TMBA611: Should You Bootstrap or Seek Funding For Your Startup?

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Today’s guest has been on an incredible journey that touches on so many of our favorite entrepreneurial milestones.

Derek Pankaew is the co-founder of Mythia, a financial startup that has partnered with banks to create a debit card aimed exclusively at gamers.

He has experienced just about every entrepreneurial path, from running a “4-Hour Workweek” business built on passive income, to seeking out more ambitious projects in the San Francisco startup community, and eventually raising roughly 2.2 million dollars in venture capital funding.

Derek joins us this week to take us through the steps of his incredible journey, and to share some of the fundamental differences between bootstrapping and running a venture capital-backed business.

See the full transcript below

Listen to this week’s show and learn:

  • What Mythia looks like behind the scenes. (2:49)
  • What it was like being a part of Y Combinator. (16:19)
  • Why Derek ultimately found his “4-Hour Workweek” business too boring. (24:14)
  • How his experience as a bootstrapper has influenced his approach to venture capital. (29:05)
  • Strategies that bootstrappers can learn from the startup world. (32:16)

Mentioned in the episode:

Before the Exit – Our New Book
Partner With Us
The Dynamite Circle
Dynamite Jobs
Dynamite Deals
Tropical MBA on YouTube
Post a Remote Job
Dynamite Jobs – Remote Recruiting Sales Page
Let’s Talk High-Level Podcast Strategy for 1 Hour
Derek Pankaew
Y Combinator
Lucy Guo
KIND Snacks
Michael Seibel
Paul Graham
Tim Ferriss

Enjoyed this podcast? Check out these:

TMBA326: To VC or Not to VC, That is the Question
TMBA480: Thoughts on Funding Options for Bootstrappers with Rob Walling
TMBA557: Ascending the Staircase

This week’s sponsor:

Today’s podcast is sponsored by Dynamite Jobs.

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We’ll hash out your job requirements, give you insights about the state of the job market, and plan a strategy to find your next A player.

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Thanks for listening to our show! We’ll be back next Thursday morning 8AM EST.


Dan & Ian




Full Transcript

Dan: Happy Thursday morning, everybody. Welcome back to the weird bubble. I’m just gonna say this because I’ve been travelling, I’m getting ready for vacation next week, I’m gonna do like a real vacation. I know a lot of y’all don’t know what that is. But typically what happens is normal people, they don’t go to work for like a week or more at a time. It’s called a vacation. It’s incredible. I’m going to try one out, I’ll let you know how it goes.

But I was thinking about this because while I’m travelling on a little road trip here, I’m just meeting so many people. And now I’m coming back into my hotel room and doing this podcast and looking over today’s story thinking, ‘This is not normal, this is so incredible’’ that someone can decide what they want to create in the world. pay for it, live an incredible lifestyle on the way and fund the lifestyle of others as they do it. So it’s incredibly unique. It’s a small band of people doing it. I’m proud of you all for pursuing this path. It’s not always easy. I hope today’s episode can help you build a better location independent business. So let’s jump into it.

Today’s guest has done some incredible stuff, I find him very, very impressive. You’re gonna see today, he’s sort of achieved the ‘Four Hour Workweek’ dream, but then decided to go get a real job, learn to programme, move to San Francisco, get accepted to Y Combinator, raised a bunch of money, and built some incredible businesses along the way. You’re gonna hear about that journey today. But we’re doing it in a little bit in reverse style, where we’re gonna start with where he’s at today, basically created a very innovative FinTech business with his business partner, Eric, and then we’re going to zoom back to his origins being a struggling copywriter in San Francisco, ditching California skyrocketing rents for the good food and great connections of Thailand and South America and the digital nomad scene. So many TMBA themes in this one, let’s get right to it.

Derek: My name is Derek Pankaew I am co-founder of Mythia, our company is a rewards card for gamers. So instead of getting airline miles and flights, you get free PlayStations, free video games, that kind of thing.

Dan: Tell us how it works. Who makes the card? Who makes the rewards? How do you pull it all together?

Derek: It’s kind of a little complex behind the scenes, we do kind of make the cards. We have a partner bank, it’s a debit card. So you open a checking account with Mythia. And our underlying bank, which is Piermont Bank, actually opens an account in your name. And then we issue you a card through Piermont Bank, which is FDIC insured up to $250,000, just like every other bank account, except the card says Mythia on it, it’s our design, and all the user experience is owned by us but we do it through a bank that we partner with.

