Any startup journey starts long before we read and first hear about it. Buffer was not a clichéd quick flip from a college dropout. Learn now about the secrets of HOW to START a Startup like Buffer.
Buffer was not a clichéd quick flip from a college dropout.
The original founder of Buffer, Joel Gascoigne, had already been an entrepreneur for years. He started his career as a freelancer (while he was still studying) and started several smaller projects and an unsuccessful startup before he successfully built Buffer.
Everything began in 2010 with a tiny idea Joel had. After being a passionate Twitter user for 1.5 years, Joel saw a problem that he wanted to solve.
After deciding to tweet regularly and build a followership, Joel had looked for a convenient tool for spreading his tweets through the day. However, all the existent scheduling tools forced their users to schedule their tweets quite extensively by determining times etc. Too much work for Joel!
That’s when he realized that a simple scheduling solution for Twitter could be made into an excellent application.
Let’s find out how Joel and Leo, his co-founder, managed to create one of the most successful Social Media tools and leverage social media in a way unmatched before.
Their blog is read by millions every month.
And on top, they inspire us because they openly share their salaries and other work approaches and so build a truly inspiring company culture and brand!
Too lazy to read?
Watch Joel himself and be inspired on how to start a startup. Of course, he can tell his story better than anyone else:
P.S. The following case is meant to serve as an inspiration as well as illustration for startup success principles. I concentrate on the things they did well and dug up metrics to help you see how a successful company is started and grows.
How They Initially Validated Their Idea
From his previous startup, Joel knew that building a product without proving it first is a mistake. This experience turned him into a ‘Lean Startup’ advocate and convinced him that each new product needs Customer Development more than anything else.
However, he soon realized that doing CustDev is a lot harder than talking about it. It started when he suddenly realized that he had begun to code without having any customer validation… However, he disciplined himself and tested his product with the easiest low-fidelity MVP possible.
What he did first was a very simple landing page that told people what Buffer was and gave them the possibility of signing up for it. When they did, they were told that the product was not ready and that they would be notified about the launch date (you can check out the design of Joel’s page here).
After tweeting the link to his massive Twitter followership, Joel received a few email addresses from signups that he would use to schedule personal interviews.
Some people didn’t get or like the idea, but some confirmed that they had this pain point and wanted a solution! The first box ticked.
After that, Joel posted the landing page again and simply added a window with different pricing options to see if people would actually pay for the product. A few did. Again, Joel engaged in conversations with his audience and tried to find out how they liked the idea. It taught him a lot about describing his product correctly.
When he was confident enough that people would buy it, Joel committed himself to build the first version in 7 weeks. Time went by quite fast, so he had to leave out a few important features and released a version that seemed penniless to him.
He kind of embraced failure at this point and anticipated that a lot of work would be necessary to make his product appeal to his audience. Nevertheless, it received some positive feedback, and Joel got a few paying customers.
The first significant milestones were complete, but he knew that his CustDev journey had only begun. He felt tempted to create new features but knew that it was time to focus on marketing and more Customer Development instead.
In the beginning, the app was really targeted. It could have featured scheduling tools for other social platforms, but Joel wanted his product to be great at one thing and not ‘okay’ at several areas. He also didn’t create a mobile app because he didn’t have the skills for this.
In retrospect, these decisions were significant because they provided an opportunity for focused learning. By confining his first version to a single feature, Joel could easily assess if people liked it or not! If you start with a feature-rich product, it can be extremely hard to determine what about it appeals to people and what needs to be changed.
Here Joel talks about how to start a startup:
Getting Traction and Closing a First Investment
After Leo Widrich had joined as a marketing co-founder, they tried to figure out how to get traction and get more customers. At the launch, their signup rate was not really great. They got around 100 users in the first month, out of which three paid for Buffer.
It took them around 6 months of trial and error to find the most effective growth activities. They figured out that creating great content that drove people to their site and getting constant press coverage by doing small ‘launches’ every 3-4 weeks helped them to attract the right traffic of users. They refer to small launches of new features they build or changes of existing features they made that were newsworthy!
