10th ANNUAL
Bootstrapped Survey
In December of 2020, Mainsail Partners conducted its survey of bootstrapped software founders for the 10th consecutive year. While the report always sheds light on the sentiment of founders for the upcoming year, this year’s survey also provided insights into how COVID impacted their businesses in the near term and shaped their approach to running their businesses once the health crisis is behind us. Below are some of the key trends and takeaways from the report:
Founders are optimistic about 2021: The outlook of founders is generally positive, with 63% of respondents predicting the U.S. economy will do better in 2021 and 74% believing their company will grow faster. And there is good reason for software companies to be optimistic as we have seen COVID accelerate the adoption of technology across many sectors of the economy.
Finding good people to hire may be getting easier: Hiring good people appears to be difficult, with 40% of respondents citing it as a top challenge. However, this is at an all-time low since Mainsail has been running this survey. Employers may be seeing the upside of a favorable labor market coming out of 2020 and anticipating the benefits of more flexibility in their remote work policy, leading to a broader, and possibly more affordable pool of talent.
Product remains the top priority: When it comes to the most important areas of investment, Product Development remains on top with 58% of respondents citing it as a top priority. In fact, in the ten years that Mainsail has been conducting the survey, only twice has Product Development not been the #1 answer when founders were asked about their most important areas of investment in the coming year. The advent of product-led growth and the increased focus on retaining customers may be contributing factors to the increasing importance of investing in Product Development.
Marketing overtaking Sales as a priority?: For only the second time in ten years, Marketing outranked Sales when it came to investment priorities for founders. Many companies appear to have found ways to sell more efficiently during COVID through better use of sales technology, low-touch sales processes, or inside sales models and believe these efficiencies are sustainable. At the same time, Mainsail has observed digital marketing channels becoming more competitive, requiring increased investments in these channels that continue to perform, but at a higher cost.
Software companies remained productive during COVID: The majority (68%) of respondents indicated that their teams were equally or more productive during the COVID crisis in 2020. Companies cited the use of video communication technology, collaboration technology and reduced travel time as some of the key contributors for maintaining productivity.
Companies will operate differently on the other side of COVID: Looking ahead to a post-pandemic world, the majority of respondents (58%) said they will provide more flexibility for teams to work remotely, 56% said their teams will travel less and 33% said they would reduce the square footage of their office space. With only 8% of respondents saying they will go back to operating the way they did before COVID, the business world and the way it operates is going to look very different in the future.
This past year was incredibly challenging for many companies and the communities they serve, but we believe founder-led software companies did what they do best by innovating and adapting to the world around them.
Here is what else we learned.
Bootstrapped Survey: 2021 Outlook for Software Companies
Profile of Survey Respondents
Forecasted Annual Recurring Revenue (ARR) and Forecasted ARR growth in the charts below represent estimated 2020 financials given the fiscal year had not concluded at the time of this survey.
2020 ARR (Forecasted)
2020 ARR Growth (Forecasted)
Average ARR Per Customer
Defined End
Market
The Macro Outlook
What is the prevailing market perspective?
When it comes to predicting how the U.S. economy will perform in 2021, an all-time high percentage of respondents predicted it will perform better (63%) while 19% predicted it will perform worse. That number is down from just one year ago, when 27% predicted the economy would perform worse while only 24% thought it would do better.
* The data presented in the graphs throughout the report represent the year in which the survey was conducted. The corresponding commentary refers to the respondents’ sentiment for that upcoming year.
Do you expect the U.S. economy to be better or worse next year?
Mainsail's Take
The optimistic outlook on the U.S. economy is likely driven by the relative state of the economy at the time the survey was conducted at the end of 2020.
How do software entrepreneurs feel about their
businesses' outlook
for growth and expansion in 2021?
Growth
expect their business to grow faster this year. While the majority of founders were optimistic, 10% expected their business would grow more slowly (tied with an all-time high going back to 2012), reflecting a bifurcated market of winners and losers driven by the impact of COVID.
What best describes your expectations for your business in 2021?
Expansion
plan to hire more people, up from 61% last year.
plan to hire fewer people, down from 11% last year.
Will you hire more or fewer people in 2021 than you did in 2020?
How did the presidential election and the COVID
pandemic
impact market perspective for entrepreneurs?
Based on the results of the survey, the election and pandemic had a profound effect
on the results for software companies in 2020 and the outlook of founders for 2021.
Relatively speaking, the software industry was resilient in 2020 with nearly 50%
saying
they grew at the rate they expected or faster despite the pandemic. A large % of
respondents
(35%) are more pessimistic about the macro economy as a result of the
election, likely
reflecting concerns about a potentially less business friendly political environment.
