If you feel like the ‘unicorn or bust’ playbook isn’t for you, then this episode definitely will be. Rand Fishkin is a multi-time founder and published author of Lost and Founder. He founded Moz, raised $29M in VC, grew to $50M in revenue and exited for $70M.
But he ultimately realized that the VC-backed life wasn’t for him.
So he went on to start SparkToro, a profitable 3-person startup that does $2M in revenue and takes only 30 hours a week of work. For those of us in the VC-backed startup world, it’s a totally different way to play the game. It won’t make you a billionaire. But it very well may make you $10M— with less stress, less work, and less risk.
If you want a transparent account of the pros/cons of a venture-backed vs a bootstrapped startup, check this episode out.
If you feel like the ‘unicorn or bust’ playbook isn’t for you, then this episode definitely will be. Rand Fishkin is a multi-time founder and published author of Lost and Founder. He founded Moz, raised $29M in VC, grew to $50M in revenue and exited for $70M.
But he ultimately realized that the VC-backed life wasn’t for him.
So he went on to start SparkToro, a profitable 3-person startup that does $2M in revenue and takes only 30 hours a week of work. For those of us in the VC-backed startup world, it’s a totally different way to play the game. It won’t make you a billionaire. But it very well may make you $10M— with less stress, less work, and less risk.
If you want a transparent account of the pros/cons of a venture-backed vs a bootstrapped startup, check this episode out.
I had an awesome conversation with , uh, Rand Fishkin, the founder of Mooz , and now the founder of Spark, Toro and Snack Bar Studio. But aside from being a founder, Rand is also an author. He wrote a book called Lost and Founder. This was like six years ago. And I remember reading this book. It's, it's a rare, rare book in the startup world, because he's super transparent about what it was like to be the founder and CEO of a venture-backed startup. He goes through all the ins and outs and , uh, ultimately becomes kind of jaded, frankly, about vc, which is why his new company, spark Toro is totally different. It's just three employees. They do $2 million a year in revenue. They grow steadily year over year , and they're very profitable. And so on this show, we've mainly interviewed founders of unicorns that have gone on to be like billion dollar plus companies, which is certainly one path. The reality is venture capital is the path for maybe 5% or so of startups. Yeah, if you wanna build the next Amazon, you probably have to go down the VC route. But if you wanna make like, even a few million dollars a year, in fact, if you wanna make $10 million through, let's say, an exit event, you actually are more likely to get there through a bootstrapped company. And in this episode, we go really, really deep on what it's like to start and build a bootstrapped profitable company. And why you don't really need VCs like me to succeed. Welcome to the product Market Fit Show, brought to you by Mistrial , a seat stage firm based in Canada. I'm Pablo, I'm a founder turned vc. My goal is to help early stage founders, like you find product market fit, You cost me a lot of money. And I'll tell you exactly how it's because I have a really close friend who, so I'm, I'm on the venture side now, and I have a really close friend who I think actually was the one who referred your book to me. And he was like, man, I read this book. Like this is what I'm gonna do. Like, screw the VC stuff, whatever. And then he like totally hid it like his company just, and I was like, please, let me invest, please. Like , no , we just don't want , we just don't , bootstrap, bootstrap ended up raising, but once they were like, you know, 10 m 10 million plus r sort of thing. And so anyways, I think I would've gone in if it wasn't for your book , dude. <laugh>, <laugh> .
Rand:I mean, I do think, I think there's something wonderful for founders about sort of recapturing some of the power dynamic in an investor environment, right? Because capital has just a hundred to one , all the power in, in every conversation, in every part of society and, and politics and economics. And being able to, you know, give labor back, like even a shred of that is something I'd be, I'd be really proud to say <laugh> , you know, that, that, that my career could have helped with. And that's not, I don't , I don't think that people who are in these companies are , these, these investment firms are bad people. I don't think they have bad intent. But I think their incentive structure is such that you're going to, by your very nature, right, by, by your , even your existence, harm a lot of small and startup companies in exchange for a very small number of winners. And that's not an environment I'm excited to create or participate in. Uh , you know, my, my whole goal for the startup world is how do we make more companies that are profitable long-term , even if they stay very small and they survive. And, and eventually maybe they become something bigger than that, or maybe they don't and they're just, you know, wonderful experiences for the few people who work there and the customers that they've got and the environment that they're in. I think a diverse economy is far preferable to a concentrated wealth and power economy. And obviously, you know, the United States has been moving in the opposite direction for a long time. That's, that's pretty concerning. But
Pablo:I think, you know, you mentioned like, it's not about good versus evil, and I think that's totally right. Like, I think what you're really doing is opening the eyes, because the problems really tend to happen when somebody goes into it with their eyes not wide open and not really understanding like what they've gotten themselves into it. And even myself, like when I started my last startup gym track , I didn't know, I mean, you just don't know what you don't know, right? And , and part of it, like, you have to go through it , take the punches to the face, but obviously books like yours , uh, and just content that is open and like actually talks through like the ups and the downs helps. It can help a lot and on both sides, right? Because frankly, like, and I've said this to founders, like, if you don't wanna go for the big, like the big, big outcome and forego everything else, maybe you don't want to take vvc or you certainly don't wanna take too much vc. 'cause it'll be , it is bad for everybody <laugh> , right? Like, you just, you wanna only do it when it's fully aligned. Yeah,
Rand:Absolutely. And I, I think that there's a big psychological and sort of cultural challenge around this, which is, I , I don't think any single investor or media personality or founder is responsible for this, but overall, the last 25 years have definitely created an environment where almost every founder feels like, if I'm not raising lots of money and trying to become the billion dollar unicorn, then I am not as good of an entrepreneur. I'm not as impressive of a person. I'm not as worthy of professional sort of admiration and, and happiness and feeling accomplished and feeling like I'm enough. That is a serious problem, and it is dumb as hell. <laugh>. Right.
