WP Product Talk
WP Product Talk
How to Fund your Next WordPress Product
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In this episode of WP Product Talk, hosts Katie Keith and Amber Hinds interview Marieke van de Rakt from Emilia Capital to discuss various funding strategies for developing a WordPress product. They explore bootstrapping, loans, investment options, and creative funding methods like pre-orders and crowdfunding. The conversation highlights the importance of understanding your financial situation, growth potential, and the implications of giving up equity in your business. Both successful bootstrapped and investment-backed models are examined, offering insight into making informed financing decisions for product development.

Show Notes

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Bootstrapping

Bootstrapping involves funding your product solely through your own resources. This approach can be beneficial for maintaining full ownership and control over your business. However, it may limit the speed of growth compared to funding that allows you to focus solely on product development.

Loans as Funding Sources

Using loans for product development can provide the necessary capital without giving away equity. However, it entails risks such as debt servicing and requires careful planning to ensure revenue generation can cover the loan payments.

Investment and Equity Considerations

When seeking investment, it’s essential to evaluate whether you need external capital. Giving up equity can dilute ownership and may lead to pressure for a quick exit. Understanding investor goals is crucial before proceeding.

Crowdfunding and Pre-orders

Funding a product through pre-orders or crowdfunding platforms like Kickstarter can be effective. However, successful campaigns often require a strong marketing strategy and an existing following to attract backers.

Understanding Your Numbers

Having a solid grasp of your financial situation is vital for determining the best funding strategy. This includes monitoring revenue, expenses, and forecasting future growth.

Freemium versus Premium Models

Freemium models can be advantageous in attracting users but may lead to lower valuations due to reliance on upselling to convert free users. Investors often prefer premium models that demonstrate clear revenue potential.

Transcript

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So you've decided to build a new WordPress product, but how will you fund its development? Is it best for the short and long term health of your business if you bootstrap and build it through your own resources, or is it better to seek funding and investment from a third party? But are there any other options? That's what we're going to talk about today. This is WP Product Talk, a place where every week we bring you insights, product marketing, business management and growth, customer experience, product development, and more.

It's your go to podcast for WordPress product owners by WordPress product owners. And now enjoy the show. Hi. I'm hi. Welcome to WP Product Talk.

I'm Katie Keith, founder and CEO at Barn two Plugins. And I'm Amber Hines, CEO of Equalize Digital. And today we're talking about an important topic that affect everyone who is planning to build a WordPress product, how to fund it. Now this is the second episode of a new season of WP Product Talk in which we're going through every stage of building a new product step by step. So last week, we talked about how to choose which product to build, and now we need to consider the options for funding it.

And that is why we are excited to have our guest here today, Marika Van Der Rek. Hey, Marika. Hey. Nice to be here. Hey.

We are very excited to have you here to talk all about funding WordPress product development. Can you give a little introduction to yourself and your background? Yes. Of course. So my name is Marieke van der Racht, which is Dutch.

That's why I pronounce it slightly different, but I thought you did a really good job, Amber. I am currently, the owner of the co owner of Emilia Capital, which is an investment company. And we have invested in multiple WordPress brands among others. We invested in equalize digital, but also in I'm thinking in Adirim and in Costas. And we have, invested previously in Stratec.

I'm forgetting some, but but there are Xtendify is one of them. So so multiple, WordPress brands. And before I was doing that, I was, the cofounder and the CEO of Yoast, which is most famous, for the Yoast SEO plugin. Yeah. That's about it, I think.

And we're now currently also developing a new product because that's fun to do. So that's also what I'm doing. Yeah. And it's looking fantastic, progress planner. Yeah.

Thank you. Thank you. You're having a lot of fun. But it's, it's work in progress still, which is fun because it's called Progress Planner. So we we have a lot to do here.

Yeah. Well, I hope you're using Progress Planner to plan the content of your Progress Planner website. We do. Yes. We do.

Yes. Yeah. So, the topic for today is funding. So could you talk a bit about why you think this is such an important, issue which kind of makes or breaks a new WordPress product? Yeah.

So Yoast never had any funding. We were totally bootstrapped. And I still think that that products could could grow in such a way in the in the in the current, WordPress ecosystem. But it has become harder because we were not the only SEO plugin out there, but one of the few. And that was much easier to, get, like, views on your socials or on your blog post.

I know that when I did a post on Facebook in the beginning, I had, like, 10,000 views. I never had that anymore. It's like like, unbelievably so it's it's very different now than it was when we first started out. So I think in not in all case, but in some cases, it can be very beneficial that you start out with kind of a budget. Also because it will help you to stay focused on your product because if you're bootstrapped, you have to do something in the in the early days to to get money from.

So that means either have a part time job on the side or do something else for yourself, which can make it harder, not impossible, to start a business. So funding could really, like, give you that that spinning wheel. Is that it's cold. I don't know. But to get to get started and to to to to get to a product that really, well, drives market or or has enough traction to get us to to a sustainable level of profit.

Yeah. I I think too, a lot of product owners maybe don't think about this initially. And that's why I think this episode is probably really important for us because a lot of us created products while we were doing agency work, building websites for clients. And so our default is just, oh, we'll work on it around our client work. But if you have a product centered goal to be more product centric or maybe even product first with your company, then I think it's really important to think about funding sources early on because that is gonna shape a lot of the direction in what you decide to build, how quickly you can build things, and and sort of what those longer term goals might be or the direction for your product.