Regarding funding, Joel and Leo started bootstrapped the project and worked regular day jobs. After they had reached a certain pace of growth, they quit their jobs and managed to get a small ‘seed injection’ by making it into an accelerator (AngelPad).
After that, they started talking to investors about the first round of capital.
Keep in mind on how to start a startup: The buffer guys were first-time founders, so they didn’t try to fundraise until they had traction and tried to use it as their primary argument. Let’s take a look at their pitch deck, which they made publicly available.
What Can You Learn From Their Pitch Deck?
At first, they point to a significant trend that their company jumps on. Social media marketing is rapidly gaining importance and soon will be a lucrative market to be in. After that, they give a short impression of their product and then dedicate a whole slide to traction, listing the following numbers:
- 800 paying users
- $150,000 annual revenue run rate
- 97% margins
- 55,000 users, growing 40% per month
- 1.5 million updates buffered
This is really the heart of the whole presentation. For convincing most investors, it is essential to reduce the uncertainty concerning the success chances of your company. There are basically two ways to do that: if you’ve created successful startups before or have any ‘rockstars’ on your team, you might convince the investors that your team will be able to work hard and adapt until your company becomes successful… No matter how bad your idea looks now.
Joel and Leo didn’t have that option. They simply didn’t have any track record to leverage nor did they have a superstar on their team. They had to take the second road: waiting until their numbers would start to tell a success story.
The most important numbers here are their user base growth rate (40% per month) and their number of paying users.
If you want to get VC money as a B2C startup, you should definitely have high double-digit monthly growth numbers – VCs only care for hyper-growth companies.
If you’re slowly but steadily growing, you’re not a worthwhile investment for them at all. That’s not even due to insanity or greed. Because so many startups break down, investors generally lose a hell lot of money and never make profits if they can’t compensate that by making huge returns with a few companies.
The number of paying users is important because it shows a) some of your users are engaged with your product and b) you can monetize them. Sheer user numbers are not really attractive for investors. If people sign up once and never use your service again, they’re worth shit. You should rather talk about paying or at least active users — people who are really hooked and actively use your solution.
What Else do You Want to Show in Your Pitch Deck?
You also want to show that you can make recurring revenue. If you don’t have absolutely insane growth metrics like Facebook or Twitter, monetization will absolutely be an issue for investors.
You might have heard of the Dotcom bubble when tons of money was given to a company that was somehow doing something on the internet. Well, it turned out that most of these businesses were effectively worthless because they didn’t manage to make money with what they did. Many investors have learned this lesson the hard way because they lost a lot of cash back then… Now they know better.
After that, they feature a slide with a few milestones from their company’s journey. Such a slide is good to show that your company is moving forward (rapidly). Investors want to see you developing your company at a fast pace. Money loves speed, and investors love money.
The next slide features Buffer’s business model. If you want to raise money, you need to have a business model! Not just a product, but a plan about how you’ll make (a lot of) money! Don’t ever approach investors without one.
After that, Joel and Leo talk a bit about the market potential because investors want to see a great market and about the benefits of their solution. Notice that they keep their slides very simple. They always focus on the main points instead of covering too many aspects.
Don’t ever overwhelm people you’re pitching to – deadly mistake! It’s not their job to understand what you wanna do, but it’s your job to give a clear and precise overview.
The next topic (competition) is actually much more important than you might think. At first, Joel and Leo experienced a problem that countless entrepreneurs have:
‘The question was almost always timed at the exact moment in each meeting: “So, aren’t there lots of other apps doing the same?” And we explained to them about the TweetDecks and Seesmics and that Buffer is different and so forth. That never worked. So after lots of meetings, we realized that the competition question (in our case) created the most friction and eventually left people too confused and not interested any more’
Many founders are convinced that their product is different from everything that has been done and won’t really compete with other products. However, most investors don’t swallow this. They will either think that you don’t know your market well enough (which might be true) or that your idea can’t be so great because no one has done anything similar.
