Resources
Written By Knapsack
It’s 2022, and we’re living in a time when startups are obsessed with becoming niche disruptors. They’ll do everything possible to become the next big business sensation, even if that means piling on unsustainable debt.
Here’s the thing:
About 25% to 30% of venture-backed businesses fail.
…and about 75% of venture-backed businesses in the US don’t return investors’ capital.
Some startup founders view venture capitalists as magicians. All they need is some capital and boom! All their startup issues will be magically solved. Not exactly.
Bootstrapping tends to get a bad rap from investors and founders alike. But Mailchimp has proven that when you get it right, unbelievable success can follow. The Mailchimp team built a company that has lasted for over 20 years from the ground up.
Their secret?
Know your customers and what they want better than anyone else (write that down ✍️).
Their success never went unnoticed. Despite offers from various investors, the Mailchimp team stood their ground and continued to reinvest in the small business owners’ dream.
Today, they’re living the life every startup small owner dreams of following a major acquisition by Intuit.
The question you’re probably asking is, “how did they do it?”
Grab a coffee, read closely, and bookmark this post for later.
Here’s how Mailchimp grew from humble beginnings to a $12 billion dollar acquisition (and the lessons you can take away from their strategy).
But First: Mailchimp’s Origin Story
The year 2000 was an interesting year for Ben Chestnut and Dan Kurzius, two web designers who had recently been laid off from their corporate jobs. Most people in their position would have immediately started job hunting to find the next best opportunity. But Chestnut and Kurzius had other plans.
Instead of viewing their meager income as a means to an end, they invested the money into starting their first business together, the Rocket Science Group. This design consultancy firm was inspired by their passions for web and graphic design, as well as their desire to help small businesses in Atlanta.
The business was doing well but a new opportunity came in 2001. Clients started asking how they could better reach customers via email. They were asking for a service the Rocket Science Group didn’t offer (yet). Chestnut and Kurzius wanted to be the genies who granted their clients’ wishes. “Your wish is our command,” was their hidden mantra.
Fueled by their passion to help small business owners succeed, Chestnut and Kurzius started searching for a solution.
Chestnut stepped in with a solution he’d been sitting on for a while. Before the Rocket Science Group, he had briefly owned a greeting card business. That business didn’t work out, but he had already written some code for it that would be useful for building an email marketing solution for Rocket Science Group’s customers.
This was an entirely new business, so Chestnut and Kurzius had two choices…
Either add this email marketing service as part of their current offerings…
…or create a new business.
Clearly, they chose option two, and well… the rest is history.
There was a chimp on one of the greeting cards from Chestnut’s previous company and he decided to make that chimp the iconic image of what we now know as Mailchimp. How about that for a fun fact?
Mailchimp was a side-project for Chestnut and Kurzius for the next five years. In 2006, their passion for web and graphic design began to wane. But they were now in an era where email marketing giants, such as Constant Contact, were dominating the space. They were at a crossroads where they had to decide whether it was worth pursuing Mailchimp as a full-time venture.
In 2007, Constant Contact went public with a massive IPO that brought in $107 million. Mailchimp was still an infant, far from being an iconic brand that could compete with Constant Contact’s reputation (might sound familiar?). They were a fairly new company with a small customer base but Mailchimp had a unique advantage.
What was it?
Mailchimp was a small business so the team deeply understood the challenges their customers faced. They were a small business built to help other small businesses create successful email marketing campaigns. It was time for them to close the Rocket Science Group and go all-in on Mailchimp.
Chestnut and Kurzuis piggybacked on that distinct advantage and bootstrapped their way to remarkable success. Fast forward to 2021 and financial services giant Intuit acquired Mailchimp for $12 billion in a cash-stock split.
So, how did the Mailchimp team achieve this impressive feat without venture capital and without following the typical model that many startups follow today?
Let’s dive in.
Mailchimp Didn’t Seek Riches. They Just Wanted to Help Their Customers.
In a New York Times interview, Chestnut eloquently stated that Mailchimp’s purpose was to, “prove to small businesses that creating success through bootstrapping was possible.”
What many startup founders don’t realize is that although venture capital has its advantages, it also has two distinct disadvantages that could result in permanent business closure:
Too much money leads to share dilution too early in the game and unwise spending.
We get it. There’s an endorphin rush each time you convince investors to put more money into your business. You realize people believe in what you’re doing and are willing to put their money behind your idea. But at what cost?
Do you remember Tink labs?
Tink Labs was founded in 2012 to solve a problem many hotel guests face. International guests often paid high roaming fees when using their phones. Tink Labs supplied hotels with smartphones their guests could use for free to save roaming fees.
