Kajabi

Kenny Rueter was a man with a problem. First, he solved it for himself. Then, he solved it for 50,000 others, enabling them to collectively earn $5B. The problem was how people can sell their knowledge online, and he solved it with Kajabi—a platform that helps creators sell digital goods and manage the communities around those goods, all in one place. We at Tidemark are proud to be partners with them on this journey. 

To help so many people, Kenny did things his own way. He started the business in 2010 and didn’t raise money until 9 years into the journey. The Company always had its own spin on the basics, like branding customers as “heroes” and launching a difficult-to-measure partner program. Kenny pitched all of these things as, “Trust me, we’re going to do this—even though I can't really show how it’s going to work or quantify what benefit it is going to have for the company.”

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Building a company on intuition is amazing, and Kenny ultimately started bringing on professional investors in 2019 to help the company scale. All the while, Kajabi has had some of the best growth and profitability numbers we’ve seen in a software company. We hope you enjoy this conversation with Bootstrapped Legend Kenny Rueter.

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If you’re interested in staying in the loop when new episodes of Bootstrapped Legends launch, you can subscribe here. If you're a Bootstrapped Legend who wants to tell your story or learn more about working with us, please reach out to us at knowledge@tidemarkcap.com.

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Dave: I’m really excited for this episode of Bootstrapped Legends. We have the founder of Kajabi, Kenny Rueter, here with us today.

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Kajabi, for those of you who don’t know, is an all-in-one platform serving coaches, teachers, and people with knowledge and expertise that want to create a business online. It’s the clear category leader, and that’s what we believe at Tidemark. We made a big investment a couple years ago. Some of the stats that they’ve published publicly show that they’ve served over 50,000 entrepreneurs, and generated over $5 billion of GMV for those entrepreneurs. It’s had a huge impact and is a central part of the industry.

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Kenny is the cofounder, and bootstrapped Kajabi for many years before Spectrum invested late in 2019. We [Tidemark] joined a couple years later. One of our fellows, Scott Wagner, the former CEO of GoDaddy, is on the board; I’ve had the pleasure of being a board observer. It’s a great story and great business. I’m really excited to have Kenny here today.

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Kenny: Thanks for having me on, Dave.

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Dave: Maybe to kick it off, why don’t we get a little bit of your personal background? Let’s hear about your life’s journey before we get to Kajabi.

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Kenny: I always thought I was going to get into computers. I was really interested early on in computers. I always thought I would go the tech direction. I got a computer science degree, and learned how to code. My journey started out working for other companies, just dev shops and things like that, writing early web apps, at the end of the ’90s. Then the dot-com bust happened, and I found myself sitting in the seat in front of a keyboard saying, “Wait a second, they’re making bad management decisions. They’re making bad strategy decisions. I don’t want to be sitting in this seat. I want to control my own destiny.”

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[There have been] lots of twists and turns in my journey since then, but I found myself working in a corporate job and wanting to be in control of my own destiny. I had this entrepreneurial spirit, and I was sitting there saying, “If I can’t just leave my job right now—because I don’t have another idea—at least I want to tinker with something on the weekends.”

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I created this toy for my boys (I had three small boys at the time). It was made out of PVC pipe, and it plugged into the hose and sprayed water. They would ride their bikes and scooters and things through it. I built it just for fun, to do something with my hands instead of staring at pixels all day, and it became this little hit in the neighborhood. The kids’ friends would come over, and parents would come over, and they would ask where they could buy these things. 

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At first I toyed with the idea of starting a business and just building these things for fun and selling them, [but] I realized that’s way too hard to do, some kind of physical product business. But there was some magic in building this thing in my back yard with my boys. It was a fun experience. They enjoyed it. They learned how to measure and cut and paint and things like that.

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I thought that it would be cool to teach an online course for other parents on how they could do this. I wasn’t sitting there thinking this was going to take over the world or make me rich, or even let me quit my job, but I was like, I’ll just teach this course on the side. Then, when I sat down at the keyboard to do it, I realized there was no way. There wasn’t a fast tool to let me share my knowledge with the world. All of a sudden, the lightbulb went on: that that’s what I needed to create. And so Kajabi was born. 

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The original focus of Kajabi was just, how do you enable somebody to take the knowledge that’s in their head and sell it to other people? The hypothesis at the time was that everybody knows something that would be valuable to others, whether it’s through their life experience or their on-the-job training or their hobby, whatever it might be.

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Dave: What a powerful insight. When did you know this was going to be a business?

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Kenny: Well, to clarify, I didn’t think the sprinkler toy was going to be a business. That was a hobby. 