And so, really, I'd advise people to think about it earlier rather than later. Yeah. There are guidelines as well. Yeah. Well, we'll get to those and the different options.

So I think before we get too much into the discussion, it's worth going through a few definitions. We don't normally do this, but people throw terms around like bootstrapping. In fact, Robert's added a comment, dog fooding your product is a plus. I don't actually know what that means. Zach has randomly said flywheel.

Dog fooding dog fooding. Dog fooding. Go for it, America. I think it means that you use your own product so that you also know what kind of new features you have to build. So that I think that's dogfooding, but I'm I'm not native English.

Yes. That's that's what that means. Yeah. It's eating your own stuff. Yeah.

That's fine. To to to to to to the comment that, progress planner is using progress planner to build progress Yes. Yes. And I really believe in in that because I think at Yoast, we were also always busy with our own product. So I was using Yoast SEO every day, and that helps you to, like, to get frustrated if something doesn't work and, and come up with new ideas on how to improve that.

So we we we called it at Yoast ensuring quality by being your own customer. Yeah. Yeah. Scratch your own itch as well, I suppose, is referred to. Yeah.

Do we wanna go around and and kind of talk about I know you listed out on our show notes for us, Katie. Some of the different terms you think we wanna make sure the audience understands. Marika, you mentioned bootstrapping. Do you wanna define bootstrapping for people if they've never heard that term before? I didn't know what it was for a really long time.

Bootstrapping just means that you grow with your own money. So you grow gradually, and you you you sell some products. And then with the the money you make from those products, you grow further. So you'll still you'll invest the money that you'll make, and then you'll have a gradual growing curve. Yeah.

You can have a fast growing curve as well. I chose we had a pretty fast steep line, but still we were only bootstrapped. So there's no other money than your own. That also means that you are a % owner of your company. Yeah.

Mhmm. Yeah. I always thought that bootstrapping meant you were on a tiny budget. I'm not sure why. It just raised images in my mind of, like, Victorian boots that you have keep going forever or something weird.

I don't know. It's actually about pulling you up by your own bootstraps or something in it. But I just thought it meant you had, like, no money at all, and you couldn't really invest much in your own money. Which is the case. Beginning.

It it may well be the case, but it doesn't have to be. It just means you haven't got outside funding, doesn't it? Yes. So the next one that we have listed is, oh, yeah, go ahead, loans and traditional financing. Do you wanna talk about that, Katie?

I have never actually heard of a WordPress product doing it, but it is a a very have you? You got a loan. Oh, you you do it then. Oh, yeah. Okay.

So, I mean, this is jumping a little bit ahead to story time, but, yes, we have done both. So in 2019, we were building just websites. We were a marketing agency. We did, like, SEO and social media and all this stuff, and we knew we wanted to build a a WordPress plugin that we wanted to sell. And we were looking at our revenue and our expenses, and we knew we didn't have the capital to really say we're gonna work hard dedicating our entire team to coding designing and coding a product, building a website to promote that.

Right? Like, we had to be the customer. So so we sat down, and we looked at how much money would we need for our team to build this thing. And we ended up taking out a small business administration loan. So that's like a government backed low at the time, it was low interest.

We'll talk about variable interest rates later, probably. But it was a very low interest rate at the time, government backed loan. We took out a hundred and $20,000, and that was how we initially built accessibility checker. Interesting. So that is an option.

And the benefit of doing that is you don't give up any equity in your company. So we got a hundred and $20,000, which for us, we were like, we can use that to do about three months of our team salaries, basically, right, covering expenses. So we could literally say no to website projects for three months. And in that time and that gave us our timeline. We have to have an MVP out.

We have to have a website out and all of those things. And and, you know, I I think there are definite pros to that in that we didn't give up any equity. We got the money, but there are also risks to taking out a loan, which is that you now have to service debt. So we had to look at it and figure out what is the, what is the monthly payment on this going to look like. We had to feel comfortable at the time.

Just myself and my husband were owners of the company, and so we knew we were also an LLC. So a lot of it was it was there, but we personally like, our Social Security numbers were backing that loan. So we had to know, like, what happens if all of our, like, the product doesn't sell? What happens, you know, if our all of our marketing if we're gonna stop doing building websites for three months, will we suddenly be able to start redoing them again when that three months ends? You know, what happens if that revenue goes away?

We would personally be on the hook for paying back that loan. So there is definitely a risk associated with that that you maybe don't have if you bring on investors because investors are sort of taking on that risk. True. So, actually, I might skip to the last one briefly because I think that will be quicker. So validating and funding a product through preorders or platforms like kick starters.

So that's quite an innovative way of getting funding, isn't it? Like, getting people to pay for a product that doesn't exist or, make a contribution or something like that. It's we actually did an episode with Kevin Geary, late last year about Etch, which he's heavily doing prelaunch marketing for and has raised a lot of money through, early deals when it's not going to exist for quite some time. And that's had huge interest. So I'd say you need to be kind of very good at marketing to do that or, you need to be a certain type of person.

