Bootstrapping Our Marketplace Startup: Year 3

Communer Sales (GMV) and Revenue Graph 2021-2023

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Communer has now been around for three years, having launched in February of 2021. If you have your own bootstrapped startup, you might glean something useful from my account of our existence so far.

My First Bootstrapped Business: Successful, But Not Quite a Startup

My business experience before founding Communer mainly involved my online trademark law firm, JPG Legal. I launched JPG Legal as a “side hustle” in March 2017. This was before I got married and took my wife’s name so my initials were still JPG. 

Within two months JPG Legal was so successful that I could quit my day job as a Teamsters lawyer where I represented bus drivers and mechanics who worked for the DC Metro. It was a great job, but I strongly prefer not having a boss if I can help it, so JPG Legal has been my day job since then.

I’ve tried and failed to transition JPG Legal from a full-time job for me to a mostly-passive income source where I only need to work maybe 10 hours a week. There are many reasons why this didn’t work out, but the main one is that service businesses are not scalable the way startups are. 

I still make an excellent living from JPG Legal and I have a great team there, but my annual revenue has plateaued at around $1.3 million – down from a peak of $1.85 million, though with better margins now. I also still spend about 40 hours a week running JPG and handling day-to-day trademark matters for my clients.

JPG Legal Revenue and Ad Spend 2017-2023 graph

Bootstrapping a Scalable Business (AKA a Startup)

I’ve always dreamed of scaling a business to a large enough size that I could either sell it and never worry about money again, or live from the profits without having to work for the business full-time. This is why I founded Communer three years ago – I wanted to build and grow an actual startup that could someday be acquired at a price anywhere from $5 million to $5 billion. 

For these first three years, we have bootstrapped, meaning we haven’t raised any funding from large investors like venture capital firms. In our case, we haven’t raised any money from friends, family, or angel investors either. I fronted the initial costs, which were low because I made the website and branding materials myself. We’ve been profitable for most of the time we’ve existed.

We’ve also been growing at a steady exponential rate. While we haven’t grown at the hockey-stick-shaped rate you expect for a venture-backed startup, we’re doing well for a profitable marketplace business still in the process of getting traction. We’ve also grown enough that in early 2023 I brought my wife Stephanie on as cofounder and Chief Marketing Officer (CMO). 

In the rest of this post, I’ll go over our growth in the three Key Performance Indicators (KPIs) I think are most important for a marketplace startup, bootstrapped or not. These indicators are inventory, gross merchandise value (sales), and revenue. 

Not only will I go over the growth numbers for these KPIs, but I’ll also talk about what marketing and operating decisions I’ve had to make in order to achieve this growth, as well as anticipated future growth.

Bootstrapped Marketplace KPIs: Our Three-Year Review

I. Inventory

Marketplace startups are different from other startups because you have two different groups of customers – buyers and sellers – who want very different things from your marketplace and thus must be approached very differently. 

Attracting Sellers First

For most marketplaces, getting a critical mass of inventory must be the first focus because if you don’t have inventory, there’s no way for buyers to engage with you. It’s hard to get sellers to list products on a marketplace with no buyers yet, but it’s impossible to get buyers to purchase products on a marketplace with no sellers.

This means sellers are almost always the first focus for marketplaces, not buyers. When we first launched, my focus had to be on convincing sellers to list their trademarks on Communer so we could have enough inventory available to make us appealing to buyers. 

Graph of Trademarks Submitted to Communer by Sellers 2021-2023

To attract sellers, I wrote most of my early blog posts about selling trademarks. They generally involved tearing apart the few other options out there for selling trademarks. Offering a free expert appraisal was a good way to lure sellers as well, because most owners of trademarks have no good way of determining their value. 

I also tapped into my greatest advantage in this space: my high-volume trademark law firm, which handles around 500 successful trademark registrations a year. The trademark process takes so long that some of our clients have already given up on their businesses by the time they reach registration, which means they’re often happy to have a chance to recoup some of their costs by listing their trademarks for sale. 

We also remind clients of upcoming renewal deadlines, letting them know that if they’re no longer using their registrations, they can still monetize them by selling them on Communer. 