Dan: What was the original idea?

Derek: The original idea was a credit card for gamers. And then we kind of realised, for many reasons, that launching a credit card is extremely difficult and would take much more money than we had and a lot more time.

Dan: How would you sum up those reasons?

Derek: The biggest reason is money, you need to have 100% of the credit limit that you might lend to people as cash sitting in a bank account. So a 1000 people with a $1,000 credit limit, I need a million dollars sitting in a bank account doing nothing. Most banks use customer deposits to meet those requirements. But since we don’t have customer deposits, we can’t do that.

Dan: What was it about the Mythia pitch that inspired so many intelligent entrepreneurs to get excited about it?

Derek: It’s a mix of things. FinTech in general is kind of exploding right now. Gaming is exploding right now. And I think there’s this general sense of frustration with airline miles – it’s confusing, and kind of know the airlines are out to rob you. And try to make it so you can never redeem your miles. And a lot of people are just much more passionate about other things, like video games, than they are about getting airline miles. So I think it was kind of the convergence of all these different factors that had people excited about it. Another thing that a lot of people were really excited about was turning the experience itself into a game. So with our card, every time you buy something you get a reward, you get a reward box inside is a random reward similar to a lot of video games. And inside that box, you could get a free video game, you could get a free Xbox, you get credits to spend on a game store. That’s one of our gaming features. Another one is you can partner up with friends to get bonus rewards and kind of tackle challenges together. So we’re building multiple gamification features taken from different games that we think we’ll build engagement and get people excited and are just easier to understand than airline miles that you have to redeem on ‘One Alliance’, or whatever, there’s blackout dates and all that stuff.

Dan: Take me inside of the startup right now, what does it look like from a personnel perspective? Maybe introduce us to your business partners as well.

Derek: So we’re a team of about nine people. Right now we’re dealing with a lot of fraud. And so we’ve just been combating that. And I think that’s a phase that every banking startup has to go through. But, in general, it’s very fast paced, we’re experiment driven. So we might say, ‘Hey, we’re gonna be advertising on Tik Tok, what is? How can we put together an ad really quickly, and see how it performs? How can we measure it? Cost per app instal lifetime value of the customer, what actions they take inside the app, and some of those require different tools to measure?’ We do have a roadmap. But things happen very quickly. And we kind of learn as we’re going, I guess,

Dan: How do you guys make money?

Derek: Yeah, good question. So when, when you make a payment on a platform like Stripe, you pay 2.9% to Stripe, right? So stripe charges that to the merchant, that 2.9% gets split in many ways. So Visa and MasterCard will keep some of it, the bank that the user owns will keep some of it. And then some of it goes to the card issuer like us. So we keep a small percentage of that, let’s say about a third of it ,will go to a company like us, that’s actually creating the credit card, creating the user experience, doing the marketing, stuff like that.

Dan: So you’re basically saying, if we have $100, go through the total user base of the Mithya card, we’re going to take $1 in revenue?

Derek: Approximately, something like that.

Dan: Interesting. So you’re looking at some very big numbers. So now when you’re working your way into this, how do you think about how much funding you need to get to the point where this works from a cash flow perspective?

Derek: Funding is interesting, because you don’t need it to work from a cash flow perspective for several years. You just need to be able to convince investors that it will work and if it works, it’ll be a big company. So for us, in total, the company has raised about $2.2 million. And we did that in a few phases. The first was like a pre seed round, just under $500K, most of it after Y Combinator. Let me take you back to the beginning. Because this is kind of a fun story and also a little weird. So the pre seed round. Okay, I don’t know if you already know some of the story or not?

Dan: no, no, we’re here for you, man.

Derek: Okay.

Dan: All right. So I’m gonna jump in here real quick. I want to give you some Cliff’s notes about where we’re at. So you’ll hear more on this later. But Derek moved to San Francisco a few years back, especially because he wanted to connect with the robust startup community there. And you know, get connected with places like the startup accelerator, Y Combinator. But first, Derek and his business partner needed both an idea and some investment money to develop it with. So in early 2019, he met someone who introduced him to a key investor at what sounds like a peak Silicon Valley gathering, and in person AI event. So cool. Now, back to the story.