I don't think I could pull that off personally, but it's interesting here. I think you have to have a list already. To be I I think it's very difficult to do crowdfunding if you don't already have a really large email list or large social media followers. A long time ago, I had a business idea before I was doing WordPress websites. It was like a brick and mortar business idea, and I attempted it was in the early days of crowdfunding.

I attempted, and I got a few people who committed some money, but nothing like what I needed. And so it was a failed crowdfunding campaign for a brick and mortar business. Yeah. So, like, I think that's something to keep in mind. If you don't have a very large follower growth or customer growth from a different product already, it might be challenging to fund a new product idea in this way.

I think so too. And the Kickstarter is at least safe. Crowdfunding can get like, the the the the percentage of of interest that you have to pay can get really high in crowdfunding. So I I know of people that that started the business with a crowdfunding and then had to pay it back and were almost unable to do that. So that is not always the best way.

It's it could be easy and you think, oh, a lot of people will help me, but you still have to pay that back. So if it's yeah. So that that could So there's end up being, expensive. There's a newer thing that exists here in The US, and I don't know if this is a thing in Europe, but you can actually do equity crowdfunding in The US now, which is really interesting because it's a way to bring on micro investors, and they get, like like, one share or, like, very small amounts of ownership in the business. And we say one share out of, like, millions of shares.

Right? Like, so that's kind of an interesting thing that I've read a little bit about, but there's a lot of really weird rules about that because, at least, with the SEC in The United States, they have a lot on trying to make sure that you're not taking advantage of people who don't understand what they're doing with their money. And so they have a lot of rules around how you can even promote equity crowdfunding campaigns. Like, you can't promote them in the same way that you do just like a donation based crowdfunding campaign. But that is another kind of interesting mix between crowdfunding and then what I think we're gonna talk about more, which is taking on actual investors.

Yeah. Yeah. So so, Marika, do you want to talk about the investment side of things? Mhmm. I want I want to talk about that.

Marika, you want to know? I expect so. Yeah. So the VC, that's venture capital, sometimes people talk about private equity, those are all companies that have a lot of money and that their job is to invest that money in in other companies. So that's also what we do at Emilia Capital.

We do more things, but we invest. And our whole business model is aimed at making sure that you can sell those companies in a higher price range where you'll make profit or but this is different for and this is very important. Or a company becomes very profitable and because we have a share, we'll get a part of the profit every year. So what my so we talked talked with investors at Yoast, early on as well, but what I all of them said is we want to sell the company within five years. And at that time, we were not thinking about selling, like, in 2016 or something, twenty five, fifteen.

We were not thinking about, I want to sell, but that's basically what a lot of investment companies would do. They would say, okay. We're going to work with you and make sure that this company, becomes bigger and and more valuable, and then we want to sell it because that's the way they make money. At Amelia Capital, we don't do it that way because I don't believe in well, I do also believe in the fact that you can resell something, but I think it's also very profitable if a company becomes really profitable because then we can get a part of the profit every year, and that could also be like a business model. But I so I'm I'm not I'm not against perfect equity at all, but I always always always advise people to ask what is the goal of that, company?

What do they want out of it? And in many cases, it will be an exit. So it will be, selling the company, altogether. And that's something you you you either want or don't want or don't don't know yet. But if you, take an investment, that's pretty much what it will end up being like.

Yeah. The other side of bringing on investors also is you could do what's called angel investors. Sometimes those are individuals, or they might be they're angel networks where you go, and it's a whole group of angels who get together and all agree, and they all invest at the same time, through the angel network in, the company. The same thing. They're usually looking for an exit at some point in time.

Yeah. I think if we're talking the reality of WordPress products and the low valuations that they all probably have when they're first seeking this, the idea might be that you might have angels come in to do a smaller round in the beginning, and then those angels might exit either when you sell or potentially if you grew your revenue and your customer base significantly where you could actually do, like, a true funding round, then they would exit on that funding round when you brought in a larger institutional investor. Yeah. I think we are angels in a lot of cases as well. So so an angel investor, usually someone who is very early on could also be very involved, but some of them aren't.

So you have all kinds of flavors, But also, in the could could exit in an earlier stage if a proper investor comes along and takes up a bigger part of the, pie. It all happens. Mhmm. Yes. We've all done that.

So it's interesting what you say about a lot of investors would expect an exit within a certain number of years because I haven't done this directly, which we'll get to with story time. But in WordPress, I've seen quite a lot where that doesn't seem to happen. So there's you guys, and there's also the or what's it called? Growth accelerator fund or something that also Motive do, which is basically they sell a proportion of the company, and they seem to continue owning them. So I sort of feel in the WordPress space that maybe there isn't always that pressure to sell.

Also, Motive is is an exception. I think that because they and it that's a very strategic investor. He, Shayed, of course, is very, very in the WordPress market. So I think he has a way of, monetizing those products, which is amazing what he does with that. So I think he is a bit of an exception.

If you look at especially in the hosting business, you'll have a lot of VCs backing those companies. And some of them aren't being resold or we don't see them being resold because sometimes that does happen. So they go from VC to VC, but nothing really changes. But in the product, there are a lot of small products, and I see Sayed coming in and and, and and buying all of them. There are some products that really have had some large amounts of investments, though.

And they I don't know if they we don't know yet. So it's also the like, I know a few that that we invested in that are now being, resold or back. I'm sorry. Talk about that. But that does happen.

