The Story of Hotjar's Bootstrapping: $19 Million in 5 Years
When you want to see how your site is doing, you open an analytics software and click whatever you want to know, right?
Of course! And it's so easy!
But it wasn't always that way. This is the story of a company that gave the power of analytics back to the masses, instead of redirecting them to tools owned by megacorporations.
Hotjar is a fully-remote startup founded in 2014, and its business revolves around visitors' behavior analytics. They provide users with highly professional feedback tools such as session recordings, surveys, heatmaps, etc. They started off empty-handed, but reached $19 million in revenue in only 5 years.
This is their story.
Third Luck's a Charm!
The story begins with David Darmanin, one of the Hotjar co-founders - and his two consecutive failures.
Even though the third attempt turned out to be the charm, and that's why you're reading this, he didn't jump-start his entrepreneurial career just like that. Before committing to building Hotjar, he and his team twice tested their luck in the startup world. The problem was - they simply focused on the wrong things:
- Finishing the product and building the user experience before checking in with users;
- Focusing on design instead of research and;
- Jumping straight to high-price sales.
These painful lessons were valuable, but after 10+ years of building his domain expertise, and these two failed projects, David was ready to finally do it right.
Focusing on the ideal buyer's persona. What were they like? So many startups begin by focusing on themselves and their needs - and David was the typical Hotjar user!
Building the Perfect Team in Only Two Weeks
David started searching for his rock-solid team after realizing the product needed to be so good, he'd buy it himself!
So, he called some of his best colleagues, attempting to surround himself with top-notch professionals he could trust. But ten years is a long time - people change, and how could he know they were still a good match for his idea?
He didn't, but he had a plan to find out:
Build a product together; Build a product together that measures whether you're a good match;
This resulted in the creation of 'Prioritizr', a brainstorming and prioritization tool suitable for teams. It only took 14 days before they were certain: they clicked when working together, allowing them to identify necessary changes in the work organization, and finish projects in the shortest possible time frames.
The Perfect Plan
The next step was to create the minimum viable Hotjar product and launch it to their beta testing squad in order to improve the product as quickly as possible. But they didn't have any users yet, and getting beta testers requires a strong incentive. As they were bootstrapped from the start, the Hotjar team decided to make this 'beta launch' their lead generator through various offered incentives, including t-shirts, several months of free use, and even lifetime accounts!
David knew how crucial the beta testing was, as he omitted it with his previous startups. So, once everything was meticulously outlined, it was time for action!
Build the Core First
That's where Erik, the backend developer, and Marc, the frontend developer enter this story. They quickly built the 'base technology' - Hotjar's core: creating analytical records of visitors' activities on a webpage, and visualizing their results. What was truly important at this point was making it all cheap, as the main goal of the Hotjar project was to democratize user analytics and feedback.
In the first month, they created the technically-viable product and Johnatan, their UX expert, could start doing his magic. He created a detailed document, listing all of the features Hotjar would use, their functions, and their acceptance thresholds. Now that's what we call pro-level product management!
After reviewing Johnatan's requirements, the team made a deal with a fixed time frame: the beta version of their product would be released in six months.
Only when the company reached this stage of building the product, was David ready to choose the product and company name, purchase a domain, and set up a legal entity.
In his previous startups, he used to do that right away. That was a huge mistake: after his startup projects failed, he was left with a bunch of wasted money, and administrative ruse.
This time, he applied a different strategy: first, build the core, then work on the delivery, and if you plan it just right, you can bootstrap the entire project!
In that spirit, the first funds came from their own pockets. In order to fulfill their six-month commitment and continue functioning, they used the first funds to buy various tools to create a better workflow organization system. Pushing the company into weekly sprints as soon as any piece of the product was complete, and releasing an update about it allowed them to be very responsive, very fast, concerning the market's needs and issues.
While building Hotjar, David and Johan built a preview of the product for the home page. This would allow visitors to sign up for the beta version, which would accomplish two goals:
Spreading the word and; Getting early feedback.
Again, two things David didn't do with his previous startups: asking people what they thought and what they needed, before finishing the product!
Solving First Challenges
This is where their first challenge arose: building a system that would work with a bunch of websites, and then slowly scaling up as new users came to the platform. This meant they could control the rate at which new users flowed into Hotjar
But how exactly did they manage this? It certainly wasn't easy!
In July of 2014, the team created an early access 'waiting list' which they would populate by sending over 55,000 emails to various contacts through November. This was the initial outreach.