Derek: This company started off as a gym, like an in person, physical gym, I think Equinox, with all the equipment and stuff, but it was a high tech gym, that would automatically track all of your workouts, as well as how much weight you’re lifting, as well as give you feedback on your form, and kind of turn the workout into a bit of a gamified experience as well. So you walk into the gym, the smart mirror is telling you, ‘Hey, Dan, come over here. This is where your workout is’, as you’re sitting down at the benchpress it says you know, last time you lifted 220 this time you’re lifting 230, how many reps to do. And then as you’re doing the bench press, the mirror is kind of counting your reps. And then after you finish with the bench press, all the data goes to your phone. And you can see charts about how you’ve progressed over time, things like that. The core technology we were building was computer vision that would track how much weight people are lifting and how their form is looking. So when I was living in Colombia, Medellin, I kind of built some of the prototype of computer vision and then moved to San Francisco, built like a demo of the smart mirror using literally a shoe box. And like two way glass that I duct taped onto the shoe box raised about 450,000 from that kind of little demo, took the S450k, got a small space in San Francisco and built a demo gym.

Dan: How do you get $450,000 for a shoe box?

Derek: It’s a mix of, I think different investors look for different things, some investors are all about the team, you know, all I care about is having smart founders who are driven, who are ethical, who are just not going to give up until they find something that works. Some investors have a thesis, you know, they’re like, ‘I believe that an AI gym is something that’s going to exist, and it’s just a matter of time until someone does it’. Different investors have different styles. Our first check was from Lucy Guo, who’s co-founder of ‘Scaled Up AI’, I think it’s like a 4 billion ish dollar company now. And she committed $100k, within our first meeting, less than an hour long. So I met her at a cafe, we had a conversation about the technology, where we see gyms going in the future, where we see fitness going in the future. And then I took her back to the demo, showed her the demo. I think at this point, it was maybe a little bit bigger than a shoe box, maybe like half the body height. But still, you know, just duct taped together. It looks duct taped together on the back, it looks nice on the front. And, yeah, she’s doing dumbbells, and it’s tracking her workouts, and it’s displaying on the screen, and it just kind of looks pretty cool. And that she was like, ‘Yeah, I’d like to be in for $100k’. And then she kind of got the ball rolling, she helped us redo all our decks and put together a demo video and kind of put us in touch with other investors. Once someone puts in the first check, it’s a lot easier to get the rest.

Dan: So y’all got close to half a million dollars to improve my bench press in this really futuristic sounding gym? How did it go?

Derek: It went well, until COVID – there are no gyms opening for the next year. And it would be a terrible idea to try and open a gym and also, the whole venture capital market is shut down. So we’re not going to raise money to keep a gym afloat without opening for 18 months.

Dan: It’s hard to realise that though about something you’d put so much into.

Derek: This is, I think, one of Eric’s superpower, my co founder, he really does predict the future fairly frequently. Two weeks into the pandemic, I was like, we’re just gonna ride this thing out, it’s gonna, I thought it’d be over in three to six months, and we just go back to life as normal. And he was like, No, this is there’s no way out for at least a year. There’s literally no way out of it. It took some convincing, but he convinced me that it was the right call to let it go. So we called up all our investors, and were like, ‘Hey, you know, we’ve spent about half your money. Do you want the rest back? We have some other ideas. We think they’re good ideas. Would you rather we go after the ideas or do you want your money back?’ And everyone was like, ‘Do the next thing’.

Dan: So you’re sitting there with a couple $100K, a couple shoe boxes. And what do you do?

Derek: Spent a couple of weeks scrambling, ywe have to sell all the gym equipment, shut down the lease, all that stuff, get rid of the physical stuff. And then we had this idea for a credit card management tool. Think something like Mint dot com but for people who have five to 10 credit cards We bought a domain name Empathise dot com, and we launched it, we got a couple 100 users, we applied to Y Combinator right at that peak, where we were kind of growing, and we got a couple 100 users. And then right after that 100% of our users stopped using the product. We talked to 20 or 30 of our users to just try and understand why nobody’s using the product. And I think the conclusion we had is, people in theory want to be better at managing their credit cards. In reality, they just want to stick it in a drawer and never think about it. And so that what people say they want and what people actually do are quite different. And even though we did user interviews before we built the product, I think there’s just too much shame around it. And people don’t really want to change. So that product kind of fell on its face.