Seems like a great idea, right? A lot of investors thought so too. Tink Labs raised about $200 million in funding, expanded to more than 82 countries, and could be found in 600,000 hotel rooms.
A success by all measures, right?
Not quite…
They closed their doors in August 2019 because of mismanagement of funds and lower roaming fees resulting in hotel guests no longer needing their services. They grew quickly and came crashing down just as quickly too.
Chestnut and Kurzuis were approached by investors several times. But they never felt these investors understood Mailchimp’s customers, small business owners looking for cost-effective ways to build a digital presence and connect with their customers.
Instead of being lured by the appeal of millions of dollars in funding, they continued to reinvest their profits, add more features relevant to their customers, and meet their customers’ needs. For context, Mailchimp had 140 million customers and $800 million in revenue prior to the Intuit acquisition in 2021. Their decision certainly paid off, eh?
Mailchimp became a unicorn in the industry by offering a cheaper product, adding features much more quickly than their competitors, and giving customers the customizations they asked for. In a nutshell, they got closer to and understood small business owners better than their largest competitors ever could.
Each bootstrapped startup’s story is different. But one thing is clear; their focus on investing their own resources to provide customers what they actually need helps them consistently emerge as winners. As a startup founder, you’re probably wondering how you can replicate their success.
The answer lies in more than developing a customer-centric business model. Mailchimp’s success also revolved around three key areas they excelled at in ways their competitors didn’t.
We’ve carefully looked at Mailchimp’s growth and distilled these three areas into a playbook of sorts that every startup striving to be successful in the long-term should make use of.
Let’s keep going.
Breaking Down the Mailchimp Growth Playbook
The Mailchimp growth playbook comes down to three key strategies:
Build an unforgettable brand.
Execute a business model better than anyone else.
Have a relentless commitment to your customers to build unshakable loyalty.
If you can read the rest of this article and truly digest what Mailchimp did with these three key strategies to become a billion-dollar empire, you might find yourself in a dream outcome down the road.
How Mailchimp Leveraged The Power Of Branding to Stand Out And Be Fun In A Boring Space
Meet Freddie, Mailchimp’s mascot and most iconic brand representation.
What originally seemed like a random logo choice has become a defining characteristic of Mailchimp’s brand. See Freddie and your mind automatically associates the image with Mailchimp. He’s a playful chimp who delivers your mail.
A visit to Mailchimp’s Atlanta office will take you into a world of fun and creativity with Freddie prominently displayed. Freddie is everywhere because he represents the playful mood that has helped Mailchimp attract modern small business owners. As their website states, “Mailchimp strives to create a culture that empowers a humble, creative, and independent workforce. We are passionate about our small business customers and believe that collaboration and creativity are powerful tools to help them make their dreams a reality.”
This culture extends beyond the Mailchimp workplace and into the customer experience. All Mailchimp customers are greeted with a fun user interface and a user experience that makes sending great content easier than eating a banana. A far cry from what many customers would have experienced with Mailchimp’s cold and uninviting competitors.
There are quirky icons throughout the Mailchimp experience.
Mailchimp offers really helpful content that's delivered straight to their user’s inboxes and resources at each stage of the user’s journey to help users make the most use of the platform.
They also have an amazing feature called Creative Assistant where they pull information from your website and use it to create images that represent the brand. It’s a really great way to get new website graphics and quote images for social media posts!
So, Freddie wasn’t just a representation of how Mailchimp wanted to be perceived; he became the foundation for the experience Mailchimp has consistently delivered to customers.
Lessons learned:
The identifying features of your brand (logo, logo mark etc.) should represent your company’s culture. But while the look of your brand is important, that shouldn’t be your only focus.
Your customer experience is more than a logo and fancy font. Deliver what your customers expect at every touchpoint they encounter.
Use your brand to change how people perceive your niche. Create an experience people enjoy that encourages them to keep coming back.
Mailchimp certainly figured out how to create a fun experience for users. But they were met with a major challenge in 2007. Folks were really starting to hate email because their inboxes were becoming crowded by spam. Mailchimp had to figure out how to build trust while still making email look cool.
Enter Mr. Freemium.
Doing The ‘Freemium’ Model Better Than Anyone Else
Chestnut and his team understood product-led growth before it became a thing. He had been tinkering with various pricing models since Mailchimp’s inception. But he decided to take a risk in 2009. Mailchimp introduced a free option.
Shut the front door! Was he crazy?? Wouldn’t that cause the business to lose money?
Here’s what made this decision seem particularly risky. Mailchimp had never offered a free option before. They had loyal customers who were happy to pay for their services. But if Mailchimp wanted to grow and remain relevant, that customer base needed to expand.
Chestnut wasn’t crazy. Quite the opposite. His bold decision helped Mailchimp increase its user base from 85,000 to 450,000 users within a year, consistently add more than 30,000 new free users and 4,000 new paying customers each month, and increase their profit by 650%.
