How I Bootstrapped to $5m using profit sharing and open salaries to motivate the team

please help me welcome bridget harris with you can book me to the stage bridgette so my name is bridget harris i run a company called you can book me and as he said i'm here to talk about with my fellow bootstrap founders how we have grown to around 5 million arr using profit sharing and open salaries to motivate the team so you can put with our online scheduling tool um we've got over just a million accounts where where am i looking here there we go million accounts we've got about 22 000 customers and to

date over the last 10 years we've got 82 million bookings we do around a million a million and a half bookings a month so that's we're busy um these are the kind of customers we have they use our our tool for team team scheduling the kind of customer success onboarding sales that kind of thing i'm sure you're familiar with it and that first first five years is the the lonely years of uh of uh growing our lungs you know have you ever heard of gail goodman's long slow ramp of

sas death that's where we were we didn't have people like nathan and others to talk to us about raising money but we got to about the 1 million pound mark and we made our first 105 000 pounds 791 pounds in profit and like nathan said especially if you're bootstrapped you need to get money from somewhere vcs aren't giving it to you so you need to make it yourself and we've been very very profit motivated ever since so over the next 20 minutes i am here to talk to you about first of all the profit stack so i've put this together

especially for this conference so this won't be the last you hear of it because i wanted to start to think about strategically how we have done that because profit doesn't just come from selling um you know selling a five pound product for it for 10 pounds it actually comes from a much more strategic idea about how you build your company metrics that matter nathan mentioned a few of them um the kind of things that will tell you and indicate whether your company is profitable and then how we share that profit uh let's just talk a little bit about

profit because as you said vc's don't talk about profit very much um it's only if you're really motivated to make it you really understand what it is because the news is for founders business profit is not how investors intend to get a return on their investment um i don't want to overthink this but hands up if you agree the founder business plan is basically invent something make money you know i mean really that's basically what we're trying to do that's our you know our end goal

we see business plan it sounds it feels like it's the same but it's not invest in stock and trade make money so yeah sure we're all aligned to the same goal but it's very very different to be investing in shares basically the value of shares going up versus making profit off a product that you can sell to customers and this has been our mantra as founders for the last 10 15 years so i'm sure you all know this guy jason he talks about it everybody recognizes this whole kind of sas subscription economics

which is you absolutely hammer your sales and marketing you grow like you know as far as you possibly can kind of numbers nathan was just talking about and then you basically ipo you exit you bet you you do what you want to do to get to get it up well and that is what they have done this is the this is uh some some data that i found which shows that a lot of uh public sector they've ipo they've done their big exit they're still not making any profit they're still trading in the value of the shares of their company they're not making a business profit it's the value

of their shares where they make money and the problem is is that for a lot of people that is not good enough because that vc model is if you were if you're being a little bit mean about it you'd call it a ponzi scheme um because people have to lose and recently in the last couple of years those people who are losing are losing big so over 168 000 people have lost their jobs in the last couple of years from from this spread bet and that's because those guys were

didn't realize that they were working for a bet rather than a business plan so good news we're all here nathan's here the whole team is understanding to align against something slightly different even the vcs have woken up to the fact that they have to reinvent some really slightly crazy mathematics which is adding together your profit uh margin with your growth rate and if you come up with more than 40 then you they'll still give you some kind of valuation so okay fine we'll accept that but i have a different way of thinking about it which

is jam tomorrow jam yesterday but never jam today and that's essentially the vc message to people like alison wonderland which is why can't we have jam today what is this whole thing about the delayed gratification the ipo tomorrow the exit tomorrow the share options tomorrow wait everybody burn themselves out today for something that's going to happen tomorrow well you can book me we don't believe in in jam tomorrow we believe in jam today or as we put it profit today so yeah this is like a really weird weird face but that is what we're that's what

that's the story we're in so we broke even in 2016 we've not we've not um you know looked back basically this was the moment this was a fantastic moment and in a year later as we had always promised our team we paid out seventy five thousand dollars was about fifty thousand pounds to the five eligible team members who've been working with us for all that period of time in fact we hired a lot of them in september 2015. we told them we were going to do it and we did it so i hope you will allow some of this as

well into your companies very happy as well to talk a bit more about um how we did it so the profit stack this is it absolutely classic uh you know we talk about tech stacks sales and marketing stacks all the rest of it same principle you get your degrees of foundational um capacity at the bottom and then you build up so in terms of the you can book me p l this is roughly what it is gross margins now i know in america you have you include lots more costs into your gross margins but in the uk we are only required to report on direct costs like

aws and stuff so for us we run a 95 gross profit margin um but then on top of that you've got your core management on that you've got your r d your engineering team your product team and then your um your communications support and research and on top of that if you're a sas bootstrapped team um a company around our sort of size you should be expecting to make 25 30 profit which sounds like a lot but as i said nobody's giving this money to you so you need to make it yourself you decide on your cost you decide what you want to spend on it's not exactly a tap that you switch on and off but you