Dan: What did the Y Combinator people think about it?

Derek: I think we didn’t spend too much time on it, honestly, because the YC interview is only 10 minutes long. So we went into the interview and they’re like, ‘Hey, so how’s empathise dot com going?’ And we’re like, ‘We’re not doing that anymore’. They want to spend the other nine minutes on what you’re working on now. Not not why you stopped working on what you were working on. So I think we just told him, you know, people stopped using it. We weren’t interested in continuing. And so we were doing something else, basically.

Dan: And did you know, at that moment?

Derek: We had figured out, we wanted to do a credit card for gamers like four days before the interview. And they basically said, ‘Hey, it’s too early, come back in two weeks. And we’ll have another conversation’. What we did in those two weeks was we built the whole iPhone app, we got it connected to a privacy dot com virtual credit card. So that you can make real money transactions and have it go into the app and get a reward box, open the reward box, get a reward, kind of get all that stuff working with real money. We did a Product Hunt launch, and got about 1000 people on a waitlist. And then we found a bank that wanted to work with us. And then we went back to Y Combinator and said, ‘Hey, you know, we got the finance piece, we’ve got the marketing piece, we’ve got the software piece, here’s what we did in two weeks’. And then that’s how we got into YC.

Dan: What did you want from YC?

Derek: I think a lot of things, A) is they make it a lot easier to raise money. B) the community is incredible, the calibre of entrepreneurs that are in it, and that I’m able to kind of meet through it. I just really wanted to be in that community. C) I think having access to the partners, the partners we had during YC were incredibly helpful. We’re in gaming, and Michael Seibel, CEO of YC, is the founder of Twitch. So I think, I think just a lot of the connections that YC offers would be very helpful to us. It’s also something that I’ve just wanted to do for a long time. I’ve listened to a lot of their content, I just really like where they’re coming from. I’ve read a lot of Paul Graham’s essays about startups and entrepreneurship. And yeah, I just kind of really wanted to do the experience.

Dan: Is there some element of the philosophy that you think they uniquely captures your experience in entrepreneurship that’s maybe not so widely accepted about the practice in the public?

Derek: I think YC really captures how grungy and chaotic and almost intimate the process is, how frequently you’re running out of money, how much success really comes down to talking to your customers, and how uncorrelated successes to raising a lot of money. A lot of people see this company raise $5 million, and it’s like a signal of success. But if you fast forward five years later, oftentimes those companies are failing. And it’s the companies that don’t raise a lot of money but are kind of talking to their customers day in and day out, and in the beginning don’t have huge user bases but have 1000 users who are using it every single day, those are the companies that do really well in the long run. So it’s kind of really showing you what to pay attention to.

Dan: So you guys had this incredible two weeks where you probably didn’t sleep at all, at least based on the data points I have. What was that YC experience like during COVID? Walk us through the routines and the interactions and what sorts of things you guys were working on?

Derek: The goal in YC, is to try and get your metrics as strong as you can leading into Demo Day. For us, unfortunately, with finance, it’s very hard to build a debit card product and launch it in three months, and we didn’t fully launch before Demo Day. So getting our banking partnerships solid, and kind of getting all the different banking pipelines lined up. So the ID check process, the card printer, the underlying bank accounts, all those different pieces have to talk to each other. A lot of our stuff has to get approved by the bank, how we describe our product. So kind of making progress on the banking front. We did continue growing our waitlist, but, for us, a lot of it was just sprinting to get the product ready to go. We actually didn’t manage to launch the product until probably about two months after Demo Day.

Dan: And were you able to still have that golden halo of investors looking at your product, even though you weren’t during the official Demo Day?

Derek: We raised the majority of our funds before Demo Day, even though the list of companies in YC during the current batch are hidden, investors kind of figure it out and then share it amongst themselves, and investors are in all these Discord and Dlack groups where they share lists. ‘Here’s the 200 companies in YC that they think are in YC’. And then they kind of contact the ones they’re interested in. So we got maybe 50 investors reaching out to us, and we raised probably 60 or 70% of the funds that we did in our seed round before Demo Day.

Dan: That sounds to me like a secret mechanic of YC. Maybe you could share some more of this idea that just if you can nail that one pitch, which is the YC pitch itself, is it almost a foregone conclusion that extra funds will be available to you?