It’s hard to say that I was confident and sure, but I kind of was. Maybe it was just naivety, you know? But I thought, Wait a second. If this tool existed, it would help me sell this little sprinkler toy idea, so think of how many other people out there are in the same predicament as me. Immediately I was confident that it was the right business, if I could just build a product. 

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We found product market fit early. I mean, we can go into how we teased the launch, how it actually launched, and things like that, but we built this momentum of people that validated the idea before we had ever even released any code. There were 6,000 people on this waiting list that wanted this Kajabi thing, even though they didn’t quite know what it was yet. Right there and then I knew, we just need to build it and make sure it works, and there’s going to be a market for it.

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Dave: That’s awesome. How do you get that strong product market fit so early on, pre-product?

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Kenny: It was [a question of], how do we find people that are already trying to sell knowledge online, in some form? And how do we elicit them to use this beta version of Kajabi to sell their next piece of product, whatever it might be? I thought that was preferable to just going door to door—building it, putting up a landing page, and hoping people signed up for it.

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Through Twitter, commenting on blogs, and things, [we] met some people that were already doing this. We offered them this tool we were building called Kajabi: “Next time you launch some kind of information product, why don’t you use it for free? We’re not going to charge you, just get it out there. The only thing we ask is that, in the footer of the site and all your communications with your customers, it shows ‘Powered by Kajabi.’” That’s what we did to build up our email list. I think Hotmail did something similar a long time ago, the email signatures, and it worked. 

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People saw this experience that wasn’t anything like they had seen before, right? It was a very aesthetically pleasing and modern design at the time. Now I look back on those designs and laugh, because it seems so antiquated, but people saw that, and were like, wait, what’s powering this? They looked at the bottom, saw “Powered by Kajabi,” clicked it, and [were directed to] this ominous landing page that just said, “Put your email address in, and we’ll tell you more about it someday.” That list just started growing. We were like, holy cow, there are people that want this! 

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Finally, in October 2010, we started emailing that list and saying, “Here’s Kajabi, here’s what it does, here’s what it can do for you. Sign up now.” That was a magical day of confirmation: October 14, 2010. It was like, “Okay, you can sign up now,” and boom, we had a million-dollar ARR business overnight. People were putting their money where their mouth was and actually paying. All of a sudden we were a business.

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Dave: You’re blessed. You are the customer, you know the problem, you get it out there, and you get great value. That’s not to say that there wasn’t a lot of hard work and clever moves, but in some ways you got off to a running start. When did you know that this was not your side hustle but actually your main hustle?

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Kenny: I was fortunate in that I wasn’t, at the time of building this—at the end of 2009—in an office somewhere. I had already made the step to work from home. I was working for a futures and commodities brokerage firm out of Chicago, but I was in Orange County, California, so  I had the benefit of being able to moonlight. I was doing work for them, and then I was kind of tinkering with the Kajabi thing on the side. 

It wasn’t some kind of cinematic moment where I walked in and quit my job, and then took a risk on building a company. I was able to kind of have some income until right around that time.

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Dave: That’s awesome. That’s the way to do it. 

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Tell me about the initial team. How did you find folks to work on this with you? What was that like?

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Kenny: It was just [a matter of] figuring out who I knew. My old college roommate, and fellow computer science major, was very entrenched in a corporate computer job. I think he had, at the time, been there 12 years. He was a person that doesn’t like to take a lot of risks, and he was very comfortable, and saw himself in that position for a long time. I remember just pestering him on AOL Instant Messenger: “Hey, I’ve got this idea, I think you should really work on it with me.” 

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We went back and forth, and finally met up at Panera Bread. I still remember that meeting, where I was trying to explain to him this concept of internet marketing, this world that already existed way back then of people selling knowledge online, and how this idea for Kajabi could really serve them but also so many more people than just these internet marketer-type people.

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He was the first engineering help—he did quit his job. I believed in the idea so much that it was pre-Kajabi revenue, but I said, “Here, I’ll pay you. Just start working on this.” He’s still at the company today, so was the first employee and is still there.

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Other than that, we were just looking for good people. As an example,  I walked into Wells Fargo and sat down with the business banker at one point to open the Kajabi bank account, and thought, this business banker is sharp. He’s great at his job, he’s friendly and personable, and he knows his stuff. [I] got his card, and several months later, when it was time for a customer service hire, I reached out. I said, “Hey, this is kind of out of the blue. I don’t know if you remember me, but would you be interested?” He had moved on from his Wells Fargo position, but I still had his contact information. He was at a different bank, but he quit and joined the team as our first customer service hire.

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It’s kind of fun, the whole bootstrapping journey—not having a big bank account full of money to go hire a whole team. It was kind of piecemeal, but I think it worked, and it really contributed to the success. We were all bought in on the vision, and all got along, and it was like a little family at the time.

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Dave: It sounds like you had an incredible start, and great momentum from the outset. What was the toughest part of those early days?

