Here’s why I think bootstrapping is the best thing a young startup can do.
You see, bootstrapping your early stage startup doesn’t preclude the possibility of you raising funding in the future. For example after having validated a market and grown to your first 1000 customers, perhaps you’ll want to accelerate growth and raise funding to grow to 100,000 customers. That’s a path many bootstrapped companies have taken. Your conversations and resultant deal terms are going to be significantly better having bootstrapped to 1000 customers, than running round town having investor meetings with 0 customers to your name.
So below are a few things I’ve learned, and some I simply copied or plagiarized (sorry guys) from others.
So my thoughts (again some plagiarized) on why bootstrapping is a smart move:
1. You are forced to focus on revenue
You don’t have a fat chunk of funding in the company bank account providing a year or more of runway. You only have a meager personal cash injection from your own savings.
2. You don’t waste time raising funding
Every minute you spend talking to investors is a minute that you could be improving your product. Realistically you’ll need 50 meetings to get interest from 5 investors which potentially could result in a single term sheet or a gain of 20% or loss of 80% productivity.
3. You don’t answer to anyone
Giving up equity to an investor in exchange for cash is not a one-time transaction. A relationship is formed that will last as long as your company lasts. In other words it can be a lot like having a boss again. If you became an entrepreneur to be your own boss, raising large amounts of funding effectively puts an end to that.
4.You learn the value of money faster
When you don’t have a chunk of funding sitting in the bank account, you spend money more frugally. In general I think this is a positive trait to cultivate as an entrepreneur. The opposite is extremely detrimental; frivolous spending on fancy office space / furniture / toys etc. Not all funded startups are guilty of this of course, but funding does enable this behavior.
5. Early stage investing is rife with dubious characters
Be wary of any accelerator whose only real business creds are that they have built an accelerator. Although some good accelerators exist, my opinion of many is that they are a meta-startup whose customer is you, the startup entrepreneur.
6. You are free to grow organically
If you’re doing what you love, your company is paying all the bills, growing nicely and has lots of fanatical customers you’re doing pretty well right? Wrong. If you’ve taken funding your investors will want to see exponential growth. Your company growing “nicely” will not deliver them the return that their limited partners expect. A good example of is Twitter. It’s reported they have 350 million users, yet their investors are pushing for them to figure out how to grow the company. Trust me you don’t want this type of pressure.
7. You learn what really matters
I’m a developer. But I hate conversations about what “stack” I’m using. I love programming because it is a means to an end – creating a product that customers love. I’m not the kind of tech guy who experiments with new stuff for the sake of it. I view tech through the lens of customer benefits – can a piece of technology improve customer experience somehow (e.g. make the app run faster etc)? If so, great – I’ll check it out. If no, but it’s whizzy and new – I’ll pass thanks.
In my mind bootstrapping forces you to take this view. There’s simply no time to experiment with things that don’t immediately deliver increases in customer value.
8. You’re in good company
Bootstrappers tend to gravitate towards other bootstrappers. This will reveal a previously invisible subculture of folks running successful businesses, killing it, and just enjoying life. No media circus, no questionable value propositions, no mysteries as to how they make money (they have customers who pay them) – just a group of people who found a market niche and are delivering value in that niche.
9. You work on something that truly interests you
With funded startups often founders get into business purely because there’s a big opportunity. Some growing market in need of a solution. Or perhaps a model is copied from a successful startup in a foreign market, and executed in a home market. Personally I can’t imagine working on a problem that I am less than fanatical about solving. I can’t imagine coming into work every day trying to solve a problem that is alien to me just because of a potential pot of gold waiting somewhere. That’s not why I’m running a business.
10. You increase your leverage for future fundraising
They say the best conditions to raise funding are when you don’t need it. If investors want to invest in your company when you’re bootstrapped, profitable and growing – you have all the leverage. You can name your terms and walk away from the deal if you aren’t happy. There will be other interested investors.
Overall hopefully this information has helped in some form or another. Again these are not 100% my thoughts.
George T. Reynolds
p.s…. To all the people I gathered info from to write this thanks