from a Young Fook 5/16 enhanced by Peter/CXO Wiz4biz
This post is simply here to remind some of you why we do what we do. A message that often gets lost, in this world of funding-hungry startups. 8 months ago I started my company. It had one employee (me), zero revenue and no product. Fast-forward to the present day and I now have a profitable SW product with hundreds of customers paying a monthly subscription, revenue is growing month on month, and there’s enough cash flow to comfortably pay myself & 3 staff. And I never took a cent of outside funding. Here’s why I think self-funding (usually called BootStrapping) is the best thing a young startup can do.
1. Work on something that truly interests you. With funded startups, often founders get into business purely because there’s a big opportunity (a growing market in need of a solution). Or perhaps a model is copied from a successful startup in a foreign market, & 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. When you self-fund, you are on a crusade. You’re working on something, because you believe in it – to the point where you’re willing to take on personal risk. It’s not a place for random opportunists..
2. But what about my big Salary? Money is probably one of the main reasons why more people don’t bootstrap. People are afraid of going broke or afraid of taking a big pay cut. If you are afraid of these, then you don’t want to be an entrepreneur. You want to be rich. These are two different things. I was prepared to not take a salary for as long as it took to get my company to profitability. I believe this is the right mentality. Wondering how to replace your $100K+ corporate salary is the wrong one. You’ll have to be lean for awhile.
3. Focus 1st on Revenue, because you don’t have a fat chunk of $$$ in you bank account providing a year or more of survival. You only have a meager personal cash injection from your own savings, giving a few months – if you forgo luxuries – such as eating. There is nothing quite like the fear of going broke to give you a kick-start toward generating revenue. In the context of startups this means you throw away any idea that doesn’t make money from Day 1. No “aiming for user growth first”. No “figuring out the revenue model later”. You are forced to build something valuable, something worth paying for right now. For 99.9% of businesses in the known world, that’s fundamentally how they function and that’s what you should be aiming for too.
4.You’ll 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. [Maybe the best advice on Bootstrapping]
5. You wont waste time trying to raise Funding, because it’s a dangerous time hole for early stage startups. Every minute you spend talking to Investors is a minute that you could be improving your product & delighting your customers. Realistically, you’ll need 50 meetings (oh shxt) to get interest from 5 Investors, which will result in 1 Term sheet. If you’re an early stage startup that has barely made its first dollar, I can’t think of a more epic waste of time.
6. Early-Stage Investing is rampant with dubious characters. Be wary of any accelerator whose only real business credentials 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. You don’t need an accelerator to get a cash injection of $20k for 20% ownership. For small amounts of cash like that, just get off your butt, do some consulting and keep your equity. Mentorship is the much more opaque benefit.
7. You learn what really matters. 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 (ie, faster, better, cheaper) Boot-Strapping 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 call the Shots. 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. At the least, this will involve keeping Investors in the loop about your progress & major business decisions. 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.
9. You’re free to grow Naturally. If you’re doing what you love, your company is paying all the bills, growing nicely & 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. In the worst case scenario, even if your numbers are respectable for any normal business, your investors will encourage you to figure out a model with higher growth/risk – even if that means changing what is currently working well for you.
10. You’re in good Company. Boot-Strappers tend to gravitate towards other BSers (boot-strappers). This will reveal a previously invisible subculture of folks running successful businesses, and enjoying it. 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 & are delivering value in that niche.
11. You increase your “leverage” for future Fund-Raising. 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 boot-strapped, profitable & 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. You see, Boot-Strapping 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.
Comments: Do you have any other Tips for BootStrapping?