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Kenny: That week of October 14, that launch, [was really tough], just because of us not really having the infrastructure to deal with a lot of people signing up for a tech product. It was really buggy, I’ll admit it. I mean, it worked, but it was one of those things that’s like, “Oh, don’t click there. Don’t do this, because it might have unintended consequences,” or whatever. The support tickets were flooding in. Not just people having problems or bugs, but people asking questions like, “Are you ever going to add this or that feature?”

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If I remember right, the day we launched was a Thursday. So, we launched and stumbled through Friday. I don’t even remember that day. All of a sudden I found myself on Saturday morning, sitting on the sidelines at one of my son’s soccer games. I opened my phone, and we had just thousands of support tickets. I thought, What are we going to do? This is horrible. I mean, it’s a good problem to have, but if we ignored these people, we might not have a business.

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It was all hands on deck. How do we answer these people in a timely manner? I remember my wife’s dad was sitting next to me at the game. He had retired from the financial industry, and I asked, “Do you mind coming over to my house and helping me through these tickets?” He didn’t know anything about what I was building or launching. I was like, look, I just need a warm body that has a computer in front of him and can answer some people. 

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We built a little war room in my house at my dining room table with a bunch of laptops. I think I even got two of our neighbors that lived on our cul-de-sac to come over. They were in business but had no idea what Kajabi was or what we were doing. I was kind of pacing around the room, just giving people pointers: “I would say this, I would say this, I would say this, I would say this,” and I had this group of people that were answering. 

I would say that was the first challenge to overcome.

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Dave: I can just picture it. That’s amazing. What a good story. What a great journey. 

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You decided not to raise money for quite some time. Maybe talk a little bit about that. Obviously, the world really—probably overly so—celebrates venture investment. You’re in LA, so you’re certainly around a lot of this stuff. Why did you go it alone for so long?

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Kenny: I think, at the time, I felt more strongly about not taking financing. I looked up to DHH and Jason Fried with Basecamp (back at the time it was 37signals), and really liked what they were saying. They were really dogmatic, almost arrogant about it. “You don’t need to raise money. VC is stupid. Build an idea, and people will pay for it.” 

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That’s the camp I fell into. I was like, I want to serve one master, and that’s the customer. If we raise money early, who knows what they’re going to have me do or what kind of power they’re going to have over the direction of the company? I wanted to solve my own problems. I wanted to put out something that they find valuable, and they’ll pay me for it. I really believed that. 

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It was always cash flow positive, and I was always profitable. Even in 2019, it’s not like that method didn’t work; I still firmly believe that it does work. But you reach a point in your scale where you realize, I’ve never done this before. It’s uncharted territory ahead. There are people out there with a lot more knowledge about what’s next, and it’s time to grow up. 

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That’s why we finally did our deal, like you mentioned, with Spectrum Equity in 2019. It was less about money and more about having a team of people that have been there, done that, and can really help us to grow. Even in 2019, we were still deficient in so many areas, so that initial investment really, really helped.

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Dave: Maybe before we get into taking VC and that journey, [let’s look] back into this bootstrap phase, from 2010 to 2019. That’s a good, long nine years. One of the things we’ve talked about with other bootstrap entrepreneurs, and that they’ve reflected on, is that they do value this idea of not serving a third party, and the ability to think broadly and do things against conventional wisdom.

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As you think about Kajabi, when do you think you really nailed it? You obviously built a massive business, so what’s at the core of what drove the success? Were there parts of the body of conventional wisdom that you were able to flout, by not having a VC, to your benefit? Were there things you could do that you couldn’t have done with venture money?

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Kenny: I’m not going to sit here and pat myself on the back and think I was smarter than anybody. But I think there were certain decisions that we made along the way that other people on the sidelines, even if they were on the board or investors, wouldn’t have agreed with, and might have said that’s not a good business decision.

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Some ideas, like customer focus, I think everybody on the planet, even VCs, would say “Yes, of course. Focus on the customers,” but we were maniacal about it. It was like, solve for the customer at every turn. You know the late Tony Hsieh and Zappos—reading his book, Delivering Happiness, that was a company that felt the same way. We were following that. I think there were some times where we turned our back on revenue for the sake of keeping a customer happy. I think there were some times where it would be like, the spreadsheet says you shouldn’t do this and it’s probably not a good idea, but we did it anyway.

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Early on, I thought, there’s got to be a way that we can publicly celebrate our customers. I never wanted our customers to feel that they were signing up for Kajabi, then open the screen and [ be faced with] a blank canvas, and feel stuck—that they’re all alone. Nobody around them, even in their family, understands why they would want to try to sell knowledge online. That doesn’t even make sense. We wanted to build a community around us, of aspiring entrepreneurs. 

