How Jason Cohen Built TWO Billion Dollar Companies (One Bootstrapped)

0:00All right, MarketingSchool listeners. This is a 20 to 30 minute segment of a full interview I've done with an amazing founder, entrepreneur, creative, visionary. You're going to get a ton of insights from this. And if you want to listen to the entire thing, go search for Leveling Up with Eric Su. That's the entire podcast that you're going to find. So you get 20 to 30 minutes here. And if you want the whole thing, you can just search for Leveling Up with Eric Su. And without further ado, enjoy the episode. Jason, how you doing? It's great. Thanks for being on the pod. Obviously, I've known you for a long time.

0:36I've followed you for a long time. But for those that don't know you, who are you and what are you known for? I'm known online as a smart bear because a company I started 22 years ago was called Smart Bear. And that's where I started a blog that became popular called the Smart Bear. So that's how people know me. I've built a few companies, bootstrapped and raised money. Two of them are now worth billions of dollars and not in 2022 money. I mean, before that. I'm currently at WP Engine. I've been there 14 years. And we are the biggest platform for WordPress sites. We host about 2.5 % of the top 10 million domains.

1:16So a large percentage of the internet that matters. And so we're about as big as like DigitalOcean and Google Cloud. And yeah. Got it. And what was the last public valuation for WP Engine? It's not public, so we don't have a public valuation. It wasn't public, the estimated valuation. Right. But I mean, I think the last time we reported revenue was when we passed 100 million ARR, and that was, I think, seven years ago. Okay. And we've only grown a course into that. Yeah, way bigger now, so you can guess. And we're also profitable. I don't know if we, you know, so everything's fine, in other words.

1:52Got it. And so here's a question, and you can correct the premise of this question, but how would one go about bootstrapping a billion-dollar business? I don't think you should. I think when you're bootstrapping and maybe self-funded is a better word because really it's about funding source and goals. I think if your goal is to build a really big valuable company, yes, there's a few examples you can find where that happened over like 20 years and it was self-funded and all that stuff. You can find it here and there. But of course, that's like the one in 10 ,000 or even literally one in a million small companies that do that.

2:32So while that's true, that's not a good path. That's not a likely path. So if you want to do one of those, almost always what happens is you raise money. Why? Because you've got to grow fast in order to get there. Why? Because a technology that's 30 years old is probably not relevant. So you're not going to grow 20 % per year for 20 years in order to get to, say, a billion in revenue, which is what it would take to grow slowly and get there. That's why you have the normal thing from like TechCrunch and PCs that say, all right, once you get to 1 million, you got to triple at least and then triple again and then double and double and all that kind of stuff.

3:10That's why, because otherwise, you just don't grow fast enough to get there fast enough. It's still going to take 7 to 10 years just to get to something like 100 million at that rate. Right. To grow that fast and spend money before you have it is just, again, almost never happens. Therefore, you shouldn't bootstrap itself on it in order to build a billion-dollar company. You just shouldn't have that goal. Now, what you can also do, though, like with WP Engine is I did start bootstrapping it. And my idea was I think this company could do like$30 ,000 to$50 ,000 in profit per month and still be pretty small.

3:48And that would be pretty neat. And then that turned out to be true. nice but then it turned out that the market was so big so much bigger than I had thought and I was just in a place in life having done several startups also having now being a parent blah blah blah where I wanted a different kind of challenge where the challenge was to try to get to be really big instead of despite your responsibilities let's go for another one yes because you can have a bigger team and and so it's not all on me and so yeah and so I just wanted a different kind of journey different goals and challenges different constraints but also different expectations this time around and also again these other things were in place like the market was big enough the the core um the core business models and technology was working really well like all these things were in place right where it made sense but so that's an example where you could bootstrap and not have that goal but then change your mind once once you see actually all the cards look like they've turned up the right way for that um but again i don't think i just think it's really bad to go in thinking like it has to go that way no it doesn't it's or is okay it's better yeah because it's optionality who knows how anything will unfold and so if you only have one path in mind of what success is going to mean or how it could unfold if it doesn't go just that way what you're a failure and it doesn't work right so that's brittle it's unlikely to do any given path what are you going to feel bad did you build and construct your company so that it would only work that way so that when that didn't work it falls apart that's just a brittle company right so optionality and saying or is strength in the company.