The Election: How has the outcome of the presidential election changed your outlook? (select all that apply)
The Pandemic: What best describes the impact COVID had on your business' growth in 2020?
Signs of Uncertainty
Mainsail's Take
There continues to be a level of economic uncertainty regarding a post-COVID marketplace. In 2020, certain market segments flourished due to shutdowns while others struggled. The wide range of impact is likely a driving factor behind these bifurcated results.
Challenges & Investments
What will be the biggest challenges for
growing
your business in 2021?
Here is what respondents say their biggest
challenges to growth
will be in 2021. This year featured a number of all-time highs
and
lows, including:
What do you expect to be the biggest challenge(s) for growing your business in 2021?
Mainsail's Take
Finding good hires is predicted to be the least challenging it has been in nine years, likely due to layoffs that redistributed talent in 2020. Another contributing factor may be the flexibility employers plan to have around the location of future hires (see section below on Long Term Effects of COVID). Additionally, in the continued low interest rate environment, lack of capital was less frequently cited as a challenge. Still, challenges remain. With some companies potentially struggling to acquire new customers, customer retention has been thrust into the spotlight. Consistent with previous years, sales & marketing execution was highlighted as an expected top challenge in 2021.
What will be your most important areas
of
investment?
The top five areas of investment for entrepreneurs are Product Development,
Marketing/PR, Hiring People, Sales Staff and Technology. Here is how all the
answers
stacked up:
Product on
Top Again
For bootstrapped technology entrepreneurs, Product Development remains a paramount area of investment (58%). On average over the ten years that we’ve asked this question, 55% of respondents have named Product Development as their top priority. Twice did it fall out of the top-ranked position, ranking second to Hiring People in 2011 and second to Sales in 2017 (54%).
Mainsail's Take
Having a competitive product offering is crucial to efficient growth for SaaS companies, and the rise of product-led growth has only accentuated this dynamic.
Marketing Eclipses Sales
For only the second time, Marketing ranked higher than Sales as an investment priority. Further, the percentage of respondents who plan to invest in Sales was at an all-time low (44%) while 53% intend to invest in Marketing (up from 46% in the year before).
The Effects & Implications
of Covid-19
How are you approaching remote work?
At the end of 2020, 77% of companies were still operating in a fully remote setup. Looking ahead, 58% of respondents said they would be more flexible with teams working remotely once COVID is over (i.e once a vaccine or treatment is widely available and it’s safe to gather and work in close proximity).
How did COVID affect your productivity?
68% of respondents reported their teams were either equally as productive (43%) or significantly more productive (14%) or slightly more productive (11%) during COVID than prior to the crisis. Only 3% of respondents said their teams were significantly less productive.
What best describes your team’s productivity
level during
COVID vs. prior to the crisis?
Mainsail's Take
Employees may be finding that the benefits of reduced commute time and work travel make up for the innate distractions involved in working from home. These answers could also be a reflection of the fact that this segment was already shifting toward more remote work.
What tools did you adopt in COVID?
In COVID, 84% of respondents started using Zoom or other video communication technology to make their teams productive in a remote setup. 58% expect to consistently use this technology once COVID is over. The second most popular grouping of tools was “Slack, MS Teams or other collaboration tools” with 44% adopting them in 2020 and 38% saying they would continue to use them once the crisis is over. In step with these developments, 13% of companies enhanced their security technology.
What new tools did you begin using (or use
significantly more) during
COVID to make remote work productive? (select all that apply)
WHAT OPERATIONAL CHANGES WILL BE SUSTAINED BEYOND COVID?
Long-term effects:
What operational changes did your organization make that you believe will be sustained once COVID is over (i.e. once a vaccine or treatment is widely available and it’s safe to gather and work in close proximity)?
How did your company preserve cash in COVID?
Reacting to COVID-related shut-downs and uncertainty, companies enacted several cost-saving measures. Of note, 67% received a PPP loan; 23% cut back on sales and marketing and 15% cut headcount of full-time employees. Of note, only 10% of companies cut back on R&D or Product Development.
Top 5 thing companies did to preserve cash during COVID
In 2021, will you focus on Growth or Profitability?
53% intend to emphasize strategies to drive growth; 22% will put more emphasis on strategies to drive profitability; and 25% responded, “Our company has always struck a balance between growth and profitability and we will continue to do so”
Based on your emphasis on Growth vs.
Profitability, which strategies will you focus on?
Growth Priorities for growth-focused companies
Profitability Priorities for profitablity-focused companies
