The Story of ConvertKit: Nathan Barry Bootstraps a Multimillion-Dollar Success
Creating and growing a successful business is no small feat. An entrepreneur's career consists of a series of decisions, some of which are turning points that can change lives.
For Nathan Barry, the Founder, and CEO of ConvertKit, a huge turning point came at the age of 24. His business was flatlining, and he was losing customers every month. During a chance conversation with a friend, he was advised to either kill the company or give it the necessary resources and attention. It was time to double down or shut down. This was a huge moment. What he did next would determine the fate of his business and potentially his entire future. But he didn't seize the moment straight away. He waited six months before doing anything.
Spoiler alert: It all turned out right in the end. But we're jumping ahead of ourselves. Let's go back to the beginning and look at how Nathan started his email marketing platform for bloggers and the challenges he tackled to grow ConvertKit into a 20-million dollar business.
We're rewinding the clock to 2007 and Nathan is at Boise State University studying marketing and graphic design. At the same time, he was building websites for companies and doing so well that he dropped out of college. However, work dried up during the 2007/2008 global financial crisis, so he took a job as a contractor at a digital communications software business before returning to freelancing in 2011, this time as an app developer.
Soon he was making $2,000 per month in sales. He launched a blog, started writing and self-publishing eBooks on app development, and offered packages with useful code and other app-making resources. His books sold in their thousands, and he was making a lot of money. His first book launch did $12,000 of business in 24 hours, and the second launch achieved double that figure on its first day.
Realizing that email marketing would be the most powerful way for him to build his subscriber list and hawk his wares, Nathan used Mailchimp. However, he always felt he was battling against the limitations of this marketing automation platform and email marketing service.
A Public Challenge
Although enjoying considerable success, he was keen to get away from eBooks and embark on the next big challenge in his life. He wanted to get back into designing and building software and create a SaaS (software as a service) application that would give him a recurring income.
He set himself a public challenge of creating a $5,000 per month SaaS business within six months, even though he didn't know what he was going to build. There was one other stipulation, which was he could only invest $5,000 of his own money. He'd seen people come off the back of one success and pour lots of money into new ventures only to lose it all because they didn't need to talk to customers in the short term.
"My rule was that it had to be customer-funded through presales because I figured then I have to talk to people, I have to get customers, and hopefully it would help me find my product-market fit faster," he told Starting & Sustaining.com.
Business Genesis and Early Struggles
Within the first week of his self-set challenge, he came up with the idea of ConvertKit. Frustrated by problems with Mailchimp, he saw a gap in the market for an email marketing tool for bloggers and authors who needed a savvy solution to sell their digital products. ConvertKit was born on January 1st, 2013 and struggled almost from the get-go. Nathan seriously underestimated the difficulty of pulling off his challenge and failed to meet the target he had set.
By June of the first year, the business reached $2,000 in monthly recurring revenue (MRR) but didn't go much beyond that. Nathan was still doing well with his eBooks, earning $200,000 to $250,000 per year, but ConvertKit was not growing at all. Consequently, he started to lose interest.
By September, the following year, revenue had slumped to $1,330 per month, and because it wasn't going places, Nathan found it challenging to put in the effort the business needed. "It was so hard to focus on the hard long-term revenue when there was easy short-term revenue [the books]," said Nathan.
Growth had stalled. He tried to breathe life into the enterprise with a handful of new marketing strategies such as going after new audiences, but nothing significantly changed the situation. Nathan has described the product as mediocre at this time, but there was no investment to add functionality and make it better. Nathan lacked clarity and focus, and the company was effectively put on the back burner. It wasn't even covering the necessary costs to maintain the business.
At this point, the entrepreneur could've walked away and continued enjoying a healthy income from his books. But there was an irresistible itch he needed to scratch, which was he really wanted to run a successful software business.
While attending a conference, a friend advised him to either shut down the business or build it into something special, because whatever Nathan was doing it wasn't working. He was in a tight spot. The company had happy customers, but it was going nowhere fast, so couldn't be deemed a success. Something had to change. Nothing did for six months while Nathan pondered what to do, and revenues continued to slide.