Pablo:<laugh>, maybe let's start with , uh, with kind of the origin story of Moz . Uh, you know, you were kind of running, you were in the SEO game already. You were doing more of a services type business. How did you transition that into what ultimately became MAs kind of the venture backed startup that, that became very well known , attracted a lot of venture capital , uh, and went on to be acquired. Let's
Rand:See, I dropped outta college in 2001 and started building websites, essentially doing, doing web design for local small Seattle businesses , uh, alongside my mom, Jillian, who had been running a small business marketing and advertising consultancy, you know, sort of one woman shop here in Seattle for 20 years before that. So interestingly, you know, if you look at the, the kind of like foundation of, of what became Moz , uh, the company started in 1981. <laugh> , technically right? <laugh> . Um , but , uh, so that, that business kind of transitioned into a web design development business, which was failing miserably, racked up a ton of debt, did not do well, and then we couldn't pay our SEO subcontractors. And so we had a conversation, it was like, Rand , do you need to learn to do SEO and do that? 'cause we really need that money. And we promised it to them, but we can't afford to pay these, you know, these contractors. So dove into SEO and found it extremely frustrating , um, and very secretive, you know, that both the industry and the search engines at the time, what year
Pablo:Was this?
Rand:2000 2, 3, 4 ?
Pablo:Yeah . Okay. Really ,
Rand:Um , around that, around that era. So, you know, Google was the most popular search engine by oh four, but MSN , uh, Lyco , Salta , Vista info, c cobot , MSN search, you know , uh, ask Jevs , like they were all still around. And so, you know, trying to, trying to do all this stuff. I think, in fact, one of the big catalysts for me, trying to kinda reverse engineer and publicize more about how search engines worked and start this website at the time called SEO Moz, I think that started in 2003, was my frustration with the fact that I had, I had gotten a lot of our clients ranking on most of the other search engines, Yahoo and MSN , and Ask , but not Google. Huh . And I was like, what is Google doing? Something's, something's weird, something's different, something's wrong. They don't, you know, they don't like the same things. They seem to have some, some other algorithm at play.
Pablo:Was the other stuff just, just, and this is kind of historical at this point, but was it just like keyword density? Like I remember there were like keyword clouds and <laugh> just weird things back then. Yeah .
Rand:Most of the, most of the keyword density stuff ended by the end of the nineties. Okay. Um, but so, so links were a huge part of search engine rankings by the , in the early two thousands. Keyword usage still mattered , um, but it was, it was quite simplistic compared compared to where it is today. And there wasn't a lot of user behavior that went into it , uh, which now today dominates most algorithms, right? Um , brand dominates a lot of algorithms today, so would've been really hard to try to try and rank anything in today's environment. But , uh, we struggled with Google quite a bit, and I started publishing on SEO Moz, it , it was originally on a different domain, but then, then moved it to the SEO moz.org domain. And that website, you know, my, my goal was like, I'm gonna be like the other m's I don't know if Pablo, you remember the early two thousands, but there was like a site called DMAs , which HA was the Open directory project. There was a site called Chef Moz that was like open recipes. There was a site site called Map Moz . There was Open Geography information. There were all these different Moz websites. The
Pablo:Only Moss I know I think is Mozilla, that
Rand:That's, yeah , Mozilla was one of them as well, so , okay. Okay . So I think the only two that kind of survived that long era were Mozilla and Moz <laugh> , which is funny. Uh, basically I started publishing there and we earned quite an audience and that, that sent us some consulting business for SEO, which is what the business transitioned into . So it went from web design fully over to SEO. Uh, and then in 2007, we had built some software that we were using internally for ourselves to try and like, make our processes easier and better. Essentially. I, you know, I really wanted to share that with our community. All these people who were reading the blog. This was sort of a pre, it wasn't pre-social media, but it was pre popular Facebook, Twitter, LinkedIn, all that kind of stuff. And so I , uh, convinced our developer, Matt, to basically build a PayPal paywall on top of the software that we had behind the scenes. We launched that in, at the start of oh seven, and by the middle of that year, it was already doing more revenue than the consulting business. And that is not because the software was great. I don't think any, no one would say it had product market fit. Like it was, it was crappy little tools that, you know, were barely better than doing it manually. But everyone who was doing SEO was reading our blog. And so we had, we had the audience, and that audience first approach was just incredibly powerful, right? Because they knew us, they liked us, they trusted us. So when we published some software, they were like, oh, yeah, I can, I can do the same processes that the Moz folks have been teaching me and use their software to make some of them easier , uh, and faster. And there weren't a lot of, you know, web cloud-based solutions for , uh, doing SEO. There was no virtually no software as a service in that field at all. And Moz took off. So by the , uh, I think we did about $800,000 of revenue that year, maybe a little bit more, and more than half of that, like 450,000 of that was the software. And that's when Ignition Partners , um, and Curious Office came in and invested at 1.1 million, the TechCrunch. And , uh, w uh , Wikipedia numbers are wrong. I have tried to convince them to change them, but <laugh> , they're, they're like, we can't trust you. You're not a credible source .
Pablo:Who are you? Right? You're not relevant to this <laugh> , you just made the company.
