Mailchimp

In 2001, Ben Chestnut and Mark Armstrong were running a marketing agency in Atlanta. Many of their clients wanted them to manage their email marketing, and as a marketing agency they were frustrated with how bad the existing email management software was. So Ben Chestnut dug up some old code from a failed e-greeting card company he had founded a couple of years earlier, and decided to reincarnate that code as a new product for managing email. Their most popular e-card featured a chimpanzee, so they decided to call their new email management app "MailChimp."

The leading brand in the email marketing space was Constant Contact, which had raised over $100 million in venture capital. Chestnut and Armstrong had no interest in trying to compete with a company that had raised that much money, so they mostly used MailChimp for their own clients, but slowly also offered it to others on a paid subscription basis.

They kept running their marketing agency as their primary business, running campaigns for clients, and when a new client need came up they would add it as a new feature on MailChimp. This gave them, as Ben Chestnut would say, "a proximity to our customers that our competitors lacked."

The MailChimp user base of paying customers slowly grew, and they got lots of nice feedback on how much people loved it. One day in 2009, co-founder Ben Chestnut was in a Ben & Jerry's ice cream shop and they offered him free samples. He tasted several, chose one he particularly liked, and ended up being a loyal customer.

"That, in a nutshell, was my inspiration and motivation in offering the freemium program at MailChimp." — Ben Chestnut, co-founder

So they launched a free plan, and used data to tinker with the pricing on upgrading to a paid plan. "Ever since inception, I've been fascinated with the art and science of pricing. I've tinkered with pay-as-you-go and monthly plans for $9, $9.99, $25, $49, $99.99 and so on. We've changed our pricing models at least a half-dozen times throughout the years, and along the way we tracked profitability, changes in order volume, how many people downgraded when we reduced prices, how many refunds were given, etc. We're sitting on tons of pricing data. When we launched our freemium plan in 2009, you betcha we used that data to see what would happen if we cannibalized our $15 plan. If we had started with freemium at ground zero, the story would've been different."

Within a year of switching to a freemium model, the results were dramatic.

Once the flywheel started spinning, the network effects were significant. Every email sent from the free plan had the MailChimp logo at the bottom and a link to sign up for your own free plan. The monkey mascot became a big hit, and the MailChimp team distributed free branded merchandise to customers who were active evangelists for the product. By 2012, their customer base had grown from 450,000 to 1.2 million. Their all-in Customer Acquisition Cost (CAC) was less than $100, and with a $20/month subscription, the payback period on that CAC was excellent.

With the flywheel now spinning and optimized, they continued to grow both the customer base and the feature set. Spending $100 on CAC and having customers pay it back in just a few months was a cash cycle they could finance themselves, so they were able to grow the venture organically, with no outside capital required. Eventually they shut down the marketing agency, as their "side hustle" required their full attention. What started as an email platform for small businesses at $20/month was soon gaining large enterprise customers who would happily spend several hundred dollars a month for premium plans.

By 2014, the MailChimp platform was sending 10 billion emails a month for customers. They acquired LemonStand, a smaller competitor, and as social media took off they expanded from simply being an email platform to a more comprehensive marketing platform that included lead tracking and retargeting on Facebook and Instagram.

The company was still completely bootstrapped — no outside capital. Their success attracted the attention of many venture capital and private equity investors who came knocking, but Chestnut and Armstrong stood firm. They liked being a bootstrapped company.

Finally, in 2021, they decided to cash out. They sold the company to Intuit, who rebranded it as Intuit Mailchimp. The deal was $5.7 billion in cash and $6.3 billion in Intuit stock — founders who never took any outside capital and grew the venture entirely organically sold it for a total of $12 billion.