Have you ever head a venture capitalist tell you to bootstrap your company instead of going for vc funding? This might not be the first. Listen carefully…
There you go, now don’t be disappointed. Remember me for saying this to you…
The moment you take money, the DNA of your company changes.
Ok, so one fine day, you wake up and you decide to start a company. Great! God speed to you… but wait, what’s that?
You need money to make this amazing idea work. Don’t we all.
There are various levels of funding, the most common you hear is about venture capital – well, before you reach that stage, (hey… you just woke up this morning remember) you have other stages which don’t get as much headlines like angel investing, and others like the 3Fs… Family, Friends and Fools. But there’s another way. It’s bootstrapping!
Bootstrapping, in its simplest form, is building a business without any external financing. So where does the funding come from? Your customers.
In fact, you’re selling (or pre-selling) your product to your customers – who pay you upfront or hopefully within a few days. And that revenue is what helps you grow your company. It’s a slow process, but it’s a fun one. Fun?
Yes… because you’re hustling, using your wits, putting in the grind, being resourceful to get things done. AND… the best part is you own the company 100%.
Ok, venture capitalists will throw the usual question… “what would you like 100% of zero, or 10% of 100 million?” – and I won’t blame them, they’re right.
BUT they’re also wrong… because every company doesn’t need to be funded by venture capitalists. And what they won’t admit publicly is that they LOVE bootstrapped companies. Why? Because these companies are already validated, have traction and are generating revenue and possibly profitable… they got this far by bootstrapping, imagine how far they’ll go if they’re given a bit of jet fuel!
37Signals came out with an interesting series called – Bootstrapped, Proud & Profitable – featuring companies that do over $ 1 million in turnover, are profitable and have never taken venture capital funding. Go ahead, it’s worth a look. Read some true stories.
Not every company needs to be funded by venture capitalists or private equity investors. There’s a big difference being fundable and being valuable. Some companies are valuable, are not necessarily fundable because they don’t have scalability. They won’t provide 10x growth year on year and they won’t be a unicorn (company valued at one billion dollar plus).
You don’t always need to have an exit (and further support the Greater Fool Theory). Bootstrapped companies can do pretty well for themselves – take the example of Zoho – the company does around $300 million in revenue, generates a profit and solves real life problems and if private investors were to come onboard, would be not worth just a billion, but maybe a few.
If you’re going to startup, I sincerely recommend you bootstrap – life will not be the same. And here are 5 tips for you:
- Time is money. Consider your time as an investment.
- Be Resourceful. This is the secret to bootstrapping.
- Advertising sucks. Adblock sucks. Click Through Rates (CTRs) & Revenue Per Mille/Thousand (RPMs) are going down. Don’t build a model on this
- The internet is hijacked by free users. Converting from free to paid – that is the holy grail.
- Congratulate yourself on building something great. Not on getting funded – that’s easy.
I love this phrase from Seth Godin…
“Create like an optimist. Spend like a pessimist.” Seth Godin