Rand:Yeah , yeah. Anyway, we raised $1.1 million, thankfully the cap table and like all the legal docs represent this accurately. Uh, and then basically off to the races, right? We, we used, we hired a couple of engineers , um, that I knew through my wife Geraldine. Um, she had, she had gone to school with , uh, with this really smart guy named Ben. And they built a, an index, a a link index of the web over the next year. And at the end of 2008 , uh, we launched that. It was originally called Link Scape. I think the product inside Moz is now called, I'm not sure what they call it, but it essentially crawls the web and, and shows all the links that point to all the other sites on the web similar to how Google does it on their backend. And of course, this was like a big innovation and, and challenging product to build at the time, expensive product to build. Um, although, you know, if you think about $1.1 million in today's world, you're like, what? That's no money at
Pablo:All. By the way. Like back then at that point, did you understand what you were getting into? Like, did you kind of have this idea of like, wow, this is really taking off. Let's go create a unicorn, let's raise some money. Or was it just kinda like one step in front of the other, oh, they're offering me money, bit of a no brainer. Like, let's
Rand:Take it. I'm very grateful. I don't think the term unicorn even existed. Like no one had used it yet. Um , there wasn't a focus on that. There was, you know, it was the venture capital world kind of that was left over from the late nineties. And so the, the idea was, you know, hey, build something big , eventually you're gonna sell it or you're gonna IPO But there, there wasn't a focus on an exact amount. I think a a billion dollar startup still felt semi ridiculous to most people, which was nice as
Pablo:It probably should. Yeah. Like that . Yeah.
Rand:As it should, as it should. Even a hundred million dollar start startup should feel ridiculous to most people. 'cause the, the odds of that happening are so vanishingly slim. And it's, it's weird to me that we all talk about this thing that's less likely than most lottery wins. So I don't , you know , I don't totally love it. But anyway, so , uh, Moz , you know, basically from whatever, oh six to 2014 doubles year over year , every year. Hmm . Like , it just dun , dun , dun , dun , dun dun . And so gets to it goes
Pablo:To what? Yeah, like 50 million ish
Rand:When I left. So , no, it got to, I think it got to like a little over 30 million in 2014. And then essentially growth was slowing, got to like 40 million maybe the next year, a couple years later, and eventually got to 50. Okay . But it was, at that point it was growing, you know, sub 10% , um, year over year. So it really plateaued in, in 2014 , uh, I had a deep bout with depression and stepped down as CEO and promoted my longtime chief operating officer to the role. Um, and Moz was, I mean, I say struggling, like, it , it wasn't really, it was, I was like, you know, I was very upset that we were only growing 50% year over year at that point, either 13 or 14 had slowed to like 50%. And that was, you know , very upsetting to me. <laugh> , I remember , uh, Brad Feld , who had come in as our investor from Foundry Group was like, you're the best performing company in our portfolio. Like, it's okay. You're doing great, man. <laugh> , yeah ,
Pablo:50% of those numbers is, is meaningful , uh, revenue growth for sure.
Rand:But we had entered the era of the unicorn, right? So , and we had raised another $18 million in 2012, which, so now, now we are really obligated to, how do we get to a hundred million dollars in revenue growing at 20% with 80% plus margins, right? That was like our, our, our goal. And we, the margins were quite high. I think they were even higher than 80%, which is great gross margin. But , um, the growth rate was slowing, and it was this like, nope , growth rates slowed too early. And so there were two competing opinions inside the business. One from most of the board , uh, and the new CEO was that SEO was tapped out. There basically wasn't enough of a market in SEO to build a a hundred million dollar a year company. And the other opinion, which, which was shared by myself and some other people, mostly lower down in the company. And , and the , on the SEO side of things was SEO is an absolutely huge market, but we're getting our lunch eaten by these other new competitors, and we need to start building better features and making the software more useful and updating the UI and all that kind of stuff.
Pablo:What were some of the big competitors coming up at that point?
Rand:The two big ones were SEM, rush and arus , but there were another, another 10 or 20 software as a service businesses that were all sort of, you know, nipping at heels and getting to the five to $10 million revenue size. But SEMrush, I think in, maybe it was 20 17, 18, somewhere around there, I think they went public and their numbers showed, you know, like $120 million in revenue a year. And they're way over that now.
Pablo:Yeah. What are they now? I'm just looking at a market cap , $2 billion company. There you go. <laugh>. So that was the opportunity.
Rand:If I had been more persuasive and a sort of better CEO , um, and remain CEO and like done a great job, I, I think Moz could have been in a, in that position or a similar position. Right? Certainly in 2013, for example, if you were to survey 10,000 SEOs and say, what software do you use and what , what , what do you recommend most Moz would've been number one and M 20 18, 5 years later, Moz was probably number three. Um, and today, I don't even know if it's number five.
Pablo:What do you think about, I mean, in your case, like you, you kind of get , you had your own personal reasons for, let's say, moving away from being CEO . Like now you've had like enough time to just think, think about all that. Maybe in , not necessarily in your case, but more generally, what was it like to not be the CEO of your, of the company you founded? Right. And I say that as someone who, we went through something similar to Jim Track . I was COO, so I wasn't CEO , but I co-founded with my co-founder, who was CEO . And at one point we transitioned, brought in a professional CEO . And I know for him it was almost impossible. He was just like, I can't, he, he ended up leaving like quickly. I was fine 'cause I was already used to that role. But it's like, how do you go from just, you have the final say, you know, every time. And sure. You delegate and all these sort of things to, holy crap, I don't have that <laugh> anymore. Like, it's tough, you
Rand:Know , I remember having some conversations with , um, with the CEO after I had stepped down and was like, Hey, if the company we're doing great and you were overruling my decisions, I think I'd be like, well, hey, you know, she's crushing it, it's doing a great job. So I , I'll sit back and enjoy the ride. And if we were sort of on the same page and she were like listening to me and doing the things that, that we agreed were , were the best and the company wasn't doing well, I'd be like, well, all right , let you know. Let's put our heads together and keep, keep hammering away at this and try and come up with something. But the combination of that feeling not listened to and poor performance, oh , that is just, you know, emotional and, and psychological killer. So that, that really sucked. I think it sucked for her too. I don't, I think she had a terrible time. I don't envy her experience either. I, I don't think that was fun for anybody. So , uh, in 2018, I left , uh, Moz , I started, well , <laugh> okay, opinions vary. Pablo one kind toand interpretation is , uh, he was frustrated and felt like he wasn't contributing as much as he could. And so he left to go start another company
Pablo:Graciously. Yeah.