5:18If there's many ways you could go to market, you're strong because who knows which one will work. If there's many ways that you could grow or be successful, it's good. That's part of why, for example, it's good for companies of any size to be in a large growing market. Because even if you're making a small company, a large growing market has a zillion niches that are too small for whoever the big people are in the market. And yet the fact that the market is big and growing proves there are customers, they're paying money, there's more coming in all the time. you know like demand must be there like it proves all of these things that are normally a risk and yet there must be niches and new ones coming up and the niches are themselves growing and big companies can't look at all of them and certainly can't specialize in all of them so it gives you space so of course as a big company it's nice to be in a big market because the money needs to be there or you're not gonna yeah but even a small company you want to be there it just it's optionality once again so you know what's interesting you brought up niches a couple of times.

6:15And my podcast co-host on the other podcast, Neil Patel, actually tweeted something out recently this week saying, you're doing it wrong. The riches are not in the niches, right? Blah, blah, blah. And so he's always, you know, it's the headline at the end of the day. And so what's your take on it? Because obviously WP Engine is very niche focused. It depends. I mean, WordPress is 43 % of the internet. So to say that we're targeting that niche, I mean, something that's 43 % of the entire internet is hardly a niche. you know so i suppose you could define niche and define market and define this and find that how you'd like with all advice like riches are in the niches or no they're not um you can always find the opposite advice and it is also true sometimes false sometimes they're both like that and in both cases you'll find examples of companies that that found success because they listened to that advice and companies that failed even though they heeded the advice on both sides.

7:12So what does that mean about all this advice? It means it's wrong to ask which one's right. That can't be the right question. A better question is, when is this advice applicable? That's the question. Clearly it is sometimes and not other times. So if we just say riches are in the niches and that's all we say, I don't know what to do with that. But if you say, okay, listen, if you want to be a solo founder and never hire anyone but generate a lot of profit and also leverage your expertise that you already have and not have really any real competition, then a niche is probably your best way for all the usual reasons.

7:47You actually can be the best even though you have almost no resources at hand to apply to it. You can nevertheless be the best so long as you define the best for whom, for what, for sufficiently narrowly, you can in fact be the best really, which means you can charge more, which means you can be profitable and you don't have to fight all these things. You don't have to fight them in marketing spend. You don't have to fight them in features because these are all things as a solo founder. You're not going to fight. You're not going to win those fights. So that's why blah, blah, blah. So in that context, the niche makes a lot of sense, right?

8:20But even then, can you make a case for a solo founder company that makes something general? You could, but there would be a whole bunch of other decisions you would also want to like simultaneously to make that a sensible, self-reinforcing strategy where all the decisions are like causing this harmony. For example, you might say, we're not going to have any tech support. Otherwise we can't scale as one person, but we could be so, so cheap. I could make a thing that's so hands-off. We never speak to a person. We never do anything. And for a lot of people, that just means we're not the right choice, right?

8:57But we could take every currency in the world. And since we don't talk to them and our product, this is, I'm just making this up, but like, suppose the product is very visual. There's almost no text. So I could support 50 languages because there's really not languages. And I never have to talk to anyone for support or sales or marketing even. And I could charge almost nothing, which it works really well for the whole world. Most of the world doesn't have money. So if I can charge$5 a month or$1 a month and somehow make this work, I don't know what that would be, but let's suppose. then you've just created this thing where maybe there's not a niche.

9:33You are targeting the whole world because you've made all these other decisions that make sense. So a lot of times when you think about strategy for a company of any size, this is the kind of stuff you should be thinking of. What is a set of decisions altogether of which is a unique thing? Not any one of which, but altogether is. So it makes you special, leverages whatever strengths you have, whatever those may be, avoids whatever weaknesses you have to the extent you can. And yet, of course, still targets a market that exists. I mean, these are obvious things, but like, what is that set of stuff?

10:01So it's just a long way of saying, see, I could take any given thing by itself and justify it, but I would have to put around it, not even just context, but other decisions like, and I'm going to do this and I'm not going to do that. And now I've created a strategy that makes some kind of sense. That's what one should do with this barrage of conflicting advice. That's why I think advice is dangerous. I mean, because the Thomas Sowell quote that I really like is, there are no solutions, only trade-offs. And it's like trade-offs depending on what? Depending on your strengths, your weaknesses, et cetera.

10:34Exactly. And so, in fact, you might argue that's what a strategy is, is deciding what those trade-offs are. I often like to say it's simply making a decision. Yes to this, no to that. Of course, that comes with trade-offs. I would say another thing it comes with is consequences. Now, again, you could just call that trade-offs fine. But not only is there the immediate, like, okay, I said yes to this and no to that. So that's what I did. But then there's these downstream consequences like we just talked about. Right. That's what I was doing as well. What about and what about and what else would that have to mean?