But not as much, I think, as in the other, or any other in the world outside of WordPress. Yeah. Interesting. The thing and I'm always unsure of is to what extent the investor actually helps the, company to grow. Because sometimes they're completely remote, aren't they?

And other times, they're really hands on. And I'm a particular fan of, Dragon's Den slash Shark Tank in which you see them actively helping to provide strategic and often practical support to help that company to grow, which obviously benefits them. How common are the two different types would you say? Very common. Both of them.

I I am one in either way. So I'm I'm invested invested also with my time in some of our our investments. We also invested in a fashion brand. Yes. Not in the WordPress space.

I don't do anything with them. So, so in, in the WordPress space, I think the most valuable what we can offer is our network. So we know a lot of people. It's very easy. So it's not, it's not very time consuming on our end.

It's very easy to connect people to each other. That's that's, I think, a large benefit of having an investor, also an investor like Shayet Talke, who who knows everybody. So that that helps, a lot. We also have knowledge and we can advise, stuff. So so that's that's something I think is very valuable as if you have such an investor.

But I also do investments. I I would like to invest in companies that are founded by female people. And people female. Yeah. But they're women.

And, so and and the workforce space is pretty hard to find those. So that's why we have a fashion brand, and we have a skin care brand. We have all kinds of other stuff because I wanted to have more women in our, investment portfolio. Yeah. Yeah.

I I would say, I think if you find an investor that's in WordPress space, then they're more likely to be involved. Yeah. But if you, you know, went to family and friends and did a friends and family round, which is very common, a lot of small businesses do that, They're probably not going to be involved at all because they're not going to understand what you do. Right. They're just going to believe in you and be willing to invest in your company.

I think too so we did an accelerator, and I talked to a lot of different larger, like, VC companies and before we went to, Emilia at that round. And a lot of them are not super involved with their investments. So I feel like outside the WordPress space, it's probably more common that investors might have, like, an annual shareholder meeting that they show up for. They might get quarterly reports or something like that, but they're not really going to be, you know, Marika looked at my blog posting strategy and gave me advice, right, and feedback. Yost has looked at the code of our plug in and said, hey.

They also contributed some dev hours. Right? But I don't know that I I feel like that's above and beyond for an investor. I don't know if that is typical always. What most investors do, and we always forget this, is that if they do want to participate, they want more shares.

And we we always forget that. We're we're doing this. We now know this. No. We don't need more.

That is fair. Yeah. And and and they'll get, like Or a salary. Shares for yeah. Yeah.

Which Yeah. It affects the valuation because you're getting more value out of that investor. So it's right to give consultancy fee or extra equity. That does make sense. Yes.

Yes. So that's usually what some of them, negotiate in. But I also see in, for example, which is a WordPress brand, but they're actually moving beyond WordPress, he has multiple investors. And I see others of also being involved, and they're not in the WordPress world, but they are involved. You can also have people being involved in your numbers or your finance, and they don't necessarily have to be WordPress people.

So I also cool. Yeah. Yeah. I also see a lot of investors being, like, very involved in the in the financial business. And that could help as well, setting those up and making sure that that's that all works correctly and that you put your numbers in such a way that your valuation is higher because that's, like, a whole magic thing in itself, I think.

Yeah. We had a really good question, and I wonder if we should, address that. Mahadi Ali had asked, what do investors look for in a WordPress plugin or theme business? And I wonder if you wanna start by addressing that as an an investor, Marika. So I would look at, do I see potential in growth here?

Is it a new idea? Does it add something to plug ins that are already in the WordPress ecosystem? Because that's really important. Is it something that adds something? Do I see people spending money on this?

Because if you want to invest it, it has to make money. That's just, yeah, it's just the way it is. And and could we, as investors, help you to grow this? That's really important for us. Because if we don't feel like, okay, we're going to be able to do anything, then it's just not fun.

So we do have some brands that we don't do anything in, but it's not really fun. I just do that to because I think it's very important to have more female founders. So I do feel something, but it's not that fun. It's just, like, gets there. So I would like to feel or have the idea that I would also be able to contribute to, the growth of that product.

But that that's for me, I don't know. So some of the feedback that we got when we did we did, an accelerator called MassChallenge, m a s s challenge. It's a nonprofit zero equity accelerator. I and they do virtual. They have some for people around the world.

So I highly recommend that if you're interested in, you know, learning about that. And and then we pitched a lot a lot when we were getting ready to do our our initial raise round with investors. And some of the things that I learned is, you know, you talk about, is it going to make money? Like, one of the things I think they care a lot about is who's on the team. Yeah.

So, for example, my team is myself who has a lot of background in marketing. I'm an accessibility expert. Like, I I get that. My husband has a business degree and has run multimillion dollar departments and understands budgets and HR and, like, all of the, like, operational things that literally make something happen. And then we brought on our partner, Steve, who was originally our developer, but he became a partner in the company, and he has the tech background.

So, right, so we have a very balanced team. And I I do know I saw other people going through the accelerator who was maybe just like they were the tech people and they were building an app, but they didn't have any marketing expertise. They didn't have any of that, and they got a lot of questions, which is like, how are you going to do this? Right? So either you need to have a really strong founding team or you need to have a really solid plan for employees, and that needs to be budgeted budgeted either into what you're already funding or, like, what you're asking for to show that you are going to be able to make the business last long term.