Derek: No, I think maybe this is something founders over invest on is like the quality of your pitch. It’s not necessarily what investors care about. The quality of your technology, the quality of how much traction you’re getting. An entrepreneur who’s bad at pitching but has amazing metrics. Like Zuckerberg was probably like that. He just sat in the room. And he was quiet the whole time. But he had amazing metrics, people were spending six hours a day on Facebook. That’s way better than you know, the slick salesman who has terrible technology.

Dan: If you were to look back on it, the relative ease of, well I wouldn’t call it relative ease of raising the sorts of funds you required? What was it that they picked out about you guys?

Derek: Different things excite different investors. For our lead investor, it was the gamification. He was just excited by the mechanics that we were building. But for other investors, that’s, you know, the fact that we’re going after the gaming market. Some investors are just interested in FinTechlike new card products, because there’s not a lot of them. There’s more and more of them. But there’s a lot of huge ones, right, like, Chime is maybe I’m gonna get it wrong, but it’s somewhere between $5-$8 billion valuation, a debit card company, and there’s increasingly quite a few unicorns that are debit cards. And it is pretty hard to launch one so I think having one that is getting out the door and is proving that they can launch one of these products to a new market I think is pretty exciting just as a category in and of itself.

Dan: So what are y’all thinking? I know you’re doing your two weeks of firefighting, building, launching. But what’s the next two years look like? How do you think about it? What do you need to accomplish in order to have this be a success?

Derek: The number one thing that we need is to build a product that consumers really, really love, something that they would tell their friends about. And that’s going to take a lot of experimentation on our part in terms of what gamification features do we need to build? What kind of rewards do we want to build? Do we want to target a sub community? Do we want to specialise in people who play Fortnite, for example, or people who play console games. We only launched maybe three weeks ago, so all the things we’re doing right now is kind of just getting our bases handled. This fraud thing is kind of a foundational banking piece. So a lot of stuff we’re doing, it’s just kind of foundational banking. But in the next few years, we need to build a product that people really, really love. That’s the number one thing.

Dan: Derek, can we go backwards, because what you’re doing sounds really intimidating to me. And I’ve been an entrepreneur since 2008. It would be a big leap for me to come up with an idea that’s YC worthy, or all this kind of stuff. I’m wondering if you could help us breadcrumb our way there to see how you ended up where you’re at.

Derek: It started out with freelance writing online for SEO content, you know, getting paid seven bucks an article, while living in San Francisco, one of the most expensive cities in the United States. And one day, I was living in this terrible shoe box of an apartment. I decided to book a vacation to Thailand, and just never came back. You leave San Francisco making $1500 a month and you’re living living very poorly in a $600 a month apartment, you land in Thailand, and suddenly you’re rich, right? You can afford whatever you want. You can eat whatever you want. And I just kind of didn’t want to go back.

So I started travelling around, bounced around Southeast Asia, Europe, Latin America, first heard about the Dynamite Circle in Latin America. And I think I was feeling a little lonely at the time because I was travelling mostly in hostels and not meeting people just doing freelance writing, writing three, four hours a day, ended up in Chiang Mai and met some other ecommerce folks and decided this seems a lot more fun than writing words about real estate in Tampa or why dentists should, I don’t know whatever stuff about dentists. And so, I built a ecommerce store that was doing okay. It was selling maybe $10,000 a month or something but only netting $1,000 a month but I was getting support calls in the middle of the night, every night in Chiang Mai. And then I started doing Teespring, which was selling t-shirts, basically, using Facebook ads. And that suddenly started doing really well. We went from zero to 100 grand a month in like three months. And so that was kind of my first real success as an entrepreneur and kind of doing business.

Dan: What was the next step after the Teespring success?

Derek: The next step was an Amazon FBA business that started doing okay, as well, that was more passive income, making maybe like five to seven grand a month on like three hours a month of work. So that kind of allowed me to travel for a while without really thinking about money. And that also showed me that I got really bored. The passive income thing is a thing that a lot of people put on a pedestal and kind of work hard towards. And I kind of realised that like, Oh, I have passive income, and I’m just really bored. And so that’s when I realised, hey, I don’t think I want to do this passive income thing, I want to do things that have me grow as a person, that challenge me, that require me to learn things that I don’t know yet.