Rand:Yeah. Yes. And another interpretation is , um, the leadership of that company was sick and tired of his and wanted him gone. <laugh> , um,
Pablo:Walked you to the door and you took the last step . Sorry , <laugh> . Yeah, yeah, yeah,
Rand:Yeah. I think I wrote in, in the blog post that I wrote about my departure, which was, which was like the next morning on Spark Toro's website , um, which I had started that night that , um, that post said on a scale of zero to 10, where zero is, you know, escorted outta the building by security, and 10 is like, everybody hugs and it's tears and happiness, and congratulations. My departure was like a four.
Pablo:I , that's common. I think there's few cases very common . I mean, like Google is one where they actually, you know, very much graciously gave it off to , to Eric Schmidt or whatever. But in general, CEO goes from CEO to not CEO , you know, again, the company has to do, I mean, Google <laugh> did exceptionally well. So I think everybody was pretty happy with that outcome. But yeah, I think in most cases it looks more like the gym track or, or like what happened to Moz where , uh, it's, you know , yeah, a three to five out of
Rand:10 messy , messy , ugly . That's right . You , I think the, the heartbreaking thing about a lot of it is, you know, Geraldine and I, my wife and I have this conversation, have had it a couple of times where, where we're like, gosh, you know, if we could go back in time and Moz failed completely, like, it just, you know, kind of went to zero. It never sold, didn't come worth anything, but all those relationships were preserved. Like everybody had stayed on the same page, fighting the good fight together, going down with the ship together, you know, and we were still going out to dinners together and looking after each other's kids and going on vacations and being like, Hey, you know, we, we tried our best and I still love you. I would, I would take that deal, huh? I would take that deal in a heartbeat.
Pablo:Malls worked out for you, I would think as a shareholder,
Rand:Yes. And I think for, for Geraldine and I alone, nobody else.
Pablo:I see. So we,
Rand:You know , I had done, I had done, over the years, I had done a , an intentional sort of, you know, tough negotiating job of retaining a tremendous amount of my shares in the company. So I think at the, at the end of the company's life, I still own , you know, Geraldine and I had 18% of the company, 17%, something like that, which is very, very high for a f for a founder, especially a founder who's no longer at the business. But , uh, when the company sold a ton of people's shares were underwater, they, they lost money working at the company, which me off so badly. I wanna say every swear that there is , right?
Pablo:Because they had what options that were worthless or RSUs that they bought into or something. Okay.
Rand:Exactly. Which you have to pay taxes on those options when you execute them. And then if the money is not worth anything, like, you technically get the credit, I guess, towards future tax payments. Sure. The
Pablo:Tax laws have <laugh> .
Rand:Yeah, great. Like, wow, I, I prepaid 40 grand worth of taxes. Like, I'm so glad I worked at that company. You know, insane. And, and the reason that it's structured that way is to benefit investors, right? Because most people don't execute their RSUs , which goes back into the pot, which means investors and, and preferred shareholders get a bigger stake, you know, at the end of the company's life. And so, you know, our investors, I, I don't think our later stage investors even made two x on their money, may maybe just barely, which of course is not, you know, that doesn't , uh, beat the market rate of returns at all. Right? And, you know, for Geraldine and I, like we got, we got a giant check, but it, it was certainly a less giant check than the offers we had received for the company four years before and five years before and six years before and, and all that kind of stuff, right? So it was an outstanding life-changing amount of money outcome, but certainly lower than what we could have done years earlier. Sure. Um, which really sucks. And, you know, we ended up writing dozens of personal checks to people who'd been screwed , uh, at the company. I say that not to brag, but because I think any founder who does well out of their business should make sure that all of their employees are taken care of. And if I can shame you into feeling terrible about taking your $10 million and being like, well, it's all mine <laugh>, like Yeah. Legally, and technically it is all yours. And if you didn't write some checks to cover people who, you know, contributed to that success and, and made you all that money , uh, you're a bad person and you should feel bad. The gift has limit Pablo is, is, is high. Like Geraldine and I were able to, under the gift tax limit, write checks of 30, 32, 30 $6,000 to a ton of people.
Pablo:Huh. Okay, well, let's get to know founders, like exited founders that are listening. <laugh>,
Rand:Go take care of the people who made you rich. That's
Pablo:Right. But, you know, the other thing that comes outta that to me is like, maybe, I don't know how many , a month or two ago, I did a podcast with, with another founder friend of mine, and he had this like talking about the venture, non venture kind of , uh, debate, right? He made 10 million off his startup . It was a $30 million exit. It was ba it was bootstrap. I mean, at one point he raised 2 million, but it was like way later. Um, and, and I don't know that enough people realize like just where you actually need to get a venture backed startup to, and I'm, I'm on the VC side, that's the only people I can work with, right? But like, just understand like where you really need to get to. You talked about this in your book, in order for you to be able to make say, 10 million in actual cash versus, like, if you own 50% of a $20 million business, to be clear, it's not easy, but you can bootstrap over a decade, let's say, to something that gets you there. You might be better off, or at least as well off with a lot less stress. Right?