decide when you want to spend it recently we've just decided to double size of the company so but what we're doing is we're investing and we're eating into our profit margin we're not trying to um spend money that we didn't have so we make out of our monthly arr if you like business stack same sort of thing you'll recognize cost of acquisition for customers how much you're going to spend on the product itself to retain and give them a good experience their lifetime value whether you can expand them and then essentially what how much money you can

make off the top of what they give you now um the name of the game here is i'm not talking about sales and marketing what i'm talking about is product-led growth because that is what's going to lead you to profitability and if you listen to nathan a couple of years ago he did an absolutely fantastic 20-minute talk on how you should be expanding your customers how you should be making more money from them people giving you more rather than trying to expand through growth through sales and marketing and that is the best economics you can you can put into your company and then the

final one is people hr so what i talk about is high performing problem solvers which sounds completely obvious obviously you want to get high performing problem solvers but what it doesn't say is what you don't want to hire is low performing problem creators because they're going to be very expensive inside your company so how do you do that where you invest in your recruitment you invest in your turnover and culture you look at what the experience is like for somebody working for your company you want to um you want to incentivize somebody working for your company for as long as possible you therefore have to work out how

you're going to give them some career paths and promote them and so on and so forth and at the end of the day you've got a profit margin there which what i would call is essentially their ability to impact your uh your growth so who you hire will have a direct impact on that so here it is uh the profit stack of your classic p l or income statement what you're doing in terms of people and team and then how you're actually going to build a product together to make some money so in terms of metrics people metrics

this is ithne and kelly two of the high performing problem solvers that worked for us in in um in lisbon earlier this year what we're trying to do is to maximize the opportunity for high performers to hit their stride that is where you're going to get true value out of anybody who works for you is to get them to work for you for at least two if not three years and to hit their stride over that time so you have to have a view about what their best work is going to look like and so for them for the metrics that matter you need to understand what is

your te your average tenure what is your turnover and what is yours nathan would say your ar per employee and you will get you will be able to scale profitability in your company if you do it now metric tenure sas benchmarks now this all comes from sas capital so i am going to come with a slight contradiction of what nathan said but you can certainly all of these sources i hope that they're going to be shared in the in the documentation that you've got so sas capital will do metrics about uh bootstrap companies vc

funded companies for different sizes so i've taken them for a company you can put me size benchmark is two years you can book me 3.3 years and it's only 3.3 because we've just doubled the size of the company recently normally it was about four years four and a half years people stay for you can book me for a long time which means that we get a lot of value out of what they do for us turnover this is the voluntary last 12 months of turnover at 9.2 percent how many people are just deciding to resign and move on instead of you know other more negative things and you can put me at 3.6 and then this is what nathan was saying

they are ar per employee so the benchmark is actually 125 000 depending on who what size of company so it can be 250 it just depends you have to look for your own your own equivalent and you can book me as two hundred thousand so you can just see with that you can see why you can book me as profitable salary metrics so everybody loves talking about salaries nobody likes talking about salaries but i do an awful lot of work on salaries inside you can book me and that's because a labor market works the same as

any other market it's supply and demand so you have to basically pick your price point and pick um what you're how you're going to pitch your salary rates to other people i was talking about this with rory this morning over breakfast it is really hard to get it right you have to do a lot of work on it it's not some of those things where you can just basically pluck a number out of thin air so we do one of the things that we do we have an open transparent um open salary scheme inside you can book me and have done for a long time now my one bit of advice about other than the other things that can help you decide what your rates are

going to be is that um reward performance with high wages i.e hire somebody on a moderate conservative salary rate if they do really well for you by all means double their salary if you want to don't do it the other way around a six-figure salary does not necessarily bring in a six-figure performance from anybody so um uh yeah the two don't follow in reverse but this was an example of our first open salary um scheme so we just basically put people within about two thousand dollars or euros or or uh sterling within each other so they could

see roughly speaking where they were and it kind of broke down because of the size of our company now but basically you don't have to you don't have to overthink it it's not that difficult you just have to let people know you advertise what salary you're going to pay somebody and then they come in and they know what everybody else gets paid so in terms of the metrics market rates people the the kind of comparisons that we make we use glassdoor um you can vote me pays up to double market rates we look at pay ratios which is the gap between the lowest and the highest paid

incredible some incredible ratios coming out of public publicly listed companies in america but 201 times is is essentially the average you can book me 4.3 and i'm going to come on to that it's not because we're massively socialist or weird it's because it's actually a very good uh logic to why we keep our wage ratio low and then costs of living in different regions number indexes tells you where how much it costs to live anywhere and we basically split it into four pay regions inside you can book me anybody recognize this place

anybody live there six people live there no none of nobody else lives there and that's because it's incredibly expensive to live there um so i just i mean i'm this i just i just put this out as a kind of a general academic question who thinks it's good economics to fix uh salary costs and tech companies to living in san francisco i make a lot of money running a software company i do not intend to spend my profit on propping up san francisco housing and landlord rates i just don't i'm not going to not going to do it and that's because of this so these are all

the countries that we hire in america is just this is actually pitched to new york cost of living not even west coast but it shows you that and i actually think frankly and i know i'm a european basically talking about capitalism to a north american audience but i mean i think it is anti-competitive frankly to say to people in romanian morocco and south africa you have to compete with people working on the west coast you need to pay a whole lot of stuff in terms of rent um the one the one bit of leverage you have which is your price