11:01Yeah. So some people call that second order effects, whatever. It doesn't matter. There's this cascading set of of consequences that these decisions make. Therefore, once again, you want to say, oh, so what is this whole set of decisions where despite the cascading effect, it's harmony, it's harmonized and therefore they all make sense and then turns into something. And then if a competitor, whether that's a new startup or an existing company, looks over at you and they're like, I'm going to copy that. Well, if they copy one of your decisions, it really doesn't matter. They would have to copy the whole system, which they can't because they got their own system.

11:34Or they don't. Neil and I have an agency owners group called the Agency Owners Association. All you have to do, just go to marketingschool.io slash agency. Once again, it's marketingschool.io slash agency to learn more. And now back to the show. There's actually really interesting examples of companies in history who have done this, where their strategy has been analyzed and published. And yet decades later, no one's copied them, even though anyone could. So an example is Southwest Airlines, the only airline in America to never go bankrupt and be profitable ever. So that's good. Whatever they're doing is a good idea, you know.

12:13And what do they do? And this has been analyzed by many people. There's this diagram that I love from Michael Porter, who's a kind of famous thinker in competitive strategy, who diagrammed out exactly what I'm saying. They made all these decisions. And what's interesting is some of them are bad for customers. This is, again, like there's tradeoffs. Like it's not all going to be good news, right? Like you said. So with Southwest, for example, they have the lowest fares. The planes have the best on-time percentage. so they're really reliable um and the people who work there are really friendly and good that's some of their advantages um but what other decisions one must one make to have stuff like low cost so they do things like they only have one kind of airplane so their mechanics only need to know one thing and they only have one set of tools like these are things you don't normally think about unless you're right and so they can fix anything fast okay and it's cheaper and and it's easier to train and they can go deeper with the one kind of plane.

13:15Cause if you have 10 years of experience and you have 10 years of experience with just one model, you're a, you're a super expert and so forth. Right. Yeah. Okay. So that's actually cheaper, but, and there's other advantages. Okay. But then you start getting to the consequences. Well, how do you have bigger planes for like overseas? Well, they don't, so they don't have overseas routes. Oh, and actually they don't have any long routes. It's only short haul routes. Well, if I went across the country, what I have a million stops. That's no good. I know. Yeah. And also, they won't transfer you to another airline.

13:45And also, they have all this baggage. Too bad. Yeah, too bad. Because in order to get these good things, we're going to have to have these other things. There's no food. It's all this stuff. Oh, okay. But by mapping out that network, you can decide, is this a good set of trade-offs? Do enough people want the benefits and dislike the negatives low enough that this is the right choice for them? So, of course, the answer is yes in this case for many people. Now, this was published, this analysis was published in 1995. So airlines have had decades. I mean, they could have analyzed it themselves, but okay.

14:24Someone else analyzed it for them and published it for them in HBR. So, okay. Now you want to copy this so that you don't go bankrupt and you manage your costs? No one has. Why not? I don't know. That's how it works. People don't do that. you know what are you gonna do that's what the late charlie munger said too it's like it's it's a wonder why people don't copy our model we've been doing this so publicly for a long time yeah they just don't nobody does it and i don't know why it could be ego like i don't you know you feel especially as a trader you know you you want to have your own system yeah another thing that they talk about with that is people feel like if i'm a man a money manager i need to make trades so the idea that you would sit for a year and not make a trade it's like i make trade even though it might in fact, of course, be the right thing to not make a trade.

15:06Some people have the discipline to do that, but most don't. And is it just emotional? Maybe, or it could be real. It could be that your limited partners do expect to make trades, even if they're wrong about that. I'm not really sure. But also maybe you can't. I mean, just like it's hard to change a culture of a company. I mean, these decisions is how every single, you know, trickles into every single decision in the company, including the culture and the people. So to say we're going to copy that may be literally impossible. You know, you had a talk that did really well on YouTube, let's say close to 500K views or so.

15:41And let me just ask you, how do you, it's a loaded question. How do you go about designing the ideal bootstrapped business? And you can just give the principles. You don't have to go into that whole hour talk. Right, right, right. Go see the talk. So really, it's funny. It actually is a series of things like we just said, where the constraint is, it's bootstrapped. So you don't get money until it comes in and you can't spend it until then. And so what should you do to try to make that work? What are some decisions that make sense? Obviously, they're not laws of physics. You don't have to do them all.