Marketplace Startup Pendulum: Sellers, then Buyers, then Sellers Again

Once we had an inventory of more than 100 trademarks, I started focusing more on getting buyers to find our website and buy trademarks once they’re on it. In the third year, inventory actually plateaued for a while as we got more sales. The number of trademarks sold on our marketplace each month started to rival the number of trademarks listed on our marketplace each month.

Recently the pendulum swung again when we realized that lots of potential buyers were now visiting our marketplace, but they usually weren’t finding what they wanted. An inventory of 150-200 trademarks was not enough. 

Opening the Floodgates

When we decided we needed a lot more sellers, we made two huge changes. 

First, we removed the $1 refundable deposit requirement for potential sellers to apply to list their trademarks. I had put that in place because I was concerned about getting spam submissions, even with CAPTCHA and other anti-spam measures. But having to put in payment information was clearly turning away a lot of potential sellers. 

Second, Stephanie and I decided to reduce Communer’s commission from 25% to 15%. I was inspired in part to do this by Bill Gurley’s blog post about marketplaces and the importance of charging the right rake (the amount a platform takes from each transaction).

25% was a fair price to charge for the services we offer, which are comprehensive and not offered by anybody else. But some sellers were overpricing their trademarks to account for the rake, and others didn’t seem to understand the amount they would end up with after our commission and payment processing. Some sellers were also declining to list because they didn’t think they’d earn enough from a sale.

Removing the $1 deposit and lowering our commission to 15% caused our volume of listing applications to explode. Stephanie and I both do this as a side job, so the amount of time we can spend on it each week is limited to maybe 15 hours. She handles most of the new seller intake.

The volume of trademark listing applications increased so much that Stephanie was getting bogged down with trademark status validations, ownership verifications, and appraisals. 

Automating the Floodgates

I wanted to free Stephanie up to work on other projects like building brand awareness and recruiting affiliates, so in March I started automating our various intake tasks that we had been doing manually up to that point. 

To do this I wrote some Python scripts and used API calls to connect them to the USPTO’s free trademark API. I also used Zapier and OpenAI’s GPT API. I’ll go into more detail about how I did all this in a future blog post. But now we have the capacity to handle as many sellers as we can attract. 

In the spirit of Paul Graham’s famous blog post, Do Things That Don’t Scale, we were the intake software ourselves while Communer was small enough. We got away with doing that until the success and growth of our platform forced us to automate these tasks. 

By the time I automated our trademark validation, ownership verification, appraisal, and listing processes, we knew exactly what our software needed to do because we had been doing it ourselves for so long. We had already worked out most of the bugs through our own trial and error. 

II and III. Gross Merchandise Value (Sales) and Revenue

Sales numbers for marketplaces are usually called Gross Merchandise Value (GMV). For a marketplace startup with no outside funding, Communer’s GMV has been growing at an excellent rate. 

Being a marketplace means every sale actually requires two “sales” from us. First, we have to convince a seller to list their trademark on Communer. Second, we have to convince a buyer to purchase that trademark from the seller. So growing our sales and revenue early on essentially requires twice the work of a non-marketplace startup.

Graph of Trademarks Sold on Communer 2021-2023

As you can see in the chart above, we sold 28 trademarks in 2023, up from 12 in 2022. These may not seem like large numbers, but every sale has involved a four- or five-figure transaction. We hope to keep at least doubling this number every year. Our numbers for January and February certainly put us on track to do that. 

Overall we ended 2023 with $83,000 in sales/GMV, up from $54,000 in 2022, an increase of 54%. We also had $26,000 in revenue, up from $15,000 in 2022, an increase of 73%. 

Graph of Communers Sales (GMV) and Revenue 2021-2023

Profitability and Paying Ourselves

While the growth rates have been good, these numbers are obviously low. After operating costs of roughly $220 a month, we’re making enough to pay ourselves about $20 an hour to work on Communer part time.

Communer also sends many new clients to JPG Legal, which generated several thousand dollars in extra revenue for my law firm last year. This makes Communer a lot more valuable to me than it would be if I weren’t a trademark lawyer. However, if we sold Communer, the buyer could recruit a partner law firm to take JPG Legal’s place and establish a fee structure for referrals that come from Communer.

Pumped About Chump Change

So why am I so excited about a business whose revenue is only 2% of my law firm’s revenue? There are a few very good reasons, and they all relate to the advantages of the bootstrapped marketplace business model.