#EntrepreneurHack: Always list other products that are somehow comparable and tell people how yours is different.
Finally, they present their team and give some references (advisors and previous investors). The team slide is an important one. Investors always consider your team much more important than your idea.
However, it’s controversial if you really need a slide for it! For example, the VC Jason Ball argues that this slide is generally annoying unless there is something fascinating about your team.
If you have a rockstar co-founder whose name might ring a bell or if one of your founders did something impressive (‘product manager for Google Maps’), a team slide will be great, and you should definitely include it. If not, you might just let the VCs judge your team ‘on the spot’.
What’s The Result of Such a Slide Deck?
With such a deck, fundraising shouldn’t be so hard, right? Nope. It still took them 150 meetings to raise their first investment — a total of 450.000 $ from 18 different investors. A sum that is an early standard investment in Silicon Valley but would be completely insane at most other startup hubs.
If you look at their public list of the people who invested in them, you will notice another basic fact about fundraising: it’s mostly about relationship building. Most of them were people they had been in contact with for a while, for example, mentors at AngelPad.
One of the most common shibboleths among investors is that they want to invest in people and not in ideas. Getting cash from someone who trusts in yourself and your vision is so much easier than approaching strangers, so don’t neglect personal network building!
From this point, Joel and Leo built the successful company you know today! They have more than 2,000,000 users now and are one of the most famous social media marketing tools.
I would still point to some truly remarkable things about their company culture. I think that they have been major factors for Buffer’s success, so listen up!
#1. Secret Sauce: Great Customer Support
From early on how to start a startup, the Buffer team was really passionate about providing quick and flawless support for their customers. 25% of their team was entirely dedicated to it while the rest was also doing it from time to time.
They even create a monthly “happiness report” where they compile all the metrics they have on customer support interactions.
Why does this matter? I think there are two reasons why providing excellent customer support is essential for building a great company:
- Making users happy means growth. You will create a good reputation, and that will pay off! Most people are used to getting gruesomely bad support when they really need it. By surprising them at this point, you might even turn an angry nagger into an evangelist who spreads the word.
- Customer support is great for understanding your users. At your support line, they tell you FOR FREE how they use the product, what problem it creates for them and what should be improved. If a few unhappy interns handle these calls, all these valuable insights will never reach you.
Okay, it’s actually not really a secret – many successful startups focus on customer support as you will see in the upcoming cases of Slack and AirBnB.
#2. Secret Sauce: A Company Culture That is Built on Strong Personal Values
It’s quite a common startup knowledge that you should always assemble people who hold the same goals and values as you do. However, the Buffer guys have done more than that.
If you look through all the stories of their company, you will see that they have really built it around the values that they uphold in life.
Firstly, they have put their culture into words. I know, nothing to get excited about – almost every company does that. However, the guidelines of Buffer really feel like simple and great words that really have a concrete meaning.
Here’s an example: Live Smarter, Not Harder:
- You value waking up fresh over working that extra hour.
- You always aim to be fully engaged in an activity or resting.
- You single task your way through the day.
- You are at the top of your game, as you focus on expanding the capacity of your mental, physical, emotional and spiritual energy.
- You choose to be at the single place on Earth where you are the happiest, and most productive, and you are not afraid to find out where that is’.
Take the last point as an example. They practice what they preach. The team is internationally distributed. By now, their staff is spread over 22 cities in 8 time zones!
Because they value self-actualization so much, Joel and Leo keep living as a digital nomad from time to time. Furthermore, they have given each team member a self-tracking wristband and implemented a daily personal improvement program.
Every 4 months, they are making retreats with the whole team to get face time.
Why does this matter? All entrepreneurs and startup members need conviction, belief, and trust to make something successful. I won’t get into the reasons for this, they have been summed up nicely by Steve Jobs.
And how do you spark this? By living by your personal values!
