At the end of 2019, Lawtrades’s bank balance was down to $20k.
People were getting value from our platform, but we were struggling to convert that value into a healthy balance sheet. Investors were wary of our niche after Atrium shut down, so we had little choice but to go into survival mode—cutting 80% of our staff, and even, at one point, putting expenses on personal credit cards.
Most companies in our position would have gone knocking on VCs’ doors, looking for capital to bridge the gap to profitability.
But we felt we could preserve our equity, stay resourceful, and elbow-grease our way across the chasm.
First, we pivoted, shifting focus from small-to-midsize businesses (SMBs) to hypergrowth tech startups. That brought its own slew of challenges, and a brush with bankruptcy that we narrowly avoided. But ultimately, we managed to hack our revenue, taking it from $70k/mo to $700k/mo.
Here’s how we did it, step by step, and the lessons we learned along the way.
Step 1: Fired 94% of our customers
In the beginning, Lawtrades tried to serve every type of client. Mostly, this meant SMBs who couldn’t afford full-time legal teams. Unfortunately, it also meant:
- High churn. SMBs generally needed one-off legal help, meaning limited repeat business.
- High customer acquisition cost. The less repeat business we generated, the more prospects we had to nurture, hiking our customer acquisition cost.
- High competition. Without a clearly defined niche, we were competing on more fronts than we could afford.
Taking a cue from Peter Thiel, we realized that competition was for losers, and that the only way forward was through our most profitable customer segment: hypergrowth tech companies, often pre-IPO, whose general counsels (GCs) needed ongoing support. We fired everyone who didn’t fit that niche, and quickly became a go-to tool for companies like Cruise and DoorDash.
Lesson #1: Riches are in niches.
Step 2: Built a community
Having identified our niche, we naturally started learning a lot about it. What problems did GCs commonly face? How did they solve them? What trends were impacting the space, and how could legal teams stay ahead of them?
To collect our insights, we created a Substack newsletter, Forward GC. Over time, this led to:
- Loyal customers. Customers learned to think of us not just as a marketplace platform, but as thought leaders in the niche.
- More referrals. By solving one problem very well on a repeatable basis, we earned endorsements from prominent brands like DoorDash.
- Lower customer acquisition cost. Word-of-mouth marketing is highly cost-effective—especially when it brings in repeat customers.
Lesson #2: As Paul Graham said, “It’s better to make a few users love you than a lot ambivalent.”
Step 3: Realized we had a cashflow problem
The one great thing about serving SMBs was that they paid quickly. Our newer, larger customers often worked on 30-, 60-, even 90-day billing cycles. Given that we pay our lawyers every two weeks—Lawtrades is fundamentally about economic empowerment on the supply side—that meant our outflow outpaced our income.
The more hypergrowth customers we attracted, the more we grew—and the faster we lost cash. This is where we got down to $20k, where my co-founder and I paused our salaries, and we where had to go into survival mode.
Lesson #3: Don’t grow broke. It’s not always within your control, but avoid it if you possibly can.
Step 4: Tried everything to improve our cashflow
Desperate times called for desperate measures:
- Working with shady lenders, some of whom wanted customers to pay them directly—both inconvenient and suspicious.
- Quick business loans with outrageous interest rates, in some cases, as much as 10-20%—near-impossible to justify.
- Putting expenses on personal credit cards, specifically mine, which prompted some (very) angry words with Amex.
Each of these steps bought us some time, but never sustainably. We couldn’t keep borrowing badly, and Amex threatened to shut down my account
Again, this is where a lot of companies would turn to VC. But we simply believed we didn’t have to—we had legitimate receivables, it was just that they were taking a long time to come in on companies’ billing cycles. Shouldn’t there be a way to leverage those receivables to get capital that would let us pay our supply side, and make it to our next growth stage?
Just in the nick of time, we learned about a new debt option that let us do exactly that.
Lesson #4: Before you default to VC, consider new debt options. As a founder, the most valuable optionality you have is the equity you haven’t sold, the dilution you haven’t taken.
Step 5: Finally fixed cashflow
By a stroke of luck, we learned about a company that provides upfront capital based on receivables. After a few conversations, Capchase agreed to take a chance on us, freeing us up to:
- Pay marketplace users without waiting 30+ days. Lawyers on our platform got paid quickly for the work they did, without having to wait out long billing cycles.
- 10x our revenue by using debt to acquire our next cohort of customers. With more cash on hand to spend on customer acquisition, receivables continued to grow. More receivables unlocked more debt, which allowed us to acquire more customers. And so on.
- Revisit fundraising with a much higher valuation. Had we jumped at VC when times were tough, we probably could have raised at a $30-$40M valuation. But because we waited, we were able to revisit fundraising with an $80M valuation, ultimately raising $6M, diluting less than 10% equity.
By this point, VC was a way to diversify our revenue streams, thereby de-risking our CapChase credit line.
Lesson #5: Use VC for Research & Development—innovation—not as a Sales & Marketing or General & Administrative holdover.
The level of effort and maneuvering it’s taken to turn our growth from a liability into an asset has been incredibly illuminating. For startups, it’s not as simple as finding customers or even finding the right customers. There’s an enormous level of nuance even within those objectives.
We are often given the advice that “debt is bad.” We’re told to avoid it at all costs. But with the right partners and plan in place, debt is a powerful mechanism to grow without giving up equity. In our case, we had customers coming in and expenses under control—it was a cashflow problem. And debt solved it.