And around that time is when I decided, hey, actually, I’m going to give up the digital nomad life for a while, go to New York and get a corporate job, which is kind of weird. But I wanted to work at a big company where I can understand how big companies think. That’s when I met my co-founder, he was just coming from corporate and wanted cash flow, so that he could travel. I had cash flow, but I didn’t want it anymore. I wanted to go experiment with corporate. And so he purchased my company from me. And I moved to New York, and I worked for Kind bars.

Dan: What was that experience like?

Derek: It was great. Big companies think totally differently than small companies. They experiment in much bigger ways. If I’m running a new ecommerce store, I’m going to spend $1,000 on Google Shopping, measure the results, optimise my bids, things like that. And that whole process might take a couple months. For a big company that has a lot of money, they’re gonna say, let’s try 10 channels, let’s try YouTube ads, Facebook ads, Google Shopping, direct mail, podcast ads, let’s just try everything we can think of, let’s hire the best people. If you’re good at Facebook ads, you can do it. But if you don’t know how to do podcasts, let’s hire an agency, you know, so a lot of it is not you hands on doing it, it’s finding the right people to do it.

You hire the right people to do everything. And then you run all the experiments to get the results in three or four months, and you scale up very quickly. When you have the money to do it, time becomes a cost. Because if you think about a certain business unit, if you think,‘Dan’s ecommerce store’ could be making $10 million a year, but it’s only making a million a year, you have an opportunity cost of $9 million this year. So it makes sense to throw 5 million bucks at it to figure out that opportunity cost as quickly as possible, if you already have the money. And so I think there’s ways of thinking about cash flow that were new to me, as well as just ways of thinking about hiring charts and hiring processes and operations. And just kind of how you think in, I guess a more systematic way around a lot of different things.

Dan: So, armed with that experience, what did you do?

Derek: So a couple things happened simultaneously. So my co-founder and I were working on a travel pull up bar, similar to the ones that go in the door, but you can fold it up, put it in a suitcase, and travel with you. We did a Kickstarter, raised about $200 grand, got it manufactured in China. And then the whole there was like a meltdown around manufacturing and product quality. But right after that I learned to code. I think crypto was kind of one on one of its spikes. And we were going to a bunch of crypto conferences, and I was starting to get curious about software development, taught myself to code, and built some crypto trading bots. They kind of did okay, and then when things crashed, they didn’t do so well. So I guess if the bots are only profitable, when everyone’s doing well, then they weren’t, you know, that valuable anyway. So at that point, I was like, you know what, I think I’ve always wanted to try this venture scale thing. And I don’t know if I’ll ever really be ready to do it. But like, I have this idea for the AI gym. And I’m just gonna do it. I didn’t have a tonne and savings, but I was like, ‘Whatever’,

Dan: What was it about it that attracted you?

Derek: It’s a few things. One, it’s sort of just playing at a higher level in general. I don’t know if I’ll make it or not, but I want to try it. In your chosen profession, you want to level up and you want to try for more difficult things. So I think that’s one piece. I do have a lot of goals and things I want to do in life that require a lot more capital. Not the kind of capital I can make with wish with bootstrapped companies. So I wanted to do things that can kind of help me acquire that capital. And I think a lot of it came back to wanting to do something that requires me to learn skills that I don’t have. I know that I can launch another FBA business and probably have to do well, and like I would just be bored. You know, I know how to do it. I’ve done it before. I think someone said that business is often about just finding something that works and then repeating for years. And to me, that’s not what I want to do at all, I want every six months to be a different challenge. So yeah, it’s a mix of those things.

Dan: Leaving San Francisco to do the digital nomad thing, low cost thing? I’m curious as to what that trajectory looks like if you just stay in San Francisco the whole time? And continue to uplevel your skills there versus the digital nomad … How does that affect the way you approach all this?

Derek: I honestly don’t know, because it’s possible that I stayed in San Francisco and then the same amount of time later ended up doing startups as well. I have no idea. I know that in San Francisco, I was feeling kind of crushed by the expense of it.

Dan: You didn’t come from money?

Derek: I didn’t come from money. Definitely not.