Each human has this set of things he or she loves, considers meaningful and fulfilling… These things may change over time, but you can’t just impose a new set of values upon another person or yourself.
Each and everyone of us remembers feeling bored, lazy and numb while we had to do something we considered meaningless. One might get through it with discipline, but most can’t create something great like that!
That’s why we really need to seek silence and think about our personal values from time to time. Sadly, most people don’t ever do that but simply adapt to whatever their circumstances require from them. The consequence is that laziness, boredom and numbness become their default state of being.
As an entrepreneur, you can take a different approach!
Each startup journey is so hard that people who are not passionate — founders or team members — will leave or lose all productivity.
If there is one thing that I’d like you to learn, that’s it: Always know and better understand your personal values in your startup.
Don’t just work on a topic you like, but build the whole company culture around your values or as a team member search for a startup that lives up to your values. Fuck 9-5 and all trends or ‘best practices’ that contradict how or on what you’d like to work. Don’t hire top people who are too different and let great team members go if there are obvious disagreements!
A Look at Buffer’s Business Model
What’s really cool about Buffer is that they follow an agenda of absolute transparency which means that they make almost all of their metrics public!
For example, they created a key metric dashboard everyone can access as well as open spreadsheets with all salaries and their equity distribution! This allows us to take a more detailed look at their business model than at other companies.
Buffer has a so-called “Freemium” model. It offers a basic version of the product for free while people have to sign up for a monthly fee if they want to use certain premium features. Other prominent companies with Freemium models are Evernote and Spotify.
The biggest challenge of Freemium companies is that they need to get a huge mass of users because the conversion rates from free to paid plans are generally not too high. As a rule, it’s a low one-digit percentage. At Buffer, it’s 2-4%. Buffer has tackled this challenge by providing great content marketing, that means by filling their blog with content that is valuable for their audience.
Let’s take a quick look at how this basically works!
Naturally, most of their users will be some kind of Social Media Managers. Buffer serves these guys by providing lots of really actionable guides on Social Media topics like creating a marketing plan, using Twitter properly or using hashtags.
By providing useful insights instead of just praising their product, they manage to attract their audiences’ attention much more effectively and build a trustful relationship right from the start.
If you want to know what defines great content, take a look at this case study about their content marketing if you want to get more advanced insights!
Furthermore, their ‘full transparency’ approach is a great content marketing strategy by itself. By sharing tons of quantitative and qualitative data about what’s happening at Buffer, they manage to give other founders lots of inspirations and some opportunities for benchmarking their own company.
Buffer published a post that makes their pricing completely transparent.
It’s a great analysis because it shows how the revenue stream of a freemium company might look like!
Let’s Look at Costs First
The biggest expenditure for Buffer are salaries – they make up more than 65% of the product’s price. Note that Buffer is quite an established startup by now and that they are paying good salaries of more than $70k per year to each team member (we’ll analyze that further in a minute).
If you’re just starting up your company, these figures should be much lower.
In the case of a hardcore bootstrapping approach, the funding team will not even take any salaries and live off savings for several months or even years.
The next 9.2% are used to maintain a great culture which is quite remarkable and not very familiar! As outlined above, every 5 months the whole team goes on a retreat. That is expensive because Buffer covers everything. Buffer also gives out free Amazon Kindles to any team member and pays for any Kindle books that they want to read.
This is a way of setting incentives for hiring: for your startup, you rather want people who love what they do and enjoy getting better at it than careerists who are just in for the money.
Buffer allows everyone to work from anywhere they want. So, of course, they pay for their internet connection and provide their team with any equipment they need (laptops, phones, etc.).
They also have a small office in San Francisco for anyone who feels like working with the team in person.
Buffer has more application than any other startup. Their growth will never be limited by not finding the right people to join their team. This is amazing!
The next matter of expense is operations + tools (9.8%) which is mostly made up of the dozens of web tools and services that they are using (4.2%; this includes tools like Olark, Github, Hipchat, and Freshbooks; for a complete list, check out their post) and operations (3.6%; this includes legal, accounting, health care for their team members).
