The Story of Mailchimp: From Agency to SaaS

_{By Mark Collins. I’m a finance enthusiast. This article is for education only and is not financial, legal or tax advice.}

Mailchimp is now known as a $12 billion acquisition. Its beginning was much quieter. It started as a small tool built for web design clients, worked on beside paid client work. That is what makes the story useful for anyone with a side project or small business.

This article covers what happened, what it teaches about building a product while earning a living, and how to think about funding growth.

The Short Version

• Ben Chestnut and Dan Kurzius ran a web design agency called The Rocket Science Group in Atlanta. Sources give the founding year as 2000 or 2001.
• Their clients kept asking for help with email newsletters. The founders built a simple tool to meet that need.
• For years the agency paid the bills while Mailchimp ran on the side.
• By about 2007 the founders concluded the software was the better business, shut the agency and went all in.
• In 2009 Mailchimp added a free plan. One retelling says its user base grew from 85,000 to 450,000 within a year.
• In September 2021, Intuit agreed to buy Mailchimp for about $12 billion in cash and stock. Bloomberg, citing PitchBook, reported that Mailchimp had no outside funding or venture capital backing.

Lesson 1: Build the Tool Your Existing Customers Already Need

Mailchimp did not begin with a market report or a big launch. It began with real clients who needed something. One retelling says working with those clients gave the founders a closeness to their customers that their competitors lacked.

If you have a service business, side job or freelance work, notice what customers keep asking for. Repeated requests are free market research.

Try this: For one month, write down every request your customers make that you do not currently offer. Look for the one that shows up most.

Lesson 2: Let Paid Work Fund the Experiment

The agency was the main business, and Mailchimp sat beside it. The client work covered the bills while the side product was built on nights and weekends, according to several accounts. That meant the product did not have to earn a living right away.

This is a smart way to reduce risk. The paid work gave them time to learn what customers would pay for.

The catch: Doing both is tiring. One account says that by late 2005 the agency was exhausting both founders. A side project takes real hours, so protect your health and your main income.

Lesson 3: Track Each Income Stream Separately

A turning point in several retellings is a simple one. The founders separated the software revenue from the agency revenue and compared them. Mailchimp was growing, while the agency was flat or declining. That evidence helped them decide to focus on the software.

You do not need an accountant’s system to copy this. If you earn from two sources, track them in two columns every month. Then you can see which one deserves more of your time.

Lesson 4: Decide With Numbers, Not Excitement

Shutting down the agency meant giving up a steady income. They made that move only after seeing the numbers. One retelling says Mailchimp had more than 30,000 paying customers by 2007, though I could only find that figure in secondary sources. Whatever the exact figure, the principle is sound: make big changes after the new income has proven itself.

A simple checklist before quitting steady income:

• Has the new income been growing for several months, not just one?
• Could it cover your basic bills? (Use your budget.)
• Do you have emergency savings?
• Is there a smaller step, like cutting hours, before a full switch?

Lesson 5: Think Carefully About How to Fund Growth

This is the part many people skip. Growth costs money for software, staff, marketing and support. There is no single best way to pay for it. Here are the common options and the trade-offs.

Funding path	How it works	Upside	Trade-off
Customer revenue (bootstrapping)	Reinvest what the business earns	You keep control and ownership	Slower growth
Personal savings	Put in your own money	Fast and simple	You risk your own money
Business loans	Borrow and repay with interest	You keep ownership	Repayments are due even if sales dip
Outside investors	Sell part of the company for cash	Can fund fast growth	You give up some ownership and some control

Mailchimp’s founders chose the first path for years. Fortune reported, citing PitchBook, that Mailchimp had no outside funding or venture capital backing when Intuit announced the deal. One retelling says the founders turned down investors who approached them. The SBA’s Business Guide also has a section on funding options if you want to compare choices.

Do not copy this blindly. Staying bootstrapped suited Mailchimp, but it will not suit every business. Some businesses cannot start without upfront capital. Investors may also bring useful experience. The right choice depends on your costs, your goals and how fast the market is moving.

Questions to ask before choosing:

1. How much money do I actually need, and for what?
2. Can customers pay for growth, or do I need cash up front?
3. How much control do I want to keep?
4. What happens if sales are slower than I expect?

Lesson 6: Pricing Experiments Work Best With Data

Mailchimp introduced a free plan in 2009. One account says the founders used data from existing customers to see how a free plan might affect their paid plans before launching it. They could do this because they already had customers to learn from.

A free tier is not right for every business, because free users cost money to support. If you test a pricing change, start small and track what happens.

What This Story Does Not Prove

• It is not a template. Email marketing was a growing market at that time, and the founders had both design and programming skills.
• Survivorship bias. We hear about Mailchimp because it worked. Many side projects never become businesses.
• Numbers vary by source. Some details differ between retellings, such as the founding year and which co-founders were involved. I kept to what the sources agree on.
• The $12 billion headline. The announced price was about $12 billion in cash and stock, which included about $300 million of assumed employee bonuses. The exact amounts any one person received were not part of the public announcement.
• Luck and timing. Market timing, competition from Constant Contact and good hiring all played a part, not only a good idea.

Taxes and Rules to Check If You Build a Side Product

If you start a side project while employed:

• Read your employment agreement. Some employers have rules about outside work or who owns work you create. If unsure, ask a qualified attorney.
• Plan for taxes. The IRS says you must file a tax return if you have net earnings from self-employment of $400 or more, even from a side job. You may also owe quarterly estimated taxes. See the IRS gig economy page.
• Keep business money separate from personal money where you can.

Simple Worksheet: Your Side Project Decision Plan

1. Customer requests: What do my customers ask for most often? ___
2. My idea: What could I build or offer to meet that need? ___
3. Hours I can give per week (without hurting my main income or health): ___
4. Smallest test: What is the cheapest way to see if people will pay? ___
5. Tracking: Where will I record income from the project separately each month? ___
6. Starter budget I can afford to lose: $___
7. Employer or legal rules I need to check: ___
8. My go/no-go signals before changing my main income: (e.g., 6 months of steady growth, X months of expenses saved) ___
9. Funding options I will compare (customer revenue, savings, loan, investors): ___
10. Review date: ___

Also read:

Madam C.J. Walker: Building a Business on Customer Needs

What Sara Blakely and Spanx Can Teach You on Starting Small

Key Takeaways

• Start with problems your current customers already tell you about.
• Let steady paid work give your side project time to prove itself.
• Track each income stream separately so you can see the real picture.
• Make big changes after the numbers prove them, and keep a safety net.
• Funding is a trade-off between speed, control and risk. Choose on purpose.

Sources and Further Reading

• Fortune, Mailchimp founders cash out in $12 billion deal with Intuit (Bloomberg, citing PitchBook, for the no-outside-funding statement)
• Bloomberg via Accounting Today, Intuit to acquire email marketer Mailchimp for $12B
• PYMNTS, Intuit Agrees to Acquire Mailchimp for About $12B (user and paid-customer figures from the press release)
• RTTNews, Intuit to buy Mailchimp (founding year, deal consideration details)
• SaaStr, Everything That Breaks on the Way to $1B ARR with Mailchimp Co-Founder Ben Chestnut
• IRS, Manage taxes for your gig work
• U.S. Small Business Administration, Business Guide

_{Disclaimer: This article is for general education. Please speak to a licensed financial professional, attorney or tax adviser about your own situation.}