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The whole idea, and the term still used today, [was] Kajabi Heroes. It was like, let’s call our customers our heroes. Let’s celebrate their successes along the way, to give them that motivation and that social proof that they’re on the right track. We put a lot of focus into it. At that time, if we had a board to answer to, if we had to show this maintainable growth rate and all of the SaaS metrics to somebody, I don’t know that it would have made sense. But it was like, no, we’re going to do this.

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Another [thing] was kind of an offshoot, and that was a partner program. We said, “Okay, word of mouth is probably the best way to get really good customers.” We wanted this organic flywheel, [but] all of that stuff was really hard to measure in Google Analytics or performance marketing, anything like that. I think it would have been really awkward at some board meetings early on, if we had a board, to say “Just trust me. We’re going to do this, even though I can't really show how it’s going to work or quantify what benefit it is going to be to the company.” I’m really glad we had that nine years of complete freedom to be stupid, or go against what the textbooks say you should do.

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Dave: I love hearing these answers. In some ways, it’s sort of like the equivalent of the anti-portfolio. As an investor, you really need to check your assumptions and make sure it’s right. There is this narrative amongst investors, [that] unless you measure it, you’re not going to see it. I think, to your point, sometimes the measurement can be a false negative.

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Kenny: Yeah.

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Dave: And really, intuition [matters].

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Kenny: Well, actually, in 2019, when we decided we wanted to get an investment—like I said before, it was not necessarily for the money only, but for the partnership.

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Dave: Yeah, one hundred percent. Tell us how it changed the game, either positively or negatively, becoming a venture-backed company.

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Kenny: No negatives, as far as I’m concerned. I think it was the right thing to do at the right time. I don’t wish I did it earlier. Like I said, I’m really grateful for that long stretch without it. But that was our time to grow up.

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We’d grown the company to a level where we weren’t just handing over control to somebody else, which was great. But they really helped in certain areas that weren’t the “sexy” areas of the business. I was all into product, and how you deliver the perfect product to really enable our customers. Finally, we had some other people to say, “You probably want to hire an accountant.” [Laughs] The Post-it notes and QuickBooks Online aren't going to cut it, you know? They helped us get true leadership. They helped us get a CFO, who actually is now the CEO of Kajabi. They helped us build out a people department. It was kind of like, okay, what’s actually needed to start to achieve some scale here? That was invaluable.

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Dave: Awesome. 

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Kenny, your company serves entrepreneurs. You’re obviously an incredibly successful entrepreneur. As you think about it, what is Kajabi to you? What’s your legacy through Kajabi?

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Kenny: I think of myself as the first customer. The sprinkler toy, yes, but even before that, just tinkering with business ideas as a wannabe entrepreneur, I realized how hard that was. I just felt like this is something I want to do, and I’m by myself to try to figure it out. I wished there was help. I developed this passion for enabling entrepreneurship.

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I think what Kajabi means to me is, in a big way, is that it’s in the corner of the entrepreneur, or the wannabe entrepreneur, as something to enable their journey and remove some of the the tech headaches—and also to deliver them some best practices on how you should start a business online, specifically. I think that’s the legacy.

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You know, all the time when I was CEO, my personal North Star metric—and I would say the company’s—wasn’t revenue or GSAs or anything like that. It was GMV. How much customer success are we having? How much money are our customers making? That was the true North Star. If people are making money, they’re not really going to leave, and they’re going to tell their friends about it.

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Dave: And you guys have delivered big money. Five billion, that’s incredible. I love that idea of the founders as “customer number one”. That’s a cool way of framing it. 

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Post-Kajabi, how are you spending your time?

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Kenny: I mean, I’d be lying if I said I didn’t wake up and think about Kajabi every day. [Laughs] When I stepped down—it sounds kind of tragic. Don’t worry, the end of the story is great—my wife was going through another bout with cancer. I had gone through that before in 2017, ’18, and ’19. It was like, wait a second, the stakes are higher. We’ve got a board now. We’ve got investors to answer to. I don’t know that I can juggle both. 

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I made the difficult decision almost two years ago now, but this is my baby. It’s not like I lost interest. It’s not like I decided I don’t want to serve entrepreneurs anymore. But I’ve got a different vantage point now. I’m cheering those guys on and still love to see the success our customers are having. I’m still as involved as I can be over there. Other than that, I haven’t dove into anything new to serve entrepreneurs, but that’s still my passion.

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Dave: Absolutely. Well, Kenny, this is amazing. Thank you so much for sharing all the facets of it. What a great example to other entrepreneurs and other folks that decide to bootstrap it, and entrepreneurs just generally. I really appreciate you sharing.

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Kenny: Yeah. Thanks for having me on.

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