Now, Let’s Look at Their Pricing
6.7% of the revenue goes into servers and web-hosting. 2.1% of each transaction are directly being charged by their payment service Stripe. That leaves exactly 4.6% of profits!
What are They Paying Their Team Members?
What they did is really amazing. They published a live spreadsheet where everyone (yes, the public!) can see how much each person at Buffer earns and how much equity he or she has.
You might ask now: ‘It’s an old wisdom that making salaries public is the best way to break a company, how do they manage to avoid all the hassle it may cause?’
The answer is simple and yet effective: They just ask each team member not to look at the table.
Lol, just kidding. You didn’t believe that for a second, did you? 🙂
Here’s the real answer: Buffer avoids all the comparisons and questions that might come up by computing each salary with an entirely transparent formula. It makes absolutely understandable how each salary is determined and works with factors that are not so easily refutable!
Buffer’s salary formula and all variables can be in an open and live document here. The primary elements that make up the salary of each team member are:
Salary = job type X seniority X experience + location (+ $10K if salary choice)
Each job type has a specific basic salary. For example, a ‘happiness hero’ (customer service) has a basis of $45,000 per year, while it’s $60.000 for an engineer.
The seniority factor is dependent on the seniority level that a person has and on the revenue that the company is making. For example, it looks like this for a senior position:
+ 5% base and 3k/$m revenue for first $4m, then $1.5k/m for next $6m (until $10m ARR)
Read: +5% of the basic salary and then 3k per Million of annual revenue for the first 4 Million, then 1.5k for the next 6 million (up to 10 million of annual recurring revenue).
Next, there is a multiplier for the experience level of the person (a factor that is a bit more subjective). It ranges from 1.0 for junior people to 1.3 for ‘masters’ (which only one person in the company has right now).
Then comes the location factor. As we already noted, the Buffer team is fully distributed. Anyone can work from anywhere he or she wants. It’s part of Buffer’s policy to make each team member as happy as possible.
Because some places in the world have higher costs of living than others, there is a corrective factor based on the location that the team member lives.
It relies on 4 different classes:
- If a team member lives in a very cheap place like India or Vietnam (class D), there is no bonus.
- If they live in a more expensive place like Poland or Chile (class c), people get another $ 6k per year.
- The next class is European/American cities with moderate prices like Austin or Vienna (class B), which gives a bonus of $12k per year.
- For places with exploding living costs like San Francisco or London (class A), the bonus is $22k.
Last but not least, people can choose one of two options: they can either get more equity (which is also computed for each team member with another standard formula!) or $10k more annual salary.
Let’s look at one quick, practical example from June 2015!
- Carolyn, Buffer’s Chief Happiness Officer, has a salary of $45,000.
- Her seniority level is ‘C-level’, which gives her a 20% increase= 54,000 total
- She also get’s 8k/$m revenue for first $4m and 4k/$m for next $6m (until $10m ARR). Buffer has $ 6.61m ARR at this point, which makes $42,400 = $96,400 total
- Her superior experience gives her a multiplier of 1.2= $115,680 total
- She lives in San Francisco (terribly expensive) and, therefore, gets another $22,000= $137,680 total
- She has chosen the ‘equity’ option, so she doesn’t get a bonus= $137,680 total
- (the whole thing is rounded down to $137,000 total)
Easy as pie, isn’t it?
Computing the Equity for each team member works just the same! The formula for that is:
Equity = Job Type X Choice Component / Risk layer + Seniority Component
Each job type has a different amount of equity. For example, the factor for ‘happiness heroes’ is 0.5% while it’s 0.7% for a designer.
If people chose the ‘equity’ option instead of the higher salary, they get another 30% (multiplicator of 1.3).
‘Risk layer’ means the point when a team member joins the company. Of course, joining the company at an early stage is a lot riskier and requires much more effort than joining a company right before an IPO, that’s why early team members get a lower divisor.