You're completely correct. So I'm just looking at the question, what do I look for in a WordPress plugin, which you're right that the team is very important. And Yoast will always say, I want to have a technical founder, but that's just because he is a technical founder. And I would always say, I want to have a founder that understands marketing. But so that's that's just your look like we we just we'll we'll seek for people that look like like us.

Like, okay. We understand those, but the team is really important. And and I think that's the case for every investor. You want to talk to people. You want to understand how they work.

And if you if you can work with them, that's really important as well. Yeah. The other thing I think that is huge if you're looking to go for investment is, do you already have customers, and what is your MMR currently? Yeah. So I talked to some people who they're like, we really love this idea.

Come back when you have at least 10 k in monthly recurring revenue from your product. Right? There are some firms that won't invest in anyone that is below that. There are other companies that are really open to, this is an idea. We have zero customers.

But but it's a very different type of investor that is, you know, willing to do that. And and if you are doing, like, looking for serious funding, you need to figure out who to target based upon what your current customer and revenue from your product is because they don't care about I mean, we we were like, oh, we have 700 k in service revenue, and they're all like, yeah. We don't care. No. I understand.

That does not apply to investing in your product. It's all it's also really hard to establish a value or evaluation of a company that doesn't sell anything yet. We've also done this. We also have shares in companies that don't make any money. I wouldn't necessarily do that again because it's very, very hard and it's you you really don't know.

I've when I first started out as an investor, I was just I always thought, oh, this is a good idea, and this is a good idea. I thought everything was a good idea. And now I think, yeah, but a good idea doesn't necessarily, like, translate into a good business. That's just not what it is. It's it's it's hard to to to get that business up and running.

Yeah. Yeah. That's true. And, of course, the subject of this episode of WP product talk is how to fund your next product. So that implies that you haven't got revenue yet of that particular use case.

So maybe, you know, with it sounds like maybe the best time to get investment is not before you start potentially, unless you've maybe you've got a really great track record, like, say, Kevin Geary with Etch or something because he's a known person that can build successful products. Maybe that could have been a candidate. But if you it's your first product, then maybe, investment isn't the best first step. What would you say? I wouldn't.

No. I think it would be really hard. I think you would have to give up a lot of your equity because your valuation is really, really low. So unless it's someone that you really think I need that person to get me, but, yeah, then you'll actually have a partner. That's just a partner if you're if you have someone who does that with you.

Yeah. Which is a valid option as well, actually, partnering with somebody and they get equity. Yeah. So if you're a sole developer, for example, you need a marketer, then you could actually go into business with a marketer. Yeah.

But that's not receiving money, is it? That's receiving their time. Yep. Yeah. That that said, I I think if you're thinking about funding and, you know, we talked about pros and cons of loans verse verse, you know, bringing an investor, giving up equity or not, a thought that I always had because we've had people be like, why did you offer to let your employee become a partner?

Right? Like or why did we go out and get investment, you know, instead of just taking out another loan? But for me, I'm like, well, sure. I could own 100% of something very small, or I could own less than 100% of something that is quite big. And guess which one makes more money?

So giving up equity is not always a bad thing, and I I think there can be some some great value that you get from doing that. I Katie, so we've talked a bunch about fundraising, and and you're one of the people who hasn't. You've bootstrapped. I'm wondering if you wanna transition a little bit to, like, personal stories and talk about your experience, how you fund new products when you're gonna add them because you also have multiple products in your portfolio. Yeah.

And, actually, maybe we could get to Zach's question as part of that. So, Zach has said, if you already have revenue for existing products, what about seeking collateral in the existing business when fine funding a new business? Actually, that's more of a question for Marika, isn't it, before we get to story time thinking about it. So would you do that? They want it's an existing company that wants a new product funding.

Would you say, well, I want a percentage of your existing business? Yeah. Yeah. I wouldn't do that anymore, but we did that with Equalize Digital. But I wouldn't do that anymore, I would say, but it's really hard.

So I see a lot of a lot of companies. I would I would want to have a share in the product because that's that's going to make money at the end, or that's the thing you want to have money. And so if a company has two things, I would now say, okay. We're going to invest only in in the part that's, that's the the product part. So that means that you kind of have to split your company if you have a consultancy.

It means you have two different legal entities now, different bank accounts, different things, if that's the idea. Yeah. Yeah. Interesting. Yeah.

Okay. May or may not wanna do. No. So yeah. Complexity as well.

So, yeah, like Amber said, I've never taken any kind of funding or, financial support, loans, nothing. We've always been bootstrapped. And so I'll talk a bit about how we've done that. We first of all, as as many people who get into WordPress products started off by doing websites for clients. So we had an agency, which was my husband and myself owning it, and we used freelancers at that time for extra capacity for development and things.

So when we decided to start selling products, my husband, Andy, as the technical lead, just stepped away from the client side of things while he built our first plug in. And I continued doing all of the client management and working with the freelancers and so that we still have some revenue going. And, also, with client work, if you've, done it right, then you should have some, recurring revenue such as hosting and maintenance agreements so that even when you don't have new products, you should have some revenue from clients coming in. And that takes literally years to drop off. We still have revenue, from clients, and we haven't taken on a new project since 2016.

