Loox - Bootstapping and Becoming Profitable

Raising Money One Way or Another





Fast facts:

Only external funding was a convertible note from the ZEP Fund; it is the first company to pay a dividend to the ZEP Fund
Services over 110,000 businesses solely on the Shopify platform
Surpassed $15 million dollars in annual recurring revenue
Table of content

How Loox Began

Co-founders Yoni Elbaz and Moran Benisty met in 2012 in Israel while working at an R&D innovation center for the U.S. conglomerate Sears. Yoni was a product manager and Moran was a system architect. Their joint mission was focused on creating social commerce experiences for the U.S. market. After a few years, they decided to leave Sears and begin their own business in line with their continued interest in the e-commerce and social community spaces. 

In 2015, Yoni and Moran noticed a trend where small merchants were drifting away from Amazon and eBay and, instead, starting their own businesses on platforms like Shopify.108 This also meant that these SMBs were going to have to find creative ways to drive traffic to their websites, as they no longer had the tools they were used to having on the giant marketplaces. A second trend they noticed was that the Web was becoming increasingly more visual, with services like Instagram and Pinterest on the rise. As online retailers and marketplaces began using photos within product reviews, it seemed clear to Yoni and Moran that the idea of using visual user-generated content in the context of e-commerce would become a driving force to increase online purchasing.

“Reviews at the time were pretty much stuck in the 90’s with these non-attractive lists of text or 5 stars,” said Yoni. By understanding that small merchants often did not have much in the way of technology resources, especially development teams, they anticipated a need for tools that could help them turn their text reviews into something more visual. That’s when Yoni and Moran introduced the first photo-based reviews system on Shopify.

When Loox Met Shopify

Their decision to work with Shopify was an act of chance more than it was a strategy. Yoni had met an Israeli entrepreneur who was building a solution on top of the Shopify platform. After some brief consultation, he learned that Shopify had 100,000 merchants using the platform and simple API documentation, which would make execution easier on their platform.109 As luck would have it, today, Shopify has over 1 million merchants and is one of the world’s largest online e-commerce platforms for SMBs.110 “They really grew. We had no idea back then that they were going to be the ones winning the race for e-commerce platforms. There was a lot of serendipity in it,” said Yoni.

Pivoting Business Models

Loox started off as a business-to-consumer (B2C) concept, where they would provide review solutions for small businesses for free, and would then use the aggregated content on the Loox website to attract buyers, ultimately aiming to convert them to buying products based on reviews from other people. This revenue model turned out to be more problematic than they had anticipated, in both cost and execution. “We had this Excel of assumptions of how much it would cost to acquire a user, conversion rates, and the average order size. As we started validating our  assumptions, one after the other, they all collapsed,” said Yoni.

Their research revealed that it would cost a lot more to acquire each user, and that those users would not convert to purchasing as well as they had predicted. They also understood that the average order size would be smaller than they had hoped, ultimately affecting their revenue assumptions. In the end, Yoni and Moran realized that their B2C model could only be profitable if they raised a lot more money. in 2016, they had raised a Pre-seed round of $50,000 dollars from the ZEP Fund,111 which helped get them going. However, in order to scale a B2C model, they would need to invest much more in the product, and by doing so, be willing to operate at a loss while growing.

That really wasn’t how they wanted to build their business. Raising more funds would require them to focus less on the value they could bring to customers and more on the value they could bring to investors. These two values don’t always align, and both Yoni and Moran had a hard time seeing themselves building a company that wasn’t completely focused on their end customers' needs. “Our DNA is more that of hackers and analysts than of salespeople. We had some meetings with investors early on and we realized that it wasn’t the way we wanted to run our company,” said Yoni. Ultimately, they scratched the idea of raising more funds and chose to bootstrap instead.

What It Means to Bootstrap

Loox made sure to make every dime of the $50,000 dollars from the ZEP Fund count. They also limited their spending in ways unique even for startups. For example, neither Yoni nor Moran paid themselves salaries until Loox became profitable, which took about 15 months. While most founders post-funding either begin hiring, or at minimum, pay themselves for their labor, the partners split all of the work between them, and did not pay themselves or others in order to spend as little money as possible from the ZEP Fund investment. Moran handled all of the technical work, while Yoni handled all of the rest, from product, to marketing and support. By the second half of 2016, the founders had only spent 10,000 dollars of the $50,000 dollar investment, and started to turn a profit. To this day, Yoni and Moran run a tight ship. Outside of spending on a coworking desk (that only costs 300 shekels a month from the Tel Aviv municipality), which they shared with another company in order to cut down on the monthly cost, they rarely indulged in much before becoming profitable. They occasionally spent some of their funds on outsourcing graphic design needs and running a few marketing experiments, but they mostly worked on avoiding risk wherever possible.

“Our DNA is to never make big bets,” said Yoni. One of their major bootstrapping practices includes identifying in advance any services that may initially be inexpensive but can lead to high future costs.

For example, when they were choosing their cloud service provider, they avoided the well-known giants, such as AWS or Microsoft Azure, because their fees scaled quickly and could become quite costly for startup companies. With the Loox platform relying so heavily on cloud services, they chose to go a different route and use a less well-known provider, Digital Ocean, which ultimately cost them a fraction of the price. They also avoided initiatives that required heavy operations, so as to not add any additional roles to their two-man team. When possible, Yoni and Moran put their heads down and worked out the problems themselves.

Slow and Steady Hiring

It wasn’t until 2017, two years after Yoni and Moran began working on Loox, that they hired their first employee, a customer support manager. They started with support, rather than marketing or engineering, because it aligns with their top company value: customers (merchants) are the priority. This role helped improve their response rate to merchants and provide a better overall service. The founders also used the feedback they received from customers to effectively continue to build the platform and boost their marketing initiatives.