Rand:I'm gonna say this, the venture environment is a little bit less so right now because of the, the sort of end of cheap money era. But yes, you know, for the, for the 17 years that I was in it, it was growth at all costs. And, and all costs means a lot of costs, right? It means personal health and happiness. It means relationships. Uh, it means sacrificing sort of profitability and, and a safety net , uh, for growth. It means taking low probability bets like, Hey, SEO isn't big enough. We should go expand to a bunch of other marketing channels. You know, that the strategy that, that Moz pursued rather than, Hey, we have this great business. Let's see if we can keep growing that, or if that field keeps growing and double down on this thing that , um, is clearly workable. Uh, and it also means a lot of uncomfortable, very challenging personal and professional growth. So I, you know, I had 200 plus employees at the end of my tenure and I hated it. Hated it. I don't enjoy politics and challenges that come from running a large team. I don't enjoy, I don't get value or joy from sort of resolving interpersonal issues or intra team issues or inter-team challenges. That's true
Pablo:For most founders. Most founders actually don't want to be managers, which is what you have to be like , you cross a certain amount of people and you're more of a manager, and you're dealing with the problems you're mentioning you're not building. Right. Which is what most founders like to
Rand:Do, you know? So , um, at the two companies I run now, so Spark Toro has three people, myself, Casey , our CTO, and Amanda, our VP marketing. And, you know, it's small. It's under $2 million , uh, a RR, but it's also very profitable. Extremely profitable. Very a beautiful business. And we have, we have tons of fun . You know, Pablo last night we did like our , we launched our like new version of Spark Tour that we've been working on for a year. It's been, you know, relatively stressful process. And , and, but also during that time , uh, Amanda had her second kid and took like, you know, six months off and , uh, of parental leave, which is, which is, you know, that's like one third of all of our labor are gone. Right? Casey and I , uh, regularly still try and work 30 hour weeks, 32 hour weeks. Um, we take lots of vacations and time off for other things. I obviously run another company, right? So I'm busy doing that at, at snack bar , uh, snack Bar Studio. There's five of us, all founders. We , uh, all sort of work independently all over the globe. I probably spend only 10 hours a week on that business. Uh, and it is just an absolute joy. The team got together , um, at a farmhouse in, in on the border between Laia and Umbria in , in Italy, Hmm . Uh , last month and had an outstanding time and ate at a bunch of fancy restaurants and, you know, cooked for each other. And <laugh> found out our game designer is like a pianist. And yeah, just, you know, a awesome stuff. And the quality of life that you can have with these kinds of businesses is so much better. And you, you know what, what's really beautiful to me is you are , um, doing work that I think really, really is about what you wanna do, who you wanna help, where you wanna direct your efforts.
Pablo:I gotta ask some questions on, 'cause I think that's, that's super interesting. First of all, like how much was like the whole base scan , 37 signals, like was that an inspiration for the way you're, you're kind of setting things up now, let's say it sparked Toro .
Rand:Oh, interesting. You know, there was a time when I was sort of had a, had a very high opinion of those guys, I think like in the, the mid two thousands,
Pablo:Because I remember they put out a book called Rework. Yeah . I don't remember when I read it, but it was like this anti VC and anti like, really, which was like just, Hey, the debate is all over here. Like, here's this other thing we're doing, by the way. And it was working <laugh>. And so that was , uh, refreshing. I
Rand:Would say for me it was a different one. There's a book called Small Giants. Okay. Um, and I read that book. It has a bunch of different , um, examples. I'd, I'd urge folks to check it out. I think it's a , a great sort of community. And, and it's, it's called, I think the subtitle is Companies That Choose Choose to Be Great instead of Big.
Pablo:Well, I'll put that in the, in the show notes, I guess. So let , let's do some kind of quick, 'cause just want to dive into this, this Spark Toro thing. I don't know how much you're comfortable sharing, but my quick math in the back of my head kind of says, okay, there's four of you. I don't know if you're all like, like, you know, 25% or three of you spark Toro . Is that right? Okay. So I'm thinking, okay, like you each draw, I don't know , 200, $300,000 salary and you still have like a million dollar in , in let's say net profit . 'cause I'm sure it's a super high gross margin business. Is that like roughly back the envelope about Right.
Rand:It's, it's close. Yeah. Okay . That's pretty , pretty close to accurate. Um, good , uh, good guessing there. I so
Pablo:That, you know, that sounds like appealing and you work 30, 30 to 40 hours a week. So like, that sounds appealing to I think anybody listening, here's the fir first question that comes to me is , uh, and you hear this like with the people i I work with, right? Which are founders that are into this VC game, it's like, man, if we don't hire more people, if we don't build faster, like we're not gonna compete. Like, how could you possibly compete with three people tomorrow? Somebody sees the opportunity, they raise 2 million bucks, they hire 10 15 when they crush you. I
Rand:Mean, this is, this is what's great. I remember , um, with Moz, like over the years, we'd look at competitors who got venture funding and we'd be like, oh no. Oh no. And then of course the venture odds came into play and it was like, oh, oh no. They, they all, they all die, right? Until one of 'em , SEMrush had success, but even they raised money very late, sort of after they had built a nearly Moz size business. Bootstrapping Ahrefs is entirely bootstrap, never fundraised . They're, they're well over a hundred million in revenue as well, right? So, I mean, the frustrating part of that, you know, that whole journey is like, oh my God, that ecosystem could support multiple hundred million dollar plus businesses and Moz just for , took its eye off the ball at the worst possible time. And , um, the , uh, but the reality I think with, with Spark Toro is I don't even see anyone enter our field. And I think that's because everyone believes it's too small. No venture capitalist looks at Mo , uh, you know , looks at Spark Toro and says, oh, that nice little $2 million a year business, let's go disrupt that field. Mm-Hmm . <affirmative> , they don't care. And that's the beautiful thing. This is the amazing part about businesses where you think you could, you know, very reasonably build a two to 20 or even $50 million a year business venture capital is gonna stay far away from them if they don't think there's a billion dollar opportunity, a hundred million dollar a year opportunity for, for hopefully a few companies in that sector, they're not gonna invest. And so those small markets are absolutely beautiful for entrepreneurs who are looking to build something that is great instead of big. And I , I would encourage founders who are looking at Spark Toro style , you know , businesses or snack bar style businesses to, to pursue those sort of <inaudible> markets, right? Small to medium sized markets are absolutely outstanding. There's a hundred times more of them than there are in markets .