So they take a long time to go. So, ours was initially funded by the client business, which was continuing to pay the bills while we started selling plugins. And we started off with intentionally small products as well that met a specific need, like adding a particular feature to WooCommerce or something like that. So that way, it meant that the development costs, which we were doing in house, with our own resources anyway, were low. It just there was an opportunity cost because, obviously, Andy could have been doing client websites.

But, so financially, it was fine, and it was helpful that we had that existing setup. But I think that a lot of people wanting to start in WordPress products have a similar setup. And even if they're an individual, a freelance developer or something, like I say, they could outsource some of the work. They might have some existing hosting revenue to tide them over for a bit. So you don't have to if you're building small products particularly, you don't necessarily need funding.

And then as you've got more products, obviously, you've got revenue so that you can maybe spend a bit less time developing the existing product while you're building a new one. So that's how we've always done it at Balm two, and it's still fifty fifty with my husband and myself. But it's a weird time because he left the company, in mid last year, and he still owns half of it. So I'm kind of waiting to see what he decides to do. At the time, we decided that he would keep his money in balm too, But it's possible that we would be, you know, seeking investment or selling equity or something in the future if he decides, say, to start a completely different venue in a new area or something.

So maybe I will learn more about this in the future, but for now, we've always been self funded. My one doubt, though, is how much faster we could have grown if we've got help from outside. And, like, now I feel pretty well connected, that I can, make the most of the WordPress community and get advantages from that, for example. But, at the time, I couldn't. So maybe if I had been a bit more open at the beginning or at when we had that, say, $10 a month revenue or something, maybe we could have grown quicker.

And I did actually have an offer in 2019, I think, from, the WPBeginner Accelerator Fund, which I decided not to go ahead with, and I never know if that was the right decision or not. Katie, if somebody came up to you and said, I'll give you a million dollars today for some percent. We don't have to talk about the percent. Do you know what you would do with that money? That's the thing.

It wouldn't really be for the money. I would probably take it out of the company and invest it somewhere else, stocks and shares. I don't know because the company doesn't need more money. The company is doing well. For example, you probably know that we're starting to build Shopify apps, and we're funding that just from our existing revenue.

So two of my existing developers, I've moved on to Shopify. So we don't really need money to grow the company unless it's different scale. Yeah. But if you if you would get an investor, that money would go to you and not in the company. So if you sell shares, that money would go to you.

Yeah. True. So and then we don't invest to reinvest it in the company. No. No.

That's the So, yeah, that's the thing. I mean, normally, though, when we're thinking about, like, getting an investor, it's to further company growth. But if your company doesn't need that, right, then that's the answer. Would you have could you go faster? Of course, you could.

Right? If you got extra money, you could build eight Shopify products next month. I don't know. Right? Right.

If you hire more developers. Yeah. But if you don't want that, then there's no reason to do it. Right? Yeah.

That's the thing. For me, it's a lifestyle decision as well because I haven't built the structure to have more managers and product managers and so on. If I had an extra four developers, that would be a lot more work for me and, I'd need to create another tier of product management and so on, which I don't necessarily want. So, yeah, I suppose that's not really seeking funding. It's more selling part of your company.

The selling part of your company, that's something you could do. Yeah. Then you have a then you have a lot of money, and you can add a add a part to your house. Or Or or Andy could sell his. Right?

That's what it would be. Oh, I don't have to think about it. No. So I want to keep what I'm doing for the foreseeable, but I've got this interesting new situation that my husband owns half the company and isn't involved. So he could make the decision at some point.

So I'm starting to think, oh, what would I do if that happened? Because I'd still be running the company. Interesting. Anyway so, I think I you know, I think it's always interesting when I think about the decisions that we've made with our funding. So first, taking out the loan, which I teased this a little bit earlier.

Our interest rate is real high right now because it's it's a multiple of the federal interest rate, which is quite high. But we've had conversations because we we had the cash that we could have just paid off what was left on the loan. I think we have about half of it left at this point, but then we decided that we'd rather keep that cash in the business to reinvest, and it didn't make sense. Like, let's just keep paying the monthly payment and be okay with the fact that there's a an interest rate. Like, it made more sense to put that money into active development than just paying off debt.

But, like, thinking about that, the fundraising round that we did with Emilia, like, all of that has 100% sped us up and allowed us to get So before we brought on investors, our we had done the initial loan, and that allowed us to do the initial development of the product, which Steve's in the chat. He can correct me if I'm wrong. I was get I'm getting years mixed up now, but I'm pretty sure we released that in December of twenty twenty, January '20 '20 '1. And for most of 2021, I think we didn't do a lot on the product at all because we had, I don't know, two people who maybe bought it right away because we love them, and they're amazing. And then, like, hardly anyone.

And so we had to go back to what was paying our bills, which was customer work, and so we didn't do very much on it. And then it started to grow, and it started to build a little bit of revenue. And but we were like, you know, this we still aren't able to focus on this full time. So we said, okay. We want more money to invest in marketing.

We want to be able to hire a full time developer just to work on this product, not to have to do client work. And that's what led us to decide to take out like, to go get investors and to, trade equity for money. And and, you know, where we are now, we were so excited. Like, I was looking at it last year. The plug in funds a full time developer, which in the beginning, it didn't.