Every user waiting 'in the line' would receive a number telling them how many people were ahead of them. Then, they'd be asked to refer Hotjar to their friends by using their unique URL - the more friends you bring, the higher up you go! Users who would refer 5 friends received 6 months of Hotjar for free, while the first 200 positions on the waiting list also got a free Hotjar t-shirt!
However, those rewards weren't pined-over as the one given to the top 20 positions on the waiting list - free Hotjar use, forever. Sharing the site with friends was further eased by adding shareable links for Facebook, LinkedIn, Twitter, and email - so the referral process worked flawlessly!
This way, they were able to create visibility and induce a need for a product that wasn't even out there yet, enhancing word-of-mouth marketing through building a competitive environment among early birds who were eager to get access to Hotjar. This strategy was responsible for more than 60% of their first signups!
Hotjar's ideal buyer's persona was David, himself. So, the logical step of the process was incorporating the Hotjar toolset into their own website: polls, heatmaps, recruiters, surveys - the whole package. These tools allowed them to track how their visitors found them and how they used their website, but also to later invite them to Skype for remote tests, asking for their feedback through surveys.
The next step was promoting the product to a wider audience. Luckily, the co-founding team was made up of five people with plenty of connections, so their network was wide enough at the beginning. However, they soon needed more, so they started marketing through blogs, sites, and communities where they could spread the word about their product for free. With the addition of paid ads too, the number of users was soon in the thousands.
Once the beta was ready to launch, the team started creating the perfect referral program, but they quickly ran into a problem: with so many users on board, it was impossible to communicate with every single one of them. The best way to resolve this problem was to set up more tools:
Intercom: an integrated live chat tool; Their own forum; A detailed process flow chart and; A public road map to show customers what Hotjar was building next.
They also opened up communication boards on Trello and developed an internal ethos of customer relations.
Next Challenge: Charging for Their Services
When it was registered as a legal entity, David became Hotjar's CEO. He was still responsible for communication with the 'outside world', and his efforts had paid off. In only 7 months and with their received customer feedback, the Hotjar team built a solid base to skyrocket its product further. They tested it on more than 22,000 sites, engaged users in more than 6,000 conversations, launched 69 new features, and resolved more than 200 bugs.
After the beta was launched, it was time for the commercial release. After everything they went through initially, this one was too easy.
They already had a fan base, transparent communication, and a business plan. All they needed now was the pricing plan. Transitioning from the free beta to a paid plan had its pain points. Many of their users were actually responsible for Hotjar's success through the beta testing phase. They couldn't just ask them for money. That's why they gave all their beta testers a free month with the final product, allowing them time to decide if they'd pay for it or not.
Over the previous 6-month period, the team learned that offering free access was a very powerful tool. Although the deal was to charge $29 for the final product, dismissing this allowed them to spread really fast. They wanted to democratize analytics, and creating a freemium plan was the obvious option. This way, students and young startups could profit from using their tools, while Hotjar would profit from enterprises and developed businesses.
But how do you tell your beta users, your company's cornerstones, that they need to pay up?
The guys from Hotjar decided to place all of their betas on a $29 'pro' package, different from the free 'basic' plan. Once the beta ended, they had a free month pro bundle, after which they could continue with the pro option or move to the basic one. As the beta period was finishing for some of the referrers and new users, the guys discovered they had been affected by a couple of tax policy changes in European countries. Sounds like hell, right?
They found out they needed to charge VAT (Value Added Tax) based on the customer's location, meaning - 28 different VAT rates!
This was impossible, so they were panicking about the possibility of their planned transition away from the beta. In the end, the problem was resolved by absorbing the VAT charges themselves until they were able to collect VAT numbers from all of their users. This was a risky solution, but they were already in for a penny, so they were definitely in for a pound!
Another surprise came from their customers: while David thought all beta users will wait for the free trial to end before deciding to make a purchase, he was shocked to find out that many of their loyal and happy users submitted their payment details early. This caught them unprepared, so automatically, the system charged these people there and then! Of course, they got angry, so to fix this mistake, Hotjar gave them another free month - and got its biggest fans back!
After only 5 years in existence, Hotjar is now available worldwide and has a recurring revenue of $19 million.
Needless to say - they didn't knock on any VC funds' doors to get here - they bootstrapped their product and achieved everything through their killer marketing strategies. And when we say killer marketing, we don't mean deceiving their customers through shiny ads and fancy commercials. Hotjar did exactly the opposite: honest and open communication, cooperation, and teamwork. That's how you reach the stars!