you you're we're going to fix it to some kind of insane six figure salary that's just my little mini pitch if you disagree please say but anyway i just think it's a bit like the yoga everybody's saying oh we pay every you know we pay the same san francisco why why do you do that um that's because cost of employment matters this is a really um this is proper data that's been based on all of all of our analysis of where we hire this is what it costs us to employ somebody um in france versus uh the uk which means that not all salaries are equal as far as the employer is

concerned taxes vary widely benefits uh vary widely but also what what it costs to the employee so this again compound of income tax and social security contributions for our employees so um it's very expensive somebody who live in portugal but i love portugal have you ever been it's beautiful so i'm not saying that they don't have a good life but it does it does definitely cost them the point about all of that is that you can still be above market rate in terms of your

salaries and compare it to glassdoor even if you're not going to do the sort of the six-figure you know massive facebook style airbnb style salaries so this is you can book me rates of pay so we do pretty well we're not saying that um you know you're going to get rich by working for a salary for you can book me but we are saying that there is some logic here which means that people should be able to benefit and that's to do with that pay ratio so that's the same data but put into a slightly different context this is you can book me team and the grit and the ratios of the

salaries that we pay so you can see here that in terms of the sticker price of salaries there's a 331 spread between the lowest and the highest paid but if you compare it to the actual cost of employment that spreads much higher and if you look at the take home that spread is much lower which means that i have a team 4.3 ratio 4.3 times if you like the whole company as we get richer as we get more successful we can move the whole team along so we hunt for profit

like a pack so we're not putting some big outliers at one end or the other end because what i can say is if you stick with you can book me and you and if you're a high performing problem solver and you stick with us for over a long time you will get renumerated via profit and that is my that's my logic so let's talk a little bit about how we share the profit in my last few minutes so the scheme um this is quite heavy in terms of content so i think it is all printed out you've got you've got copies of this so i'm very happy to talk about this in

detail but basically our logic is you've got to be employed you can't be on a disciplinary and you have to have worked for us for at least a year and a half we then look at our net profit excluding any um you know out sort of extraordinary costs like foreign exchange currency stuff happens a lot and um i know it's like one-off donations or something but otherwise we just take a quarterly three-month p l and we take 10 of our profit and we redistribute it and then what we do is we do reward 10 years so you get a higher percentage of

your eligibility for a share if you uh for the longer you stay and then we basically invest that at about at four years and we just pay it into people's paychecks um somebody asked me this morning why didn't we do share options and actually i mean sure options are quite good and tax efficient for um for people in one country but for us we had to look at a scheme that was going to apply in multiple countries so this is what it looks like in terms of the employee you start up 0.25 points by a year and a half you've got

1.5 points and that's when you become eligible you then get that payment we will then work out how much profit we've made in that quarter and we pay out at the in arrears so at the end of the seventh quarter we'd pay it out then it keeps on going up and then after four years you as i said you'll be making the maximum percentage so this is an illustration so let's say you've got seven employees the guys there over on the right have just started just become eligible the guys on the left have been here for a

while so on a 25 000 profit um so it would be 250 000 of actual profit and you're paying 10 percent out if you've been with us for the longest you'd be getting just under 5 000 if you've just become eligible you'll be getting just under 2 000 so anybody inside our company can do the maths they can work out the more we grow the more we more money we make their number just goes up the more cash they have and as nathan was saying that spreadsheet is here this is how it literally gets

done um it's it's scalable probably up to about 20 people after that i probably need a new spreadsheet nathan has lovingly recreated all the formulas based on the screenshot as well so it is it's he knows it as much as i do now about about this spreadsheet but you also have a copy saved to your fob and i'm happy to answer any questions at all about it because the point about it is that once you have got your quarterly p l agreed you then basically fill in what your turnover is this is what we do

what your turnover is what your profit is it then does all the calculations and then it will literally list how much money you need to pay out in people's pay does that make sense for everybody yeah so so so my final question to you guys and we're kicking off the conference here it's been really exciting to to share all this with all you i really look forward to um to answering any more questions going to the brain dates listening to all of your stories and learning from all of you as

well um but my real question to you is what business are you in this is the p l from that moment when we made profit and basically the year before we were not in business we made a twenty eight thousand pound six hundred twenty one pound loss and as i was saying to rory this morning at that point you shouldn't really be worried about that you should be worried about cash in your bank that's why people like nathan and founderpath exist is keep your cash flow going because as the expression goes cash is king but ultimately after a while you need to work out whether you are actually in business and that's what we've been ever

since and we have a fantastic business and lots to look forward to but at the end of the day it is about making money so in the last 20 minutes i have talked through my profit stack how to build a profit mentality into how you design and sell your products not just about product vision and yoga it's actually about making money what metrics will help inform you with that hiring as i said most of those benchmarks are publicly available you can look for yourself how much or how well you guys are doing talk to anybody they like about the impacts of the open salary structure inside you can put me

i'm a massive fan of it and we just wouldn't go back now and our profit share matrix and how we pay out every quarter thank you very much [Music] you