk in generalities because there's just so many different business model types, but you got to prove something that works and find, find the scaling point.

Like, don't worry so much about the margin. Worry more about how much cash you're going to put in your pocket that month. Because that's how you pay your bills and that's how you make money.

Jason: [00:09:29] I always tell everybody it's like… When you're scaling, you don't have to worry about that as much. Like, there'll be like, oh, if we dip below this certain percentage, then you know, hey, we're in the red, but you're doing this for the longterm.

And you know you're investing in the number one resource, you, that you can rather than putting it in the stock market or putting it somewhere else. So I'm like, hey man, go do it. So this has all been amazing, Rich. Is there anything I didn't ask you that you think would benefit the audience listening in?

Rich: [00:10:04] Uh, you know, I've seen lots of companies do very well with bootstrapping. I've seen lots of companies do very well with investors getting, you know, raising capital. And I always point to like if you have a really good, unique idea, that's hard to enter into the marketplace because you've got some unique IT, IP or something like that. Sometimes going after funding is the right way to go.

Like look at the big companies that we all know how many of them bootstrapped? Very few, right? They always got to a certain inflection point where they said, okay, now it's time to bring it. And there's a certain point where it makes sense to bring on outside money so that you can really scale something fast. If Facebook didn't bring on investors, we may not have heard about it. They may not have been as big as it is.

They blew up once they brought on their investors who had, you know, different relationships, different ideas, different experience in managing a company at that level. So for a bootstrapper, you know, in the very beginning, when you're first figuring out your business model, first, figuring out your margins and everything else, you gotta be a sponge and you gotta be willing.

It's not like, hey, I own a business. I can sit back and work the hours I want. That doesn't work with bootstrapping. You got to bust your ass. You gotta be working 70, 80, 90 hours a week to learn everything and do everything that needs to get done because you can't afford to bring in a high-end CFO to help you manage funds.

Can't afford to do that. You have to do that yourself. Maybe you have that skill, maybe you don't, but you have to sit back and learn as much of the areas that you don't know about. Maybe you don't know about content marketing, maybe don't know about SEO. You need to learn it, because you can't afford to pay someone else to… The only thing you do have is time and you don't have a lot of money to invest as a bootstrapper.

Well, most bootstrappers don't have a lot of money to invest, so you really have to focus on learning everything you don't know. And the more you learn, the more you realize you don't know anything. So you've got to really spend the time a good chunk of your time, learning every aspect of your business in order to how to grow it.

Podcasts like this are awesome because... When I was growing up in the business, there were no podcasts, there were no… People that you can turn to, you couldn't connect with people who knew the space very well easily. Unless you knew their phone number, you weren't getting in touch with them.

So today's, you know, entrepreneurs that are coming up in this space that are bootstrapping have access to all this great content, you know, tidbits like this, you know, 10, 12-minute podcasts they can absorb and pick up some information from experts who've done it for years. That is invaluable information.

And you really gotta get plugged into the right places to learn as much as you can about the areas that you don't know. So you can grow your business without having to go hire somebody to do it.

Jason: [00:12:28] Love it. What's a website, or how can people get in touch with you if they want to chat with you?

Rich: [00:12:33] I'm on LinkedIn. I got a huge following and I post almost on a daily basis on LinkedIn, just Rich Kahn. Or you can find me all the contactinformation@anura.io, which is the current company that I'm growing.

Jason: [00:12:45] Awesome. Well, everyone go check that out and, Rich, thanks so much for coming on the show. If you guys enjoyed this episode and you want to fast-track your agency a little bit more, and you want to know some of the systems, some of the framework that's working for agencies that's worked for me and what I would actually use again, I want you guys to go to jasonswenk.com/playbook and request an invite and check out all the systems that we have.

That's jasonswenk.com/playbook. And until next time have a Swenk day.

3 Golden Nuggets

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Be Willing To Learn Something New and Bootstrap Your Way Into a Thriving Agency

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