How we justified quitting our jobs and financing PostHog early on
Mar 09, 2021
Let me tell you a story of the financial pressures that face new founders and how that pressure motivated Tim and me to make an epic pivot leap, from bootstrapping to a VC-backed startup.
I began this journey because I had spent a lot of time in the world of enterprise software sales, and wanted to work on a product that could be adopted bottom up. I felt like it was the future of software, even for huge companies. I convinced Tim to join me with a dubious prototype and confidence of a salesman that the product was pretty much done and ready to sell - so simple right! We both saved a year’s living costs and planned to build and launch for 6 months and then to check in if we'd run for a further 6 months. We took the “risky” leap...
Quitting your job can be the most sensible thing to do
Risk is different depending on your skills and experience. Take a look at the demand for your services on the open market. Will the market demand hold for a year or two? Do you have experience contracting or freelancing? If not, do your research and experiment so that you can find your true risk profile - it could be much lower risk than you think.
Tim and I both code, but he’s the (so much) stronger developer. Thus, he went full-time, and I negotiated to go part-time 2 days a week. That money went straight into the business. It minimized our shared risk and allowed us to get coworking space, pay for tools and ads without drawing on savings for these - given we weren't going to pay ourselves.
Quite simply, we would spend a set amount of our savings and time, and if it didn't work out, we were fortunate enough to know we'd probably be able to get another job. That takes a lot of privilege because of years working in tech, and our lives leading up to that, and we can only imagine how the world could look now if that were the case for more people.
You’ll have to decide to bootstrap or go for VC
You can easily bootstrap and then raise venture capital later, but it's fighting the system if you attempt to do it the other way around. We spent the first three months indie hacking and came to the conclusion that capital would always be a frustrating constraint - it was going to take years to be able to hire great people, or even to get back to our pre-startup salaries, with a massive trench in the middle. No wonder why people advise bootstrapping as a side-gig.
What we realized was we wanted to do something bigger, and we were happy not to own the whole pie. Tim and I had been pushing for months and stopped to ask ourselves if we continued on this path, and we reached 80 years old, would we be happy with what we did in our career? We both said no, it was slow and dull for us. We decided to aim bigger and do something more exciting.
We reorganized everything around what were often weekly product launches. Yes that’s right, not sprints, build and validate the product with 10-15 customers in a week. It sounds ludicrous, and it was. But demonstrating and giving access to a product rather than a landing page or mockups got us the high quality validation we needed to move on to the next idea. We got comfortable throwing out what we’d built - as cliché as it sounds, the light bulb moment is realizing you never throw away the lessons. If you’d like more detail, I wrote more on pivoting over and over.
Don't buy all the things
As conventional wisdom goes, we spent very little money in the early days. GitHub, AWS and Figma free tier were our bread and butter, but it took longer to discover the true value of our time and how to spend it wisely.
Tim and I tried remote working, but found it difficult to be focused and in-sync with each other while rapidly prototyping. Getting cheap WeWork access ($100/month/person) was a game changer for us. We constantly pushed each other and tried to keep up with the other’s pace - plus all the free coffee we could drink!
While Tim was building products, I recruited users to validate them. It was manual and slow, so I worked out the value of my time (based on the opportunity cost of not having a normal job), and realized that a little ad spend could get weeks' worth of manually-recruited users in a day. If you are in a similar situation, ask yourself if there are legitimate reasons to go slowly or are you artificially holding yourself back?
Closing our first round
Both Tim and I wanted to get into YC from the moment we decided to go for the VC route. We reached out to our network and scoured the internet to gleam application strategies.
Many swung big in the hope of going viral, like a well-timed Show HN launch before the application. This felt too binary for us: you are either screwed or winning. Whereas if we thought of ways to steadily get users every week we'd have something real to talk about. We saw YC cared about speed and iteration, so we focused on what we are good at.
For most of our ideas we struggled to get and retain users. The idea we got into YC with was different, users were excited to join and stuck around. We doubled down on ads and by the time we applied we had 300 users and 600 by the interview - it was important for us to show continued growth.
Small caveat: PostHog today is very different to what we applied to YC with. I feel this strategy worked for our self-serve dev tool, but it would have been harder for us today. If your product is closer to a tool (/toy) you can try this strategy.
The night before
My enterprise sales and marketing years had cursed my writing style.
Long meaningless words kept creeping their way into our written application, so the night before the deadline, we threw everything out and made the demo video instead.
We brainstormed the least enterprise things we could do, pink Comic Sans typography and a sprinkle of emojis seemed like the right course. Many takes later and delirium setting in, we produced these never-shared-before YC application and demo videos 🙈 If you can work out what Tim is saying in the first few seconds we’ll send you some "awesome swag". Please forgive my weirdly intense camera stare - it was late.
Ramen millionaire
Five months later, we got into YC and received the standard $120k check for 7%, valuing PostHog at nearly $2M. If you were a solo founder, technically you’d be a millionaire, whilst still eating ramen and scrambling for freebies. We kept things very frugal during YC - your runway is determined by living costs. I had long given up my fancy Jaguar XE and got a 2008 Ford Mondeo (sidenote: it was pleasing not feeling like my car was compensating for some insecurity or another), and I had a personal runway spreadsheet with all my spending on it.
Applying to YC was a challenging time, and we’d like to help you have the best shot getting in. James recently did an AMA on applying to YC that you can watch here.
Future posts in this series will cover our fast-follow seed and series A rounds in detail. Subscribe to our newsletter and follow us on Twitter to not miss anything.