Pablo:That's what I was gonna ask. You think there's a lot of these opportunities.
Rand:Oh my god . I mean, there's probably , the number is probably literally tens to hundreds of thousands of times more, you know, $20 million a year opportunities than there are $200 million a year opportunities. It's not a linear scale at all. I, I don't think anyone in economics would argue that it is, and this is, you know, this is true because of geography. It's true because of of field size. It's true because of, you know, hey, interior designers in Los Angeles really need a this, and one's in New York needed that. And there's only a few things that they both need, or, you know, that every interior designer around the country needs. And so if you can build a business that targets these fields, right? There's a lot of spend, there's a lot of rich people in New York and LA want their houses designed, right? And so you , I just think the, the quantity of business opportunities there is completely overlooked. And that also makes competition way easier. Hmm . Right? Entering those markets, serving that small group of people really well. Hyper targeting marketing to those people is far cheaper. Cost of customer acquisition is gonna be cheaper. Networking in that field is gonna be easier. Advertising to that field is gonna be less expensive. Onboarding those people and keeping them because there's less competition, all those things are just made simpler. Building a small team is easier than building a big team because you don't have to hire and manage as many people , uh, contracting and outsourcing is easier. What about
Pablo:The zero to one of it? Because, you know, the one thing about the venture world is, and, and obviously it's, it's hard to raise and all that stuff, but at least there's a chance that if you can tell a sharp enough story, get into YC or whatever, maybe you raise half a million or a million dollars and you get to pay yourself a salary, you know, whatever. And
Rand:That's , you know , try ,
Pablo:You do this, nobody's gonna fund you. So like how hard is it to just go those first few years?
Rand:Yeah, you have , you've exactly hit on a Pablo. I think the, the biggest problem in the, whatever you want to call these, like small giants or indie companies , um, a lot of venture capitalists like to use the pejorative term lifestyle business.
Pablo:Yeah . <laugh>, it's a good lifestyle, by the way. It's a great lifestyle. <laugh>.
Rand:Yeah, right? It's meant to be demeaning, right? It's meant to be like, oh, you are adorable. Like run along with your little lifestyle business when you wanna play with the big kids, like, come talk to me , um, and, and do something serious. And I, but it's
Pablo:Funny that it's demeaning because like, I'll tell you, like just even the word , it's like, yeah, I want, like, you are actually doing it for the lifestyle. Like you actually want that lifestyle <laugh> . So it's like, wait a second. Uh , anyways, I'll,
Rand:I'll tell you the way Spark Toro did it and , and Snack Bar is doing it, and then, you know, you can tell me what you think, but I, I think it's fairly functional, which is in 2018 , uh, we raised , we spark Toro , right? Casey and I, with essentially an idea and a piece of paper raised $1.3 million from 35 angel investors. Uh, they put in between 25 and a hundred thousand dollars each last year. We repaid them , uh, their $1.3 million. And now every couple of years we hope to make a dividend payment to them of between, let's say 10 and 30% of the amount that they put in. And at the end of the company , you know, at some point in the company, we'll probably sell it, maybe for some reason it'll go out of business or whatever. But by, by that time, I hope they've gotten three to four times their money and they've gotten that in dividend payments. So we basically are using the profits of the business to , because the only way that Casey and I can get paid more than our salary is to make a dividend payment. When we get paid, they get paid. And it's a really, really nice low risk kind of way to run a business, you know, even even at our, you know, sort of scariest months . So for , for folks who don't know , the previous version of Spark Toro was, was very dependent on Twitter data. We had a relationship with Twitter's API team and all this kinda stuff. Anyway, when Elon bought it, obviously, you know, everything fell apart. We had to rebuild the product. She entirely based on new data sources, very expensive, very time consuming, whatever. But even in our worst , uh, months, we were still adding tens of thousands of dollars to the balance sheet , um, in terms of profit, right? So it , it's like a, it's a low risk kind of business. It's not a high growth kind of business. Sure. We're growing like, you know, 20% year over year
Pablo:Investment perspective. You're think, okay, like the upside's lower, but there has to be materially less risk. Like the odds that you fail in a year have to be not zero, but let's say close to zero <laugh> , you know,
Rand:If I were building a portfolio approach to this, seven outta 10 companies have to get to profitability, right? May maybe even eight. And I think the, the venture mindset is like, well, no , startups will never have those odds. And my view is, well that is because the culture of startups is grow fast or die trying and enter huge markets where there's lots of other people who are gonna enter those markets. There's gonna be one winner for a bunch of losers. Uh, you're gonna basically spend in order to try and get growth fast.
