When Patrick Campbell started his business, ProfitWell, in 2014, he made an interesting decision.
With their primary product Price Intelligently easily doing half a million dollars, he made the conscious decision to pay himself just $50,000 while living in Boston. If that sounds insane to you, just wait.
When you’re starting a business, at some point you’ll have to make a decision. Are you building a lifestyle business, or something you want to scale? Patrick Campbell wanted the latter. And to get there he had to make multiple hard choices and stay disciplined.
This is the story of how Patrick built Price Intelligently and ProfitWell into million dollar businesses by having a clear goal of building a scalable company, having the discipline to stick to that goal when it would have been easier not to, and the courage to experiment with business models that aren’t always popular. Doing this, he’s managed to build a business that now does between $6 and $7 million, and a software company with an ARR of over $1 million, and growing.
Finding a Pain Point: Companies Are Guessing on Pricing
In 2012, Patrick Campbell was tired of working for other people. He’d been through the bureaucracy of working for the government. He’d moved to Google thinking the situation would get better, and then to a smaller startup for the same reason, but in the back of his mind one idea wouldn’t leave him alone. He wanted to be his own boss, and that year he decided to go for it.
It wasn’t an easy decision.
“The way I convinced myself [is by saying to myself] I can always get a job. Worst case scenario, I could move back to Wisconsin and my parents would let me sleep on their couch. I told myself that I was going to give myself 6-9 months, and if it doesn’t work out, I could always try to get my job at Google back.”
He needed an idea. His background is in econometrics and math, and at his last job, the startup, he’d been a jack of all trades, or more formally in “strategic initiatives”. Basically, give him a problem, he would analyze it, and find a solution that he could hand off for implementation.
One thing he found himself doing a lot was analyzing pricing structures. In particular, he noticed that companies would spend immense resources on product but when it came to pricing, they’d just guess.
“They would tell me that they put so much time and effort into the product, but when it comes time to ascribe the value [via pricing], ‘we just throw shit out there and see how it does.”
That didn’t seem logical to Patrick, so he wondered if there were a smarter way to handle pricing. Could he build a far more intelligent system for companies to pick their pricing, instead?
This was the beginning of what we now know as Price Intelligently, Patrick’s first company.
Early Product Market Fit with a “People Powered Product”
”We learned, in hindsight, that building a tech-enabled service business actually was a better way to build a software company then when you just start building the software.”
“It was a little bit of a tempestuous founding,” he says. “All three of us had not founded companies before, especially bootstrapped ones. The other two guys were part time, and they helped where they could while still working at their full-time jobs.”
Patrick was looking for a business that he could scale. With his background in data, he built a two pronged product to solve the “we’re just guessed at pricing” problem he identified.
The system, (1) gathered survey responses from a company’s customer base, and (2) used those responses to craft an intelligent pricing strategy.
“It was basically me 18 hours in a room just grinding away trying to figure this out,” he says. “I’m definitely not an engineer. Instead, I focused on more selling stuff and figuring out how to provide that in a non-engineering capacity. We sort of fell into the tech-enabled service.”
This offering involved using algorithms (to analyze the survey data and make recommendations) but it wasn’t something a customer could do on their own. It needed Patrick or a trained person from Price Intelligently to execute.
It was almost a standalone product, but not quite.
He called this offering a “people powered product.” There was a product that was doing the heavy lifting (algorithms to analyze data and make pricing recommendations) but it required people to help execute it, so it wasn’t just “pricing consulting”.
“I loathe the word consulting,” he says, “It’s not because I don’t value consultants, and that consultants don’t have their place in the world,” but the vision from the beginning was to be a product company because pure software business is, of course, very scalable.
Services enables deep customer development while generating revenue
“We would not have learned what we needed to learn if we did not do the more heavy services.”
Patrick says it’s actually fine that they started with a tech-enabled business because it allowed them to see deeply into the problems companies have. “We learned, in hindsight, that building a tech-enabled service business actually was a better way to build a software company then when you just start building the software.”
It was an incredible customer development opportunity. “We were learning more about these companies than anyone else,” he says. “We would not have learned what we needed to learn if we did not do the more heavy services.”
The “people powered product” also generated revenue, an all too critical piece for a bootstrapped company.
Over the next 6 months Price Intelligently booked around $130k in contracts, which was great.
But the reality that their product was still “people powered”, i.e. it wasn’t a totally standalone product was something they couldn’t shake.
“It weighed on us a lot,” Patrick says.
Not just because Patrick’s vision was a pure product company, but also because he sold that vision to recruit key early hires, including their head of sales.
As he puts it, “The reason I was able to get Peter [their head of sales] to come work here, was because I sold him the vision of the product company…Not a lot of people want to work for agencies, if they’re interested in software.”
So they kept brainstorming product ideas.
The team had various product visions, which they were actively doing customer development on, (such as hosting pricing pages for companies) but a chance encounter in the boardroom of an existing client sparked the idea that stuck.
Starting ProfitWell: Discovering a Pain Point with Accurate Financial Data
Patrick says there were two data points that led them to start their product business.
First, Patrick and his team were sitting in the boardroom of a client preparing for an IPO when they realized that this client wasn’t calculating their monthly recurring revenue correctly.
“We were sitting in a company’s boardroom that was about to IPO, and they were calculating MRR completely incorrectly.”
