Every venture begins with an idea, and that idea often kicks off with a somewhat idealistic fantasy of what it would be like to kick start your own business – just imagine the dozens of venture capital firms that would surely flock to fight tooth and nail to fund your staggeringly innovative idea.
But, as Bill Reichert of Garage Technology Ventures puts it, ‘The odds of raising venture capital are equal to the odds of getting struck by lightning while standing on the bottom of a swimming pool on a sunny day.’
So, the way I see it, you have two options: work out a way of implementing your startup with what little funding you can generate yourself, or start building that lightning rod.
What do we mean by ‘bootstrapping’?
Bootstrapping is the financing of a startup with your own money or the scarce operating revenues the startup generates.
Nearly every company has a bit of bootstrap in its past. Gawker, TechCrunch, GoPro and Github all found success as entirely bootstrapped companies before accepting a dollar of outside funding. The decision to go long on bootstrapping and create a self-funding business doesn’t garner as many headlines as millions being sunk into a plucky startup, but the rewards can be both immediate and lasting.
So, is bootstrapping right for you? Here are five questions to consider.
1. Will your idea make money out of the gate?
Unless you have rich relatives or a deep pool of savings, your idea is going to have to pay for itself – and quick.
‘Until a customer pays you, your business is just a hobby disguised as a business,’ writes Bill Hazelton, Managing Partner of Optimum Interactive. ‘Don’t worry if the product isn’t just “right” yet … just start selling to someone, anyone – family, friends, business associates, colleagues at your day job, whatever.’
It’s not as sexy as getting venture capital cash, but your first sale or fee will demonstrate something that many millions of venture funding often doesn’t: that your business idea is market viable from day one. And if you need outside funding further down the road, that proof of concept could prove invaluable.
2. Are you ready to do everything?
Whatever you most enjoy doing – be it coding, product development, creating business plans – you’ll spend the least time doing. In a bootstrapped business, you do it all, and the hours spent are in inverse proportion to your experience: whatever your weak spots, they will dominate your days.
Areas like management, marketing and sales are often a mystery to new tech entrepreneurs. But as Guy Kawasaki, author and former chief evangelist for Apple, puts it: ‘You have to sit by the side of a river a very long time before a roast duck will fly into your mouth. Read my lips: everybody has to sell. Consumer companies, tech companies, ministers, authors, artists, teachers, environmentalists… everyone has to sell something.’
3. Are you willing to sink or swim with your venture?
It goes without saying that you need to truly believe in what you’re doing. You’ve been told from your first career meeting with your high-school counsellor to pick a profession that ‘you truly love’. What goes unsaid is this: you are going to wake up many nights thinking you’ve made a terrible mistake.
The total investment of your savings, the livelihood of your family and the fate of your employees now compound the night sweats that once accompanied a stressful, if unfulfilling, job. Sometimes you’ll wish you could crawl back to that day job – but you’ve got too many people who believe in you, who bought into your dream and who are now counting on you to succeed. So you just have to double-down.
The good news is, this is where growth happens. It’s also the reason why failed startup founders find it easier to find funding for their second venture or are often snatched up by other companies – because the lessons learned running your own company can’t be replicated elsewhere.
4. Can your product scale quickly with little capital?
There’s a reason most startups are internet or software ventures rather than new car companies – the cost to create the product is vastly cheaper and more easily able to scale. Still, every startup must find product/market fit. For bootstrappers, however, it’s a matter of life and death to quickly scale the business.
Do you have the right product or service for what the market wants? Are you addressing a big problem people have? Is the price you’re able to achieve something customers are willing to pay?
VC-backed companies often have more time and the luxury to pivot to better address product/market fit. Bootstrapped companies really only get one chance. The financial runway is short for a bootstrapped company to answer these questions and achieve scalable lift, or crash and burn in the attempt.
5. Can you ask for help?
The benefit of getting venture capital – besides the cash, obviously – is the cache it brings to your recruitment efforts, as well as the advice and wide network of people that a seasoned VC firm brings to the table. To get employees as a bootstrapper, you’re going to have to lean on your friends, family, former classmates and colleagues. To get expertise, you’re going to have to knock on doors.
Fortunately, people like to help. When I’ve cold-called CEOs, CMOs, HR experts and business consultants, I’ve constantly been surprised by how generous people are with their time and counsel. But first you have to ask. In a bootstrapped business, that advice isn’t going to come to you – you have to go to it.
If you enjoyed this episode and the accompanying article, subscribe to Angel Insights and be the first to know when a new episode is released. Angel Insights is available on both iTunes and SoundCloud.