16:16I just feel like each one makes it a little easier or de-risks it a little bit. That's why I think in aggregate, it's pretty good. So I'll just give two examples. One would be if you have recurring revenue, which is, of course, a good idea because you know how much money. Oh, wait, let me just say why that's good. It sounds like it's obvious because, you know, but I think right now there's a big push towards maybe don't do that. Maybe one time revenue, which I think is a terrible idea. 37 signals. That's right. It's a terrible idea. One reason is tech support. Yeah. That's a whole topic. But one reason for bootstrapping and when you're getting started is it's so powerful to know how much money you're going to make next month.

16:54To have to start over, as it were, next month and hope is a difference between being able to quit your job or not. If you've ever built a website, you know how tough it can be to keep a strong design while ensuring site performance is fast. That's where Framer comes in, and it totally changes the game. Framer is the design-first, no-code website builder that lets anyone ship a production-ready site in minutes. I recently built a custom landing page in just a few hours. Animations, fast load times, responsive layouts, all without writing a single line of code. It was easy to use, and the end result was polished enough to look like a developer spent days on it.

17:27One of my favorite things is that Framer's AI handles translations with a single click. So your site can be up and running in multiple languages almost instantly. And with real-time collaboration, your whole team can jump in and work together. No issues with versions or miscommunication. Whether you're starting from scratch or using one of their templates, Framer lets you focus on design while handling the technical side for you. Animations, responsive layouts, search optimization, and all the things that matter. Ready to build a site that looks hand-coded without hiring a developer? launch your site for free at framer.com and use code MS to get your first month of pro on the house.

18:02That's framer.com, promo code MS, framer.com, promo code MS, rules and restrictions may apply. When I first started my business, the overwhelm was real. I didn't have the tools to help me scale. If only I had Shopify from the start to handle all the behind the scenes work. Shopify is the platform behind millions of businesses globally from huge names like Mattel and Gymshark to the smallest brands just getting started. The best part about it, it has everything you could need. Say you're ready to launch your own design studio. Shopify has hundreds of templates to create a beautiful store that matches your brand style.

18:34Or if you need help with content creation, Shopify's got AI tools that write your product descriptions, craft page headlines, and even enhance your product photos. Shopify lets you easily create email and social media campaigns to reach customers wherever they are, whether they're scrolling or strolling. If you're ready to sell, you're ready for Shopify. Turn your big business idea into with Shopify on your side. Sign up for your$1 per month trial and start selling today at shopify.com slash marketing school. Go to shopify.com slash marketing school, shopify.com slash marketing school.

19:10That's a huge moment, a huge difference. So it's not just about the finances. Of course, that's a good enough. It is a good enough reason to do it. Right. it's that to know that that's coming means you have the confidence to really dig in and invest in the sense of things like quitting a day job or reducing work especially if you have a family but even if you don't so i think it is more powerful than just the math okay let's say you're going to do recurring revenue i think one thing people do wrong a lot is they don't deliver value in a recurring pattern as well and so it'll be something that happens today event planning is a great example there's a lot of like event software and then it's monthly it's like but that person may put on event once a year so what do you charge you monthly for they're like well like i i just heard recurring revenue is a good model it's like it is but you're not you know that never works and so what they do is and you can see this on twitter you can watch people say this here's how you'll know is they'll say yeah i have a 2k in mrr but my turn's a little high like 20 per month i need to work on that you're like work on that that means it's not recurring revenue because half the half of the people aren't even here in four months.

20:14So like, what? That's not a, you know. So, so what are, so one of the things in the talk is like, so what things recur? And just think about business processes that happen either continuously is even better, but you know, monthly. So like anything in accounting happens monthly. So almost anything there, that's probably makes sense, right? Or anything that people use as part of their normal workflow, marketing analytics. Well, there's some marketer who's looking at that thing every dang day. So it totally makes sense to keep charging them, you know. So, I mean, perhaps, again, that's maybe obvious in retrospect, but just you've got to be asking how in month six and month 30 is the person still getting more and more value, maybe even more value, even better.

20:54But how is that actually manifesting? You better be able to answer that. That was an example. This message is brought to you by Leveling Up Founders. And Leveling Up Founders is an invite-only event for founders. It happens once a year, usually during August. and past attendees include people such as Ali Abdaal, Cody Sanchez, Neil Patel, Vanessa Lau, and the list goes on and on. And ultimately it comes down to the quality of the group of the people. We tried to keep the group high caliber. That's why it's invite only. So if you are a founder at the top of your game, you can go to levelingup.com slash founders to learn more about it and then you can apply and we'll see you on the other side.