As they grew their team, Loox faced some of its largest hurdles. Hiring is one of the most expensive and difficult aspects of growing a company, according to Yoni. He briefly shared his experience looking for people who had both the skills and cultural alignment to fit certain roles. “It was challenging to find the right people who fit the bootstrap mentality that Loox has because we're so different from many companies out there. We made mistakes along the way,” said Yoni. Most of today’s spending in Loox goes towards salaries, which is why Yoni expresses how critical it is to find the right people for the roles. While there are many interview techniques and exercises that can help in filtering out whether a person is a fit or not, sometimes it comes down to trial and error.

From the first hire in mid-2017, Loox’s team grew very gradually, totalling 24 people today. Their mentality is to hire for new roles only when it’s truly necessary and to not spend in excess on human capital. While they have an office, since COVID–19 their team has mostly been working remotely with the office available to anyone who prefers to work from there. They run their team in a way where communication is very strong and everyone is aligned so that they can efficiently execute and iterate on new initiatives.

Marketing Hacks as Told by Bootstrappers

Marketing doesn’t always come cheap. In fact, SMBs commonly spend upwards of 8 percent of their gross revenue on marketing initiatives. The Loox team wasn’t keen on spending in such a way, and instead, came up with their own hacks and rules to live by when it came to marketing. They did this with an understanding that distribution was their lifeline, but that it would not come cheap by conventional methods.

The Three Ways Loox Acquired New Customers:

1. Shoppify App Store 

Yoni and Moran sought marketing channels that could be profitable immediately, or in a very short time. One of the best ways they did this was by featuring Loox in existing marketplaces such as the Shopify App Store. This was particularly impactful because their target audience (merchants) goes to this app store on a regular basis to find solutions to many of their problems. “We really understood how the Shopify App Store worked. We reverse engineered it so that we would be featured in prominent places on the App Store, and got a lot of organic traffic for free,” said Yoni. “Really for us, what was key for early growth was being able to reach customers without having to spend any money on marketing.”

2. Partnerships Program

Loox partnered with influencers, agencies, tech companies, and really anyone who serviced Shopify merchants. They cut a revenue-share deal with Shopify where Shopify promotes Loox to its own audience, and Loox pays Shopify when it acquires a user directly from a partner. This has proven to be a very successful model for Loox, as it’s scalable and there’s no risk of losing money. Loox pays only when it gets paid.

3. Branding on Merchant Products 

Loox embedded a product reviews widget with its own branding onto customers’ websites and this started driving additional traffic to the platform. Yoni knew that it is a common behavior of merchants to observe what other merchants are doing to increase their conversion rates, so when the Loox widget started to stand out visually, it caused an influx of organic merchant acquisition.112 “In the beginning, it was slow – we had 1 or 2 merchants who started their free trial with Loox each day, but as our merchant user base grew, it caused a network effect,” said Yoni. Essentially, the more merchants that use Loox, the more new merchants see the widget, making them more likely to convert, and to do so more often.

While finding creative ways to acquire new users cheaply, Yoni and Moran also understood the value of retention. That’s where the power of their subscription model came in. All of their subscriptions sold in the previous month, plus those of the current month and so on, collectively have a compounding impact. This means they continue to build upon anything they invested in the past without having to start every month or year again from scratch. Between their marketing tricks and their implementation of a subscription-based business model, Yoni and Moran found Loox’s route to profitability.

Best Practices Fanatic focus:

- For the past five years, they’re still only working on the Shopify platform and evolving their reviews expand to additional platforms, services, or products. “Being very focused on doing one thing very well has definitely been a key to our success,” said Yoni. This has also saved them from needing to raise more funds because they don't need to build and maintain more technology to keep afloat. The downside is the reliance on one source of all revenue, but they have enjoyed the growth of Shopify, and have calculated the risk-reward ratio to be in their favor.

- Pay close attention to details: This practice is mostly rooted in their interaction with customer support. They spend a lot of energy and resources on prioritizing what their customers request versus building out their personal long-term vision for the business. “We are very data-driven because we understand this is the way to continue to grow in this market,” said Yoni. From the moment they were able to collect data and quantifiable feedback, they actively avoided working based on their own assumptions. Instead, they focus on testing features and making decisions based on the numbers, and have found this approach to be very efficient. Both Yoni and Moran remain deeply involved in all things related to analytics and customer support, as they believe these are the interfaces through which they can communicate with their customers best.

“We always work towards evolution not revolution – we are evolving the product and adding additional types of content that merchants can collect from their customers (outside of their core reviews product) through more channels, and then use in more ways across their marketing touch points.” Eventually, Loox wants to become an end-to-end marketing platform based on social proof, which aligns with their mission to help entrepreneurs grow their business through happy customers.

- Spend time talking to customers: Yoni suggests that the key to success, especially as a bootstrapped company, is to be very attentive to what your customers are saying and how they’re saying it. The more they spoke to customers, the easier it was for them to do marketing and prioritize their backlog. It also became easier to hire the right talent because they knew what they needed in order to provide the best service for their market.

Discussion Questions

  1. How did Yoni and Moran first meet and come up with the concept for Loox? How might this have benefited their concept and relationship?
  2. Was their decision to focus only on Shopify a good one? When should they reevaluate that decision?
  3. Why did Loox choose to bootstrap and not raise money from investors? What were the pros and cons of this choice?
  4. According to Yoni, what are the most expensive and difficult aspects of growing a company and why? How does this impact how he runs the team? Do you agree or disagree with this statement and approach?
  5. What were some ways that Yoni and Moran saved money? What were the advantages and disadvantages of doing this?
  6. What are the ways Loox collects feedback from customers and why is itimportant to do so?