Dan: I want to say something about this, actually. It’s like a theme in the background. A lot of the people who are successful in Silicon Valley came from a high pedigree, which means they came from a higher level of education and money. And that means a big difference. For example, if you start your career with $100,000 in debt from an elite institution versus your parents paid for it, and your parents are paying for your first apartment in San Francisco or whatever. A very, very common thing in Silicon Valley and so what I’m seeing a lot is the sort of path that you took amongst digital nomads, it’s a practical matter where – ‘I’m crushed by expenses, I want to get ahead in life, I need to breathe a little bit to work on this stuff. And as my cash flow goes up, I gradually sort of work my way back up to bigger games, but I own it rather than opting into someone else’s game the whole time if I lived in the oppressive economy’.

Derek: Man, if I wanted to start an e-commerce store living in San Francisco. Yeah, that’s not happening. Especially without savings.

Dan: Why?

Derek: It is very expensive. I think the mentorship base is also not quite there. I think San Francisco is incredible for mentorship for a very particular kind of business, like venture backed startups. The kind of mentorship we have right now is really amazing. But yeah, starting an e-commerce store in San Francisco. The mentorship isn’t there. And also, it’s just very expensive. If you’re spending three to five grand a month just to live, it’s very hard to also have the breathing room to start another kind of bootstrapped company.

Dan: What was it like for you living in Chiang Mai, rather than San Francisco?

Derek: It felt very relaxed. But at the same time, there were a lot of people who were very ambitious working on different things. So I could feel like I could wake up at whatever time I want, I can take a motorcycle down to the lake, do a little bit of yoga, go to ‘Pun Space’, a co-working space, and then be surrounded by people working on interesting projects. And people are very willing to help each other out. I also really enjoy just kind of seeing people succeed. This is one thing that’s different with bootstrapped companies and startups, startups take like seven years for you to see a successful outcome. Bootstrap companies, you can see a successful quote unquote outcome in like three months. You meet someone, they say, Hey, I just spent 20 grand on Amazon inventory. It’s my whole life savings. And everyone’s like, ‘Wow, that seems like a bad idea’. And then you meet them six months later, and they’re like, ‘Yeah, the stores, you know, selling 50 grand a month now’. And you’re like, ‘Wow, that’s so cool’.

Dan: The vast majority of our bootstrappers listening to this pod? 80% of us are business owners. We’re struggling with trying to recruit talent, but not being able to play top of market, all these kinds of things. What do you think are some categories of things we can learn from the community that you’re in now that we can start to look to as inspiration, as strategic edges that bootstrappers can learn from the startup world?

Derek: I’ll give a few kinds of very different answers. One is, I think there’s a surprising benefit to raising some money, which is that you get access to mentorship that you wouldn’t otherwise get. So right now I can pick up my phone and get in touch with probably 10 people who’ve created billion dollar companies, founders of Nerdwallet, Tinder, etc. A lot of them are investors in our company. And I think it’s very hard to ask people to mentor you by just calling someone up and saying, ‘Hey, can you mentor me?’ It’s very hard. I know, Tim Ferriss talks about it, but like, I haven’t seen it work very frequently. But if you have something that people want to invest in, it’s a lot easier than to kind of make it win-win for both parties. And then once someone’s invested in you, they’ll actually want to help you. And I think even if you’re running, let’s say, an e commerce store, or SEO SaaS, or whatever the case may be having other people in your industry, invest in the company, and kind of have a vested interest in your success, I think could be could be a big, a big benefit.

Dan: I want to underline that point, because this is actually a sort of a limitation that is becoming much clearer to me in my career. And I’ve compared and talked in detail with friends who’ve offered equity stakes, you know, for investment or for mentorship or whatever it is to the right people. And, as a bootstrapper, I’m like, ‘Man, that’s a lot of equity to share. You wouldn’t want that back right now’. And always, the answer is, ‘Oh, no, not even close’, because they’d outline like 10 conversations where this is the level this person’s that. And they’re in that world where I’m like, pulling myself up to and so this isn’t something I’ve personally experienced, but it’s something that I’m becoming increasingly curious about as I continue to bang my head against my, my own limitations?

Derek: Totally. The second point I’ll make is that one big difference I see in the bootstrapped world versus the venture funded world is the bootstrap world tends to pay a lot of attention to marketing, you know, what does your marketing copy look like? How’s your Facebook ads doing? In the venture world people pay attention to product, mostly. How do you make your product better? How do you talk to customers to get their feedback on the product? And then how do you measure your product? I think, in the bootstrappe world, because short-term success is so important, because if you run out of money, you die, or your company dies, it is very important that you get customers right away. But I think sometimes it comes at the expense of thinking long term, because in the long term product is really what matters.