For example, the equity shares of the team members 1-6 are being divided by one, while the share of team members 31-60 are being divided by 10!
Last but not least, people with seniority levels receive a bonus. A ‘senior’ level gives another 0.1% of equity while a ‘lead’ level gives another 0.2%.
As you can see in their public table, the equity of most team members ranges from 0.960 (for a c-level engineer who joined the company early) to 0.077 (for a designer who just recently joined the company, which has almost 50 team members now).
I hope that these formulas will serve both as an orientation and an inspiration for your own future ventures!
Who Doesn’t Want to Work For BUFFER?
As the success of Buffer shows, full transparency can breed an enormous amount of trust and satisfaction instead of envy and resentment.
Let’s all focus on creating a clear and clean work environment that is fair to everyone and based on friendship instead of building more muddy wrestling pits for power mongers!
Lessons to be Learned From Buffer on How to Start a Startup
- Start small and start early: Only a few inexperienced people manage to create a successful startup right away. Most founders have done different entrepreneurial projects until they finally become successful. There are lots of things you can do to grow your skills.
- Tackle a topic you are passionate about: Because Joel loved Twitter, he found a meaningful problem and could easily access his target group (by tweeting to his followership!). Working on things you have a personal connection with makes everything much easier.
- Make your product focused and precise: Creating a super simple first version allowed Joel to see if his basic idea would provide value to his audience. If he had created a much more elaborate prototype, it might have been hard to find out if the basic idea or just certain features are silly.
- Disciplined validation is essential: Though he was solving his own problem, Joel knew that his audience might not care for it. He focussed on talking to his customers. Furthermore, Joel and Leo resisted the temptation (building to early, building too many features, stopping CustDev too soon…) unlike most entrepreneurs and saved a lot of time, energy, and money.
- Build fast and launch early: Joel only gave himself seven weeks to build a working prototype. The first version felt shameful, but it was released anyway. Starting so early didn’t kill the company, but provided numerous opportunities for validated learning and moved forward. In contrast, a beautiful prototype might have taken a few weeks more and would have only given them a small marketing advantage – if at all.
- Build your company according to your personal values: Buffer is far away from the industrial 9-5 nonsense model. It’s also not about creating a 9 pm- 3 am hardcore trip (a fallacy that many founders fall into because they lack focus or because they feel it’s something they can show off with). Buffer’s founders are deeply concerned about a particular idea of personal happiness and aligned their whole way of working. I am deeply convinced that this approach can grant you personal fulfillment AND make your company much more productive.
- Transparency can be a great asset: It’s hard to tell how much happier Buffer’s team members really are due to the transparency approach, but we can say at least that it acts as a great content marketing and a great PR hook. I’m not trying to suggest that it’s ‘just a PR thing’ at all, but it really makes them sympathetic and notable, doesn’t it? Buffer has definitely got much attention for it, as their approach has been discussed on TechCrunch. It’s also an excellent way to realize your own personal values, and I’m profoundly convinced that that always pays off.
If people don’t understand what your business is about, YOU are doing a bad job!Always list other products that are somehow comparable and tell people how yours is different.Finding investors is always hard and takes a shitload of time! Plan your financials and your life accordingly.Outstanding customer support sets your brand apart and not keeps your customers, but helps with growing your customer base because your product gets referred a lot.
- I’m Joel Gascoigne, and This Is the Story Behind Buffer
- From 0 to 1,000,000 Users: The Journey and Statistics of Buffer
- Jeff Haden: Inside a completely transformed Company
- Accelerator: AngelPad
- The Pitch Deck We Used To Raise $500,000 For Our Startup
- I’m Joel Gascoigne, and This Is the Story Behind Buffer
- StartupGeist: Startup Fundraising: The Crazy Startup Madness.
- StartupGeist: Startup Fundraising 101
- StartupGeist: What is Lean Startup?
- StartupGeist: What is Customer Development?