And so we've been able to grow the revenue of that enough to cover that plus the time that other people on our team spend on it as well, our marketing person, myself, my partners. So I I think, you know, there is definitely there can be huge benefits with taking out loans or getting investors that allow you to move faster and get out more of the features that you want or do more marketing. And and and I I just think, like, in general, you have to be aware, though, of what your end goals are. Because for us, we're not really right now looking for just kind of, like, a lifestyle business. To be totally honest, my husband and I had that with our marketing agency.

Like, we lived in a travel trailer and traveled around for two years. Like, we had the lifestyle, but we want something that is going to deliver more in the long run. We have a goal of selling and making a lot of money when we sell. We got four kids we gotta put through college. Right?

Like and so I think if you're a product owner or founder, those are the kinds of long term things you have to think about, and that can help shape these decisions on how you fund your product and how fast you want your product to grow. Yeah. Interesting. Yeah. So we've just had a question.

So, should I focus on freemium or premium models when looking for funding? Marika, would you do you have a preference in in that? As an investor or as an open source advocate? I As an investor saying. In the WordPress space, I really believe in freemium be because but then the free product needs to be good as well.

So don't create something that doesn't add any value. And as a WordPress community member, I really believe in freemium, but then the same to make sure that the free version does something, for users as well. So it's not just an upsell thing. I think within WordPress, you'll have the biggest chance of growing if you do a freemium, model. But I haven't done anything else, so I'm not sure.

Maybe it is possible then. But then you need to do a lot of marketing, which you need to do anyway. But I yeah. So I am a freemium, believer. I I will say outside of WordPress, there were a lot of investors we talked to who dismissed us because, one, GPL, two, WordPress open source, and they were basically like, this is not a good investment because anyone could take your stuff.

Yeah. But that's also the reason why you but when it's only if you have only a premium product, the chances that and it is open source, then the chances that someone would just copy it and and offer it for free in repository is very big. So that's always the the trade off that I think people are they will pay for something if it adds value. But if if you're just taking advantage of the ecosystem, that will not pay off well. But that's just I just really believe in open source, but a lot of investors do not.

They don't understand the GPL. And to be really honest, the current atmosphere and the things that are going on in WordPress aren't good for investors. This is not a good, situation we're in with a lot of drama, which also, investors know because investors are the no. Bankers are the most chattiest people. We we had a banker helping us when we sold Joost and he we still talk to him.

He's a Dutch guy and, Joost takes him to football matches and stuff. And, he always has, things to tell us about, oh, that one is looking for funding, and that host is look he knows everything. So these people also know, okay, it's, like, a little weird in the WordPress world, which is not good for invest investments. That's just yeah. That is Yeah.

That's a good point. That not just about the current climate, but, generally, people outside of the WordPress world, they may be used to investing in apps or something like that. Her, well, prejudice, I would actually say, about GPL and open source. They can't imagine how you could run a profitable, stable business without, say, intellectual property protection and patents and all of that kind of thing. But actually, obviously, there are many hugely successful companies within WordPress despite it their software not being protected in that way.

It's all about positioning and reputation and all those things, which are maybe harder to measure. But then why would you want to get investment from a non WordPress investor anyway? Because it's within the industry, you've got that more understanding. Hopefully, the WordPress money is money. I suppose, but you get less help from them, don't you?

They don't have those contacts, which, as Marika said earlier, it's not a lot of work for you to be connecting people because you're so well connected yourself. So for me, I I think it would be a no brainer to stick within WordPress, but, I'm sure there's another side. Perhaps it would be good for our ecosystem to have more people wanting to invest because that would just mean that prices would go up. And so for the entire ecosystem, it would be good. I know when we saw Joost, we talked to a Dutch non WordPress investment company, and they asked me, but you should have asked €1 for all of the free installs.

And I was like, yeah. It doesn't work like that. And he was just, no. No. You should just ask for €1.

People will will pay €1, and they they they didn't understand why we we didn't have email addresses of our free users. We didn't. But but that doesn't make sense to them because you're offering a free product. So it's a lot of explaining, but I think for the maturity of WordPress, it would be good if more investors would come in and invest in a in a way that is not, is that is sustainable. So not to to eagerly and to to to to try to maximize profits quickly, but in a sustainable way, it would help, products to grow.

Yeah. Yeah. That's true. And, it's a shame that multiples on WordPress company valuations are typically lower than some other tech industries, aren't they? So it would be nice to see WordPress getting more recognition in that sense.

We're the biggest, the biggest CMS out there, so that would be honest. Yeah. I think so too. Yeah. So before we move on to best advice, we've got a question from Zach.

How about the ecommerce structure? Like, is there a difference as an investor when considering WOO EDD Freemius? So I'm guessing that's about how you are selling your products. Would you look at that as a factor? I don't know enough about Freemius.

I don't think that Woo or EDD would make any difference. So Freemius would probably make a difference, I think, because Freemius takes a larger percentage of your sales. Yeah. So it's going to make your profits lower, which therefore is going to make the value of your company lower if you use Freemius. Yeah.

Sad truth. But at the same time, if you just you could also exit Freemius and make your profit bigger. Yeah. That would be another But that might be a condition. Right?

We'll invest, but in the first month, we're gonna change how you're selling so that you can have more profit or something. Yeah. I've seen that happen. Yeah. So that then then that's the way that the investor can win very quickly.