1. Organic Growth

Like Communer, my law firm was bootstrapped, but it was in a professional services market that was already saturated. It was easy to break into, but only as long as I was willing to spend money on ads. My law firm grew really fast because of Google Ads, but that growth was dependent on maintaining a huge ad budget.

Communer, on the other hand, stopped running ads back in 2023. We were spending $1,000 a month on Google Ads for two years before we decided to shut them off six months ago. This had no effect on monthly sales or inventory, which have both continued to grow. 

Our only expenses are server costs and software subscriptions. This means that as our revenue grows, almost all of that growth will be profit. Because we have no investors, all of that profit goes to us founders. This is extremely motivating for us because maintaining our annual growth rate at anywhere near our current rate of 73% will make our effective hourly wages very high very quickly.

2. The Marketplace Moat and Network Effects

Because we’re a marketplace startup in an unexploited industry, we are now in the enviable position of being the only good option for people who want to buy or sell trademark registrations. Though our inventory and sales are modest, we have a three year head start on any other bootstrapped competitor.

Beyond the head start of the labor we’ve already put in, we have a substantial moat – a collection of defenses that make it very hard for somebody else to accomplish what we did. Because of the nature of marketplaces and the moats they develop, a competitor who puts in three years of hard work will not be able to make the same kind of progress we made. 

When we started, there was nothing even resembling a full-service trademark marketplace, which is why we were able to fill that void very quickly without any funding. 

Our marketplace now benefits from network effects, meaning it appeals to new buyers and sellers because it already has a lot of buyers and sellers. Further strengthening our moat is our requirement of exclusivity from our sellers. Because there’s literally no other good way to sell a trademark, most sellers haven’t had a problem with agreeing to exclusivity. 

Additionally, because we only charge a 15% commission, a competitor trying to undercut our pricing would have to grow their business on a fundamentally unsustainable model.

Now a new bootstrapped trademark marketplace would have to put in several times as much labor as we did to even have a chance of competing with us. And if a competitor secured seed funding from a venture capital firm, they would likely need $1-$3 million just to match our market position. 

But why would somebody spend so much money to match us when they could simply buy us out for the same amount, saving years of work and eliminating their only real competition? We have no trouble envisioning Communer becoming worth tens or hundreds of millions, but right now we might say yes to an offer of a few million dollars.

3. Automation and Passive Income

I mentioned earlier that I’ve been automating many of the tasks we were doing manually before. One thing I love about having a software business rather than a professional service business is that we can automate almost every service we provide, leaving us time to focus on growth. But if it turns out there’s a hard limit to our growth in a few years, then we can keep running Communer as a passive source of income and move on to the next project. 

A 100% automated business is also a much more appealing acquisition target – a company that acquired Communer would not even need a full-time worker to run it. Communer may end up being more valuable to a domain or business broker like Flippa or an e-commerce giant like Amazon or Shopify than it would be to us, in which case we could sell it at a price that both parties are happy with. 

We’ve also been adding more and more sources of revenue to Communer, ones that are even more automated than our trademark sales. We sold 31 document templates in 2023, and we add new ones every month. We are also building out our white label legal service offerings like trademark renewals and trademark assignment recordations.

All of these are services and digital goods are passive income sources that require no continued labor from us and no advertising. Once they are offered for sale on the website, we no longer have to do anything to make money from them except keep improving and growing our core trademark marketplace business.

Bootstrapping in Year 4 and Beyond

As we enter year four, we plan to focus on automating more of our internal processes while also releasing some of these automations as free tools for entrepreneurs. The first internal tool we’ll release to the public is probably our Markhound® Appraisal Engine. Markhound® uses proprietary sales data and large language model (LLM) AI to estimate the value of a trademark registration and its accompanying brand assets like domain names and social media handles.

We’ll also continue to grow our affiliate program through outreach to firms that work with entrepreneurs like branding agencies, e-commerce consultants, and startup accelerators.

My hope is that we’ll double our sales in 2024, which we’re on track to do. However, because we have no outside funding and no monthly advertising expenses, even a modest increase of 50% or so would be a great outcome.

As a bootstrapped marketplace in a new industry, we benefit from the advantages of network effects without suffering the disadvantages of venture capital funding.

I’m not saying we’ll never raise venture capital. But if we do, we’ll do it as a mature, profitable business because we chose to bootstrap for the first few years.

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