The beauty of this accomplishment is that Chestnut didn’t make this decision randomly. He carefully analyzed what would work best and planned accordingly. He knew that some of their existing users would switch to the free plan. That was a necessary side effect so that Mailchimp could be accessible to a wider audience.
Also, Mailchimp’s freemium was built with the customer in mind. Most small business owners have less than 500 subscribers when they’re just starting. That was the cap Mailchimp initially set for the free model while still giving these users access to the most common features, such as email automation, that they would normally have to pay for when using Mailchimp’s competitors. Now, Mailchimp’s free plan is for users with 2,000 contacts or less and still offers the same benefits.
Micheal Stewart, owner of Stewy’s Greetings, had this to say about why he loves using MailChimp.
Mailchimp’s team didn’t stop there though. In the years that followed the release of the freemium model, they continued to tinker with their paid plans to create packages that suited the needs of small business owners at various stages of growth. This was particularly important to help lower Mailchimp’s churn rate. As Chestnut explained in an Inc interview, “When you serve small business, the churn rate is awful. Fifty percent are dead with five years. You’re constantly having to innovate really, really fast. You have to tinker, tinker, tinker, tinker, tinker.”
Lessons learned:
You don’t necessarily have to start with a free product to achieve growth. Mailchimp did things in reverse. They started with paying customers and then switched to a freemium model to get to the next stage of growth. But bear in mind that this approach requires a lot of analysis and testing.
Always work on improving your product to meet customers’ needs. That will help you reduce churn rates.
If you’re building a freemium model, put the customer at the center of what you offer. The free plan should offer customers what they need at their current stage of growth.
A big part (maybe the biggest part) of Mailchimp’s success is based on customer loyalty. The Mailchimp team built a brand that put the needs of small business owners at the center. Customers who tried the free version shared their experience with others and Mailchimp’s customer base continued to grow.
A Relentless Commitment To Their Customers Created Loyalty That Couldn’t Be Shaken
Mailchimp has been committed to customer success from day one. All aspects of their platform from their content to the software tool itself were designed to help small business owners achieve marketing success. But the team also did something clever with their freemium offer.
Any email sent by a free user had a hyperlinked version of Freddie at the bottom. Anyone who clicked that link would be led to Mailchimp’s homepage and the action would trigger a tracking code. If that person became a paying customer, the free user would get Monkey Rewards credits.
Free users could then apply these credits to some of Mailchimp’s add-on services such as inbox inspections and future bills if they decided to upgrade. This reward program helped spur Mailchimp’s rapid growth since 2009.
But that wasn’t the only strategy Mailchimp used. Mailchimp also applied what Custify calls customer success marketing. There’s a lot of content on Mailchimp’s website to help customers understand how to best use the software to accomplish their goals. So, customers kept using the platform and, when the time was right, they became paying customers. Supporting customers in this way helped with customer retention.
Morgan Schaffner, Marketing Manager for Adhoc Presents, sums up MailChimp’s commitment to customers in this powerful statement, “MailChimp is not just a tool; it’s a launchpad for any business owner.”
As Pink Spaghetti Southport states, MailChimp helps reduce the workload for small businesses.
Lessons learned:
Do everything you can to support your customers both directly and indirectly.
Tap into the influence of your users. Create a rewards program that gives users an incentive to share your brand with others.
Create content that helps existing users understand how to best use your platform for their needs.
What Startup Founders Can Take Away From Mailchimp’s Success
Mailchimp started in 2001 as a way to help small business owners better communicate with their customers. It has evolved into so much more because the team took the time to listen to Mailchimp users and offer them exactly what they needed. A lot of research and strategy was also involved to ensure people perceived Mailchimp as a fun brand, free users got value and helped promote the product, and a loyal customer base was developed.
Intuit purchasing Mailchimp for $12 billion is nothing to sniff at. With over 140 million customers and $800 million in revenue, Mailchimp has truly developed into a formidable player in the email marketing space. Compare this with Constant Contact, MailChimp’s largest competitor in 2001, which now has only 600,000 users and $282.11 million in revenue. Big difference, right?
Before you turn to a magical venture capitalist, here are three key points to remember from MailChimp’s story…
Branding goes beyond a great logo, fancy typography, and nice colors. Give your customers an experience that truly represents the culture of your brand.
You don’t necessarily need to start your business with a free package. But a free package can help get you to the next stage of growth.
Support your customers in as many ways as possible. Make them the center of your universe.
We’d love to hear from you. Do bootstrapped startups have an inherent advantage to long-term business growth when you consider Mailchimp’s success?
Knapsackhttp://www.knapsackcreative.com