So maybe it's good if you use Freemius because then you can say, I can switch to WooCommerce and increase my profits by 7% or whatever it averages at. If I see quick wins, I really get excited. So if I see, like, people that have a free product and are not upselling the way I would upsell, that would mean, like, okay. I can and and you have a lot of free installs that could instantly up your, your profit. Also, people that I don't know if you do that, but we used to do a lot of, abandoned cart emails.

We actually emailed those those people personally. One of our employees would do that. That would make a lot of difference. If people don't do that, that could make, like, instantly more money. Yeah.

Yeah. That's true. I think for me, rather than it being about the platform, it's about your business model, like your, pricing structure. So, for example, surely, a business would be more valuable for investors if it had renewals, if it had recurring payments, if it had a SaaS model so that when somebody cancels, they don't use the product anymore. Whereas with most plugins and themes, if you cancel, you just don't get updates, but you can keep using it.

So I would suspect that the valuation is partly dependent on how secure that revenue model is. So the MRR and your churn or your reception, those are the things that we will look into first and then, the percentage new installs. Because if that's growing and your churn is low and, your MRR is is growing, but your MRR will grow even if you just keep up with all of the customers you already have. But you also want that percentage of new customers to grow. Yeah.

Yeah. And Maddie says, give a try to lemon squeezy. So that's an alternative to Freemius Freemius. Pose. Yeah.

Yeah. So let's move on, but we, going, quite a long time for which is interesting because there's a lot to talk about. So let's talk about our best advice, our one piece of advice for new WordPress product owners thinking of how to fund their product. So mine would be to think flexibly at the different stages of the life cycle of your company. At the beginning, think creatively.

Is there any way you can do it off your own back and stay bootstrapped initially until you can prove that value? If not, maybe you do need to get a loan or something, but just think about the future implications of that and servicing the debt. Or if you've already got some sort of track record, maybe it's time to get investment straight away. So I'd my advice is to be flexible based on your situation. What about you, Marica?

I agree with you. I would and I'm an investor, but I would think twice before giving up equity. So I wouldn't do that too too early on, except if you really think that this company or person is going to help you grow. But, otherwise, be well, yeah, be hesitant to to to take on, equity if you don't need to because then it will just remain your company, which is better in in many ways. Yeah.

Did we not expect you to say that? Yeah. Yeah. Let's just no. But I do believe but I think for most companies so it almost feels like that you're only successful if you have had funding.

So I was talking to someone from The Netherlands, also in the workforce business, and he has just a really high recurring revenue every year. Really, really high. And he said, but nobody knows it, because I didn't have any funding and he didn't feel successful. And I was like, you're very successful because you you build like a very, very highly profitable business. And I think that's like, that's really an accomplishment.

And I I just I don't feel like you should have that that funding is is part of your success. You could have a little marketing value out of it. And, I I like to fund WordPress companies, but if it it's not necessary, then you should not do it, and you can be successful bootstrapped as well. Yeah. Yeah.

So my advice, which I think is a great tailor into yours, Myrka, is you have to really know your numbers. So if you don't have a good accounting platform, if you don't have a good way of reporting and forecasting out and looking ahead, that is probably the number one place you have to start because that's what's going to help you figure out how you're going to fund your product, whether you're going to be able to bootstrap it, whether you wanna take out a loan and how much or bring in investors and for how much. So you really need to have a solid understanding of your numbers. And I like the accelerated program you you you mentioned, doing something like that. Or I do some business consulting, not that much, but that's I'm also looking at the numbers and and looking at how I could help this company grow, but we're not taking equity.

This man just pays me for for my services, which can help a lot as well. And this is, like, a good step if that could be something to help you get started as well, to find someone or mentor to help you, grow that first part. Yep. Well, I feel like that is about our time for today. Do you wanna wrap us up, Katie?

Yep. So I think that's been a really good discussion because it's a complex area, and I think we've covered it pretty comprehensively. So thank you so much for joining us, Marika. We really appreciate you coming on and sharing your experience in this area. Where can people find you online?

Oh, wow. Yeah. How can you find me online? I'm, well, I'm on the post status, like, I'm still I don't do Twitter anymore, and I'm not on Blue Sky anymore or yet, and I don't do Facebook anymore. You I'm really hard to find.

You can find me on the post status. Like, I'm not in the WordPress Slack either anymore. Yeah. The WordPress and elsewhere, like, I'm still there. Okay.

Well, if people are interested in funding for their next product, where can they find Emilia Capital? Oh, you can find Emilia Capital on our website, which is emilia.capital, I think. Yeah. And you can also take a look at progressplanner.com, which is our latest product. And if you really want to find me, you could just Google me.

I'm very well optimized to find me there. I'm so sorry. Yeah. Yes. As as one would expect from a founder of an SEO SEO company.

That that's all. Yeah. So thank you so much. For everyone who's watching next week, do not miss it. Our cohost, Matt and Zach, will be on, and they will be discussing the next step in the product journey, which is creating a product's brand and logo.

So tune in for that next week at the same time. So special thanks to Post Status for being our green room. And if you're enjoying these shows, then do us a favor and hit like, subscribe, share it with your friends, reference this show in your newsletters, and don't forget to tune in next week. Bye.

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