He asked himself searching questions about whether he still wanted to be the CEO of a SaaS company (yes) and whether he had given it his best effort (no). He figured if he shut it down, he would be forever asking himself what would have happened if he had given ConvertKit the time, money and attention it needed. Therefore, Nathan decided to double down and focus on the business 100%.
"So I shut down my course business because I'm not good at doing two things at once," he explained on the Go-To Gal Podcast. "I'm a focused person. And all these people are like, oh, I'm a serial entrepreneur; I run seven businesses. I'm like great, I'm so happy for you. That is not me at all. I run one business. And hopefully, I do it well."
It was a big step, and he had no idea whether it would succeed. Nathan invested his entire savings of $50,000 into the company, hired a long-time collaborator as lead developer and a customer-support employee. He also picked a niche that was email marketing for authors but later pivoted to email marketing for professional bloggers.
Nathan drew up a list of potential customers, emailed them, and asked to get on a Skype call with them to demo the product. He was relentless. Although many loved the idea of ConvertKit, they didn't want the hassle of switching email providers. So Nathan made a bold offer, he'd do the migrations for them, for free no matter the size of the account.
Growth and Problems
The tactic worked, and sales increased, but so did expenses significantly. They went up to about $10,000 per month and gradually climbed to $13,000, but revenue was stuck around $1,300 per month. Things were still looking dicey.
By May 2015, the company had run out of money, and Nathan sold off his investments, so he had enough money to live off. It was an incredibly stressful time. Still, he was not prepared to call it quits on the business. To save ConvertKit, he worked on several options, including cutting costs, renegotiating contracts, increasing efficiencies and doubling down on sales. Nathan needed more clients. To find them, he conducted Google searches for possible targets, noting their current email marketing platforms. He visited their social media accounts and explored their blogs, podcasts and outbound links to learn as much as possible. Nathan split them into two categories: valuable leads who were "internet famous" with email lists of more than 5,000 subscribers and those who fell short of that number. Prospects in the latter group would be followed up at a later date. Nathan interacted with new leads on Twitter and LinkedIn so that by the time he emailed his pitch, he was recognized. He says this strategy generated 35% higher response rates than if he'd had no prior contact with them. To grow even more, Nathan set his sights on and landed some big hitters, bloggers with more than 50,000 subscribers. By September 2015, ConvertKit was earning $25,000 MRR. But when some of the recently acquired large accounts started talking about ConvertKit to their subscribers, revenue shot up even more. By the end of 2015, ConvertKit's MRR stood at $98,000.
The business was growing superfast, at a rate of 20% to 25% per month, but there were still insufficient funds in the bank. So at around this time, Nathan looked at raising finance. He attended a SaaStr conference in San Francisco and talked to a handful of venture capitalists, but they weren't interested.
Walking away without any offers of investment turned out to be a blessing in disguise. "Getting rejected by venture capitalists is one of the best things that's ever happened to me,” he told the Gritty Founder podcast. "We built ConvertKit our way, at our pace, and with our values. Every line of code is funded by the creators we serve. I wouldn't have it any other way."
At the same conference he spoke to Mike McDerment, the founder of FreshBooks, who had experienced similar business problems to those faced by Nathan. He advised him not to seek external sources of money and to grow out of the problem, but only if he believed he had the discipline to do so.
And that's precisely what he did. Nathan buckled down and made it happen. He pursued direct sales with vigor, and new customers were coming on board all the time. Consequently, ConvertKit went from running 3% profit margins to running 52% profit margins within six months. This was pure growth.
Blueprint for Success
Today, ConvertKit grosses approximately $20 million per year, makes around $250,000 per month in profit, and has several million dollars in the bank. At the time of writing this article, the MRR stands at almost $1.9 million. The company’s monthly recurring revenue, net revenue and other stats are published and can be seen by clicking on this link.
Nathan's success did not come easy. It was a tough journey that could've ended on more than one occasion. He started with no idea, no clients and no service, but with determination, perseverance and an unremitting approach to sales created a monster success story.