Pablo:For sure. I think if you take Tam outta the equation, a lot of , uh, optionality opens up and , and risk, you know, goes down dramatically that you won't get one to 10 million in, in revenue. It's because you're unwilling to go after markets unless you see a possibility of them being billion dollar markets. And even then, when you're in one and you think it's one, you gotta double, triple, quadruple down to make sure you're the winner. Yeah. All that stuff dials up risk
Rand:For sure. And, and I think that there's a , there's a risk focused mindset, right? Like as a venture entrepreneur, I think I was probably in mil in the much lower risk than most bucket, right? I, I just have a mentality around keeping a sane balance sheet and, and making sure that income is similar to expenses. Um, whereas, you know, my friend Dharmesh and , and Brian from HubSpot, right? Were like, they were very venture investor, very venture entrepreneur. Yeah . And
Pablo:It worked for them, obviously. So yeah, we, we
Rand:Are happy to lose whatever, $4 million on our annual event because we know that it really builds a lot of brand in the thousands of people who come to that event. And I had this like, what are you talking about? Like, we made sure Mocon is break even or better every year, you know, like <laugh> , that's insane. Um, but maybe , you know, clearly their thing worked, but most of the time it doesn't. And, and so I think there's a fundamental shift. So what my goal is, is I want to see not only Spark, Toro , do well, hopefully Snack bar do well, there's a few other companies who've fundraised using Spark Toro's , uh, documents. We open sourced our docs so anyone can go and use them to
Pablo:Fundraise. What was that ? Tell me just quickly, like the, you told me how it would play out, but is there a valuation implied, or like, what's, what's the structure of that agreement? Uh,
Rand:We used a pre-money of 4 million and a post of 5.3. So our investors own a little over 25% of the business , um, or sorry, right around 25% of the business. And , uh, we have , uh, essentially they own units in an LLC, although a friend of mine just fundraised for his business using the Spark Toro docs , uh, and did it with a C Corp. So it , okay . It , it's very, it's at your option, what you want to do. Um, both by the way, qualify for QSBS, the , the qualified small business , uh, stock exemption, which means that the first $10 million of, you know, earnings that you make on a, on a sale of your units or a sale of your stock is tax free . Uh, so that's very compelling for a lot of investors too . Um, and the valuation is flexible, right? So I think that because of my reputation and network, my valuation was higher, I think. So, yeah. Um, I talked to, you know, there was a couple guys, I think they were in Atlanta, they raised using the Spark Toro Docs a few years ago. Their valuation was like 2 million and they raised 600,000 or something . So, you know , you know , kind of a different, depends on who you are and where you are and what you're building, network, all that kind of stuff. But you could raise $50,000 on a $200,000 valuation
Pablo:Company. Sure . And how long did it take you to, to get profitable?
Rand:We were pretty good at <laugh> . We were pretty good at that. You know, one of the things we did early on, Pablo, is while Casey was building the product for the first year, I was out there like basically building our email list people who were , who wanted the product that we were building. And so when we launched, we had maybe 15, 16,000 people on that list, possibly a little bit more. And we were profitable seven months after launch.
Pablo:That's awesome. That's
Rand:Great. So break even profitable, right? Sure . In Casey and i's salaries were lower? We, we , there's in the docs, there's a built in thing, again, sort of protecting investors and also encouraging founders, which is that our salaries were capped to the Seattle software engineer average until we repaid our investors, their 1.3 million, at which point our salaries could be two x the Seattle software engineer average.
Pablo:Got it. Okay. That's helpful. You know, you mentioned with , um, with Moz, and it sounds like maybe with this one, like you spent quite a bit of time, let's say building an audience before, you know, launching the product building community, I think that's a skill set of yours, but is that something you would recommend, like generally to founders? Like you think that approach still works today?
Rand:I think it is a huge risk mitigation tactic, right? Because the process, in the process of doing that, you're gonna do two things. One, you're gonna mitigate the risk that at launch nobody wants the thing you've built and that the cost of customer acquisition is too high. And the second thing you're gonna do is you are going to acquire incredible market knowledge that will help you design and build a much better product. And so I , I cannot encourage people enough to, you know, become sort of experts in the field that they're in, build an audience through , through a variety of strategies. You know, at , at Moz it was an SEO and content flywheel with Spark Toro, it was all, almost all PR and social media marketing. Um, and , uh, you know , uh, this, this friend of mine is building his strategy almost exclusively on , um, niche media in sort of in the sector that he's in and, and awareness through that. And then some content which may in the future rank and search engines, but , um, is pretty chall . That's a, that's a much more challenging task than it , than it used to be. Every author does this. My wife Geraldine just launched , uh, if You Can't Take The Heat right, that came out like a few weeks ago. And her entire strategy was based around essentially social media audience, podcasts, you know, some video interviews, some newsletters, her field. And, and it became a bestseller week one, thanks to those sources and support that she had kind of built up over years and years of audience building.
Pablo:Thi this is one, I'm actually just selfishly interested, what was the process like of Li of writing Lost and Founder? Like how much was it harder than you thought? It'd be easier to take you a long time and just everything around publishing a book, I mean, it's so different than, than starting a company weren't just wondering what that process was like. Yeah,
Rand:Yeah. Um, so I did, I did, I wrote a couple other books, but they were like SEO manuals, you know, educational stuff for like O'Reilly and Wiley , which are very different than writing for the Big five publishers. So Penguin Random House , uh, ended up , uh, buying Lost and Founder, which was very exciting and the Advance was great and all that kinda stuff. But the process itself was essentially I pitched , uh, publishers in New York with an outline classic. Like if you imagine what the 1970s Woody Allen movie where you go go to New York and like, talk to all these publishers and sit around a desk with people. It's not, not that dissimilar from that. Wow . Um , and then my agent ran an auction , uh, for the book. And Penguin Random House did a, did a preempt, which means that they said, we don't want you shopping it around. We , we want you to just sign with us right away. And we liked the offer. So we did that. I loved working with my editor.
Pablo:Was that a function of just the interest in the book, or did you also have, 'cause you have obviously like a big following on, on Twitter, LinkedIn, like how much was it, you know, those two things I'm sure played in, but it was a
Rand:Second one . I would say they played in more than the book. Okay. And unfortunately for a lot of authors right now , uh, in nonfiction in particular, fiction is a little different fiction there . It's a little more speculative, take a chance, hits driven , whatever. But nonfiction is very much how big is your audience? Um, Geraldine and I like to joke that before, before she went and pitched her book, I should have just bought her a hundred thousand more Twitter followers. <laugh> , right? Because yeah , you know, Elon lets fake followers flourish. So like why not just, why not just buy?