21:30Another one is a annual prepays. so again could be should be kind of obvious if you ask for usually there's some kind of discount right so you pay it's like pay me for a whole year up front but i'll give you two months free or something like that right so it's 10 times as much as monthly but once a year okay um many products do this i don't think people appreciate just how powerful and transformative that is for a bootstrap company where you don't have money until it comes in the fact that you get all that money today is so different. So here's an example to see why. So let's say you were going to charge, let's make the numbers really easy.

22:07You're going to charge$100 a month. So you're going to get$100 a month. Fine. Instead though, someone opts for your annual prepay two months free. So they give you$1 ,000 now. They're not going to pay you again for another year, but you got$1 ,000 now instead of$100 a month. Now overall, you have less money. Okay. I know. But you had$1 ,000 now. Now, here's where it gets really good. You get that$1 ,000 today or tomorrow, depending on how your credit card stuff clears. When you pay for AdWords, when do you actually pay? Well, you get a bill, and then it goes on your credit card, which you then pay off.

22:45So you pay that in, let's say, one to two months from now. But you got the$1 ,000 today. So if you spend all$1 ,000 today on AdWords and even one, let's say$1 ,000 of AdWords, and even one person from all that signs up in the next 30 to 60 days, then you've paid for that kind of for free. You've liquidated the ad cost. Yeah, you've liquidated that in. And at$100 per month, you couldn't have done that because you didn't have the money. If you get even one, then that means you're ahead. If you get two, if you get three. So whatever your conversion rate is, as long as your conversion rate is positive, if it's not, then obviously don't do that in the first place.

23:28But supposing that's a profitable channel, how much money can you spend in that channel? The answer is infinity. I mean, it's not infinity because the channel has a limit. But the answer is it's not limited. Right. Because you'll get the money back before, in cash, before you have to pay for the marketing. So you went from a marketing budget that was limited to$100 a month or less to unlimited marketing budget for as long as the channel is profitable. What? So that was not obvious when I first said annual, right? So I don't think people appreciate just how transformative it is to get the cash up front, what that can mean in terms of the business.

24:07So that kind of stuff was in the top. Yeah. I mean, 10 years ago, that was probably game changing for everybody. And now it's like common practice, right? And it wasn't uncommon then either. I just think maybe people weren't yapping about it as much. Exactly. I don't know. But all these things in retrospect ought to seem obvious. It's not like, oh, man, this is a new, you discovered a new particle. No one saw that one coming. No, no, no. These are not necessarily, the point isn't to make it as obscure as possible, but rather just if these are really good ideas for someone who's bootstrapping, then they're really good ideas.

24:41Great. And so again, as we just said, you could make another case, right? So they're not laws, but certainly they're worthy of consideration because maybe probably cherry picking some of these, probably a good idea. Got it. Yeah. Now, when I think about, you can choose either a SmartBear or a WP Engine. At what point did you decide, okay, you bootstrapped it to a certain point. Now it's time to raise, like what was the stage? And yeah, timeline here. At SmartBear, I never did raise. it was just bootstrapped um at at wp engine it was it was what i said we were about two years in um the the unit economics were really good the market was bigger than i thought i mean wordpress at the time was already 10 of the internet and that was easily accessible numbers from w3 techs it still is i mean the numbers are still now it's 43 but okay the same source um and 10 of the internet's already infinity if you're a small company yeah but also it was growing so it's like okay, large and growing market.

25:42The demand for it was way higher than I thought. I was thinking people like me, bloggers, et cetera, how big is blogging? I don't know. I mean, at the time, it was okay. But WordPress was really winning in corporate homepages, not just blogging, and starting to win in media. Okay, wait a minute. That's a lot, which kind of makes sense because 10 % of the internet even then was not blogs. That's got to be other stuff like corporate homepages. because, you know, so again, like it was, oh my gosh, it's just, it's so much bigger and broader than I expected. And then I wanted, you know, again, personally a different journey, as I said.

26:18And so it was that those kinds of considerations. And even then the first round was just a million dollars. I mean, nowadays that's, you know, so little to think about, right? So it wasn't even that much anyhow. And that was another thing I did all along the way at WP Engine. I say I, and then we have many other people, but we, is along the way, we always raise money at a fair valuation, by which I mean not too low to where it's diluting the operators too much and we're not getting paid for what the company is, but also not too high where we get over our skis and if we don't do insanely good, then we won't grow into that and blah, blah, blah.