And then third is understanding how to track longer term metrics. I think a lot of bootstrappers know how to track your cost per click, your conversion rate, email open, stuff like that, but I think they have a harder time tracking ‘in product’ metrics. So using tools like Mixpanel, to measure what features are people actually using? Do people using particular features actually make it more likely for them to order from your business in the future? What’s your reorder rate look like from three months, six months, nine months? Are there particular cohorts of users that tend to reorder more kind of understanding the lifetime value of the customer? Does the lifetime value change based on the channels that they come from? Or are there subgroups of customers that tend to have higher lifetime values. Kind of understanding, again, not just the metrics that influence you in the three to six month mark, but like the one year mark or two year mark, because again, that’s what really changes you from a company that makes a little bit of money to a company that can make a lot more money.

Dan: You made some notes here about marginal cost, cashflow cycles, differentiation, you touched on a little bit of that, are there some of the issues there you want to underline for the audience as well?

Derek: I think this may be more of a difference between software and e-commerce or software and physical goods. But one thing that I’ve noticed that makes a big difference is, in physical products, you often pay for things three to six months in advance before you get your before you make any money. When I was selling on Amazon FBA, I would have to send money to our manufacturer, it would take them two months to make the product, two weeks to ship into Amazon. And then once it’s in Amazon’s warehouse, it would take another four to six weeks to sell. So I’m putting cash upfront and then receiving a 30% margin on that cash that I put in five months later, so that the cash flow cycle is very slow. And also it’s negative, meaning I’m putting cash up front, and my margin is low. With software, I’m making 85% margin and I get paid right away. And there’s no cost upfront. So when you have these dramatically different cash flow cycles and margins, it does very different things to your bank account. With physical products, your bank account can keep going down, even as your business is doing better and better. And it just makes you more and more stressed out versus with software as you make more sales, there’s just more money in your bank account.

People look at software and kind of know that, in general, you know, it seems like software companies tend to do better than hardware companies but the reasons why are a little bit opaque and I think teasing apart why those reasons are is a helpful exercise in just kind of understanding business levels. And I think being able to predict where your company might get blocked, like if cash is an issue, if you’re running an e-commerce store and cash is an issue or could become an issue, understanding financing mechanics before it becomes an issue is important, right? I think some people are afraid of either raising capital, or even just raising debt using tools like Cabbage, or whatever the case may be. I guess I’ve encountered a lot of bootstrappers, who are just very afraid of taking capital from any source. ‘I don’t want to be beholden to anyone, I don’t want to be beholden to investors and I don’t want to pay 20% interest’. But it just very much restricts your business because cash helps you grow. And so I think understanding all the different options you have for acquiring cash and treating cash as a resource, thinking about it like a marketing channel. SEO is not for every company, Facebook ads, not for every company. But you’re shooting yourself in the foot if you never learn about what company SEO is good for, or what company Facebook ads is good for. It’s just a tool.

Dan: 100% Yeah, I’m a bootstrapper but if I would have only started a business that I can personally afford, I wouldn’t have started a business

Derek: 100%. I’ll kind of say one last thing. I guess this is kind of circling back to the venture capital thing. But having investors has been much more pleasant of an experience than I thought it would be. They’ve generally been super helpful. And they have not put pressure on us to do anything in any particular way. And I think a lot of people are afraid of losing control, when they take on investors. In our case, and I think in most people’s cases that I know, their investors are way too busy to kind of try and nickel and dime whatever you’re doing, because they’re investing in 10 to 50 companies a year. So they have 200 companies they’re already involved in. If you don’t ask them for help, they will usually just not bother you. We haven’t experienced any loss of control. And it’s just been a value add for us.

Hey, Big thanks to Derek Pankaew for coming by the show. He’s the co-founder of Mithya dot com. A big thanks to you for listening to the TMBA podcast. I hope you love this story as much as I did. Go ahead and reach out to us with stories you’d like to hear more about. Coming up in the next few weeks. We got an episode about lifestyle and an episode about long term travelling with kids, you know our inboxes and we love to hear from you. That’s it. We’ll be back as always next Thursday 8am ET. See you then.