Pablo:Yeah , yeah . It's
Rand:Good . A bunch of fake accounts and then you look great to the publisher. So if anyone's listening and they're an author, I'd be like, yeah, just go on Fiverr and maybe bump up your social media numbers. Like it's kind of sketch and they'll, you'll probably lose 'em over the next few months. But it's helpful for those conversations. <laugh> smart . Um , and they're not, you know, they're not su super sophisticated about how they look at it, but , uh, I was gonna say, the process itself of writing was very familiar to me. 'cause I've been blogging for, you know, decades now, but the , uh, the intensity was pretty high. So it was like a lot of writing. We, I wrote the first six , six chapters of the initial version of Lost and Founders submitted them to my editor at Penguin, and she was like, this is not the right book. We gotta throw this out and start over. Wow. And I remember being extremely frustrated that we couldn't have identified that from the outline and, you know, that I had done all this work, but we ended up making what I think was a was a much better
Pablo:Oh, it was a great, yeah, it was a great book. Did you do it full time for that period or were , is it kind of on the side?
Rand:It was on the side. It was kind of in lieu of blogging. If you look at that year of my blog posts on Moz, essentially I was still filming the video series, which, which was like an hour every week or whatever, but the blog posts kind of trickled to nothing. And I did almost all my publishing or all my writing for the book.
Pablo:And then let me ask this other question, which I don't know if you'll have ready my hand answers for, but one thing I've noticed in general for from repeat founders and , and I had this myself, is you go through it, you know, very little, you take all these punches to the face and at some point during that you're like, wow, if I was restarting right now, like, it would be so much easier, right? Because I would know this, I would know that, whatever. And , uh, obviously there was a lot of lessons like in your book and some of it that is true. Like there's always parts that are easier. I guess the question is like, which parts were you wrong on? Like, which parts were surprising? Where you were like, wow, I really thought this was gonna be easier. And it actually turns out it's almost just hard .
Rand:Uh, do you mean for Spark Toro after I'd learned the lessons at Moz? Correct.
Pablo:Yeah.
Rand:I think product building and product market fit or, or Hmm . I , I don't even believe that there is like one product market fit. I think think it's more of a scale, right? You are a better or worse fit than definitely
Pablo:Spectrum. I would agree.
Rand:Yeah. Spectrum, right? And so improving along that spectrum , uh, I think is not made easier by doing it multiple times <laugh> . And that's very frustrating. Um, and part of that I think could be , can be luck, right? It's kind of , I think Moz was a very lucky bet, like we hit, we hit a market at a time where there was tremendous need and nobody else liked that market. And everybody in 2006 thought SEO was spam and they kept believing that for another 10 years. And it, you know, it took forever for sort of a, a mature community of people to think that SEO was a real practice to think that Google was gonna become the behemoth that it became. Um, and so we had a huge advantage there. Um, and we knew our audience kind of better than other people did with Spark Toro . I think it's, it's been a challenge in that the thing that we help people do, audience research is not a thing people are assigned to do very often, like most companies don't do, don't try and figure out, oh, which podcasts do , does do my customers listen to, and what videos they watch on YouTube and which channels they subscribe to, what subreddits are they on and which, which sources of media do they consume? What email newsletters are they subscribing to? All that kinda stuff. I think that's crucial. I think that is absolutely amazing. I think most marketers I talk to are like, oh , that would be so useful to know, but it's not part of their job description and it's not part of their tactical day-to-Day work. And so getting people to like adopt it as a practice has been really hard. Um, and then I think with Snack Bar , is the game gonna be fun? Is it gonna be deeply fun and addictive and enjoyable to play and rewarding? And that is gonna be a huge challenge. And I think, you know, I have no experience in that field, so I am taking a , a huge gamble. And I think the only thing that I've gotten much better at is I think I'm much better at I identifying and recruiting extraordinary talent who can do those things, right? So like, I, I think our game designer who has a, you know, history of like just dance and the squad and, and Assassin's Creed, he was the lead game designer for Assassin's Creed and a bunch of other , you know, a bunch of other games. I'm like, this guy can do that. I, I believe in you. I know you can do it. And, you know, our our lead developer Miriam's worked on a bunch of amazing games. Francesco's worked on a bunch of TV shows for like, Netflix and BBC, and like, yeah, you guys, you guys are going to do an amazing job at this, but it's, knock on wood, I'm sure I'm gonna learn things there that are tough and challenging. And that field, you know, the thing Pablo, about shipping anything like a book or a television show or a movie or a video game is, it's not like software as a service where you iterate and, you know, can keep selling it month over month. Like it's gotta pop day one. That's
Pablo:Right. You've built it and, and will they come , sort of thing. But it's, you know, you've said kind of product market fit. And I, and I take what you said as meaning like, at the end of the day, like building something people love delivering like great value. That's just never easy. It's just never easy. Like , and it's not, the other thing I had read, which I thought really resonated with me at least, is like a lot of things are kind of gameable. I mean, fundraising is a bit of a game. You can get better at fundraising, even hiring, like convincing people to join you, these sort of things. Part of market fit is just not gameable. Like you, it just <laugh> , you actually have to do the thing, right? And so, yeah, it doesn't get it . I'm sure there's pieces that get easier, but it doesn't actually get that much easier the second or third time around.
Rand:Yeah. I think , um, there's elements of it that get much easier. For example, speed of iteration. Yes. Uh , I think, I think founders can get way better at testing and learning from , uh, the feedback that they get from people, from networking, right. Building, like we talked about earlier, building an audience of people who care about the problem that you're solving. That is a skill you can get way better at. And that, that's something, you know, that I, that I pride myself on, that I think I can be good at and try and help a lot of other people with that. Obviously Spark Toro is built to do that, but I think that that fundamental, taking all those insights and learnings and turning them into a product that delights human beings and makes them, solves their problems, makes them happy, brings them joy, brings them entertainment or , uh, education solves, you know, thorny, tactical , uh, pain in the. Things that other things can't solve for them. There's no shortcut. No shortcut.
Pablo:Awesome. Well, Rand , this has been , uh, an amazing, amazing episode. Thank you very much for taking the time. Yeah,
Rand:My pleasure, Pablo. Thanks for having me.
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