Our mission here at Readwise is to improve the practice of reading through technology by an order of magnitude. While we have some strong opinions and good ideas (we think) on how to build such a product (indeed, we've already started!), what was less obvious was:
How do we fund the business?
To the majority of the tech community, this is a no-brainer: simply raise venture capital! VC is known for loving bold, humanitarian visions, and a startup with the mission to reinvent books should be a great fit, right? Why not just raise a couple million dollars to boldly build the biggest and badassest e-reading experience out there?
A budding minority within the tech community (championed by heroes such as levelsio and forums such as Indie Hackers) supplies an alternative: bootstrapping. Bootstrapping is the process of funding your business through present revenue — gradually building up a happy user base over time — rather than raising capital on the promise of future profits.
After much deliberation, we’ve decided to bootstrap Readwise. This post explains why:
First things first, you might be wondering:
Reading is already great. Why would you think you can improve reading through technology?
The full answer is a much longer conversation, but in short, while technology has successfully disrupted publishing and distribution models, the experience of reading is yet unchanged. Digital books have merely moved the words from a printed page to a backlit screen.
As a result, e-reading has struggled to put a dent in the nonfiction book market — the target market of Readwise. You can see this clearly in the statistics: only 10 percent of ebook sales are nonfiction whereas that same number is 50 percent when considering both physical and digital books.
The reason for this anemic adoption of e-reading is not that complicated: ebooks are just not yet better enough, at least for nonfiction readers, to justify switching from physical books.
This is not because the practice of reading has somehow been perfected in physical form and books are among the few domains insulated from the insatiable appetite of software eating the world. No, it's because the e-reading industry thus far has focused on building out infrastructure. Ten plus years in, however, the foundation is set and now the reading experience is ready for real innovation.
In the not-so-distant future, reading a physical book will be as quaint as writing on a typewriter. There will always be something aesthetically pleasing about a physical book, but soon, the benefits of reading a software-enabled ebooks will be so vast that readers will finally switch, just like software-based word processors rendered typewriters nearly obsolete.
Venture Capital versus Bootstrapping
So why is our mission not a good match for venture capital? And why have we decided to bootstrap instead?
A few reasons:
First, the nonfiction ebook market is not particularly attractive compared to, say, social networks or transportation. That's another way of saying: our market is “small” in the eyes of VCs. There may be hundreds of thousands of our target users in the United States alone, but that's only enough users to sustain an 8 or 9 figure business — not a 10 figure business, which is necessary to make VC economics work.
To make our market appear attractive, we'd be forced to prematurely attempt to appeal to everyday readers, and the wants and desires of an everyday reader are quite different from those of the hardcore nonfiction reader who loves Readwise. Expanding our breadth at the expense of depth is a tradeoff we aren’t yet ready to make.
Second, there's an industrial complex surrounding the market of books. You need to appear big and powerful to be effective within the centuries’ old industry of publishing, and to play that game now would lead us down the same dead end described above.
Finally, there's a rather large player — a juggernaut, you might say — commanding a dominant position in the e-reading market. Marching out onto the open battlefield against such an opponent right now would be suicide. But this is exactly what venture capital would force us to do. Indeed, we've read this story before and we know how it ends. Otherwise great startups such as Readmill and Oyster, venture-backed, could not last long when pitted against such a powerful incumbent.
No, we cannot win a war of attrition by stealing market share. Instead, we intend to stake out a new corner of uncontested market space — creating demand, once and for all, for nonfiction e-reading — and we believe the only way succeed in this mission is to focus exclusively on the needs of our high expectation readers.
Nonfiction e-reading may not be the sexiest of markets, but it's meaningful enough for us.
What This Means
So what does this decision mean for the future of Readwise?
Now that we're bootstrapping, we've shifted away from a freemium business model (where users could optionally pay if they wanted) to a paid-only model after a free trial.
Going forward, new users can enjoy Readwise for free for 30 days, after which they can continue for a small monthly fee. The paid-only business model sometimes hurts (especially in consumer SaaS) because it means turning away those users unwilling to pay, but those are often not the users we’re building for anyways.
In the end, bootstrapping means we must move more deliberately. For example, we can't hire a small army of developers right now to build anything and everything for us, all at once, but those things we do build are the things we know people want.