Knowing your MRR is a fundamental part of SaaS accounting, and this was the third company that this CEO was taking public, so the fact that it was being calculated incorrectly, was, to put it mildly, surprising.
But beyond this (amusing) data point, the team began noticing that getting accurate financial data from online software businesses was not easy. It was more complicated than just knowing MRR. A key part of Price Intelligently’s service was ascribing value to customers: i.e. How much is a particular customer persona worth to a company?
This required accurate financial data. How much are these customers paying per month? What percent of them churned? When did they upgrade? How long are they staying customers?
They couldn’t count on Google Analytics or a client’s CRM to give them this financial data accurately and in detail.
“The hardest data to collect was that financial data,” he says.
This was their second data point, and the idea for the product that is now ProfitWell was born.
They decided to build a product that would collect data for SaaS companies, initially by plugging into Stripe, and display key financial metrics (like MRR, LTV, churn, etc.).
Bootstrapped Product Development: Having the Discipline to Reinvest Profits in a Brand New Product
At this point, Price Intelligently, the people-powered product, was about two years old and generating roughly half a million dollars a year in revenue.
Building the new “pure” software product — now called ProfitWell — required finding and hiring technical talent (they eventually hired Facundo Chamut as a contractor (he eventually became their CPO), who was previously Principle Engineer at Compete.com and thus had a lot of experience with data focused SaaS products), which means it needed capital.
They were bootstrapped (still are) so there was no investor capital to lean on.
This meant as much margin from the Price Intelligently service as possible would need to be funneled into their new product, and lifestyle sacrifices needed to be made. For example, Patrick paid himself only $50,000 a year at the time. Although that’s not “meager” by any means, remember Patrick was a twenty something founder/CEO with a successful, profitable business, generating half a million dollars a year and living in Boston.
He tells us his mindset then was, “I very well could have been making $150[k] or something like that, but it’s all about getting to product…It literally took the discipline to take all of the margin of the Price Intelligently side of the business and invest it into ProfitWell.”
This discipline (which, as we’ll discuss later) is something Patrick notices not all founders who have lofty business goals exert early on. In other words it’s easy to choose lifestyle over re-investing your margin.
In fact, Patrick told us they didn’t start building ProfitWell for a year after they had they idea because “we couldn’t really afford anyone at that point.”
In addition, competition also happened to be heating up at that time. “We launched our very very bare bones MVP, looked-like-shit product, right around the same time BareMetrics, ChartMogul and a couple of these other products started launching.”
With competition chasing a similar goal, speed is important. And to build faster, you need capital. So with Chamut as their first engineer, an intern, and as much Price Intelligently profit as they could muster, they started building ProfitWell.
Monetizing ProfitWell: Choosing a Freemium Model
“Selling an analytics product is one of the worst businesses to be in. Churn is awful. People aren’t willing to pay for it.”
As they began building ProfitWell, they (of course) applied their own Price Intelligently customer research onto themselves. Unfortunately, what they realized, is that customers don’t use or pay for analytics products that often, and they often don’t stay as paying customers for very long.
As Patrick puts it, “it takes a ton of work to build an analytics product that’s accurate and people log in once a month.”
As he’s described in detail on the ProfitWell blog, they learned that monetizing ProfitWell directly through a typical recurring subscription price wouldn’t be worth the cost of customer acquisition.
So instead, they decided “ProfitWell essentially was going to be our wedge.” They’d use ProfitWell as a lead generator for for two other more advanced, high priced software services. Basically, it’s a freemium model, except instead of a paid product that costs $49 or $99, their paid versions start at $1000/month.
But their detailed analytics let them see when customers could use their more advanced products. “We can see,” says Patrick, “through different algorithms on top of ProfitWell, ‘Hey you have a problem with this, we have a product that helps with that problem, do you want to hook that up?”
But the freemium model further delayed having their product generate cash. It took months for ProfitWell’s leadgen to get traction, but once it did, Patrick’s initial discipline began to pay off.
Now, there are multiple “product tiers” on top of Profit Well, which has just crossed $1 million in annual revenue. They have Retain, a product to help with churn, Recognized, a product that helps with bridging subscription and GAAP accounting, and “a couple others coming out” says Patrick. In addition, Profit Well also generates leads for Price Intelligently, the people powered product, that they’ve kept growing and new does over $6 million in annual revenue.
His Advice to Others: Decide If you want to scale, back up your decision with discipline
”If you want to just build a lifestyle business, this advice doesn’t really matter.”
Patrick draws a clear line for people wanting to start a large scale business. Either you decide on lifestyle or you decide on scale but don’t straddle the line.
Then, once you’ve made that decision, you have to have the discipline to stick to it, which is where Patrick says he sees a lot of other early entrepreneurs trip up.
“They don’t have the discipline to reinvest. It’s totally respectable. I think the discipline is a lot easier to say than it is to do, but it’s not super complicated.”
“If you’re making $150k a year and at the end of the year there’s 20% left over, are you going to invest that or are you going to throw that into a down-payment on your new house?”
This story was co-written by Devesh Khanal and Elizabeth Wallace, a Nashville based writer.
As always, we write and edit in Google Docs and import into WordPress in one click with Wordable while popping a glass of champagne.
More Stories Like This