What is a bootstrapper?
Well, I’ll tell you what it’s not: someone who wants to use outside money to launch a company.
Bootstrapping is a mindset. Many individuals, when launching a business, think along the lines of, “How can I create a sexy front end to this idea to attract angel/vc money?” If you need a real-life example, check out clupedia.com, a company that raised $1.7m from investors with a flashy presentation and a web 2.0 idea (i.e. no business model in sight).
Again, bootstrapping isn’t an action, it’s a mindset. And, the mindset revolves around the question, “How can we make money today so that we never have to take outside capital?”
The funniest thing happens when people follow this mind-set: you’ll have investors calling you, instead of the antithesis. This month, alone, with a couple bootstrapped companies, I’ve been called on by four investors for some of my side projects. Side projects!
What did I say to each one? “I must respectfully decline. Thanks for the kind thought, but I would prefer for this venture to operate as a private, profitable company.”
But that’s all conceptual stuff. You may have already known what bootstrapping is… But how do you do really do it? How do you survive the bootstrapping grind?
First off, it will be easier if you’re young. Really young. For someone already making a six-figure salary, bootstrapping isn’t even a thought. I’ve seen it done before where a guy steps away from a six-figure salary to making nothing. Check out UsedCarboardBoxes.com, that guy stepped away from a six-figure salary to launch his venture. Today it’s doing great. But for two years, his wife was thinking, “What the heck was I thinking marrying this dude?!” But again, it’s rare.
Second, while working on your long-term vision, have a short-term product available for customers. This brings in the necessary profit to stay afloat while you iron-out any wrinkles in your product/service before launch.
Third, pay for the bare minimum and find dedicated employees that share your long-term vision. How do you really know if they believe in the long-term vision? They take only equity in payment. Also, a web startup should have three roles in a team:
(i) The programmer: This guy is the mad scientist behind the operation. He’s the genius that takes ideas and gives them value. Ideally, you’ll want this guy’s passion to be programming. You don’t want a guy that thinks programming is a job that pays the bills. Because, it won’t if you have that mindset.
(ii) The web-designer: This guy should be the God of UI. If you want a widget with a particular feel, you should be able to call this guy up and have him slam one out in 5 minutes. This takes a
(iii) The biz-techie: This business person is more well-versed than 99% of the population in tech. Never, and I mean never, try and take a corporate business guy and throw him into a startup. What I mean by that is, an accounting guy, a sales guy or a spreadsheet guy. The only business person you want is one that is an extremely knowledgeable biz-techie. This person should have experience building open-source websites, editing html, css and php. He doesn’t have to be an expert, but he has to know what the nuts and bolts are. Why? Because if he doesn’t have a clue, he’ll never get it. Never. Non-techie business people think that if a person can create a website, they should be able to create any type of site. During the launch, they’ll get frustrated by the slow growth because they don’t get that quality takes time.
This business person should possess the following capabilities: legal responsibilities, newsletters, blog setup/design, connections, strategic experience, leverage twitter network effects, financial book-keeping, editing CMS, sales experience, management experience and the raw-gift of making things happen.
So, in the end, bootstrapping is a mindset. And within that mindset lays three activities: prepare for a tough ride if you’re not young, have a short-term product available, and pay for the bare-minimun.
Edit:
I spoke with David Saad from Clupedia and got the figure wrong re: the amount of capital raised:
We raised $1.7 million and not $1.3 million because we raised a subsequent round. Second, when we raised the funding our business model was based on advertising, which was quite viable at that time. Eighteen months later, the market changed. The advertising model became increasingly unviable. We decided to switch and develop an enterprise version which we were going to offer on a subscription base under the SaaS model. As you know, it’s very rare that a startup retains its initial idea or business model. Almost every startup learns and morphs into something else. Anyway, by the time we were ready to make a switch and raise another round, the economy collapsed. Today, even though we had a great success in the market in terms of traction, we are not able to raise a B round to execute on our new plan.
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Hi,
Like the article and love the idea behind it…..we ourselves are a startup that believe in bootstrapping strongly. Thank you for this great article, adding it to my delicious list
I would add Virtual Assistants and Virtual Office space to the mix. Saves a fortune on staff salary costs and other overhead. New biz owners need to spend time doing the things that make money, not just scheduling appointments.
Good point about Virtual Assistants. Still, when I bootstrap I only pay for the bare minimums. Even a $5/hr virtual assistant is a large expense
It’s almost like a game for me. I try to launch businesses with as little money as possible (under $100)
You’re right about bootstrapping, especially in the current climate. However, what’s more annoying than a startup without a business model is an arrogant and inexperienced analyst who works for a VC
When does arrogance get confused with stating the facts? I really like David Saad of Clupedia, but the fact is, there was no sustainable business model. You may want to check out Reality Check: http://scottdig.com/2008/11/10/reality-check/ It’s a review on Guy Kawasaki’s most recent book
Scott, good article. I think even before getting into the programmer, biz techie and web designer, the entrepreneur must learn what bootstrapping is all about. It’s easy to miss … I’d say one of the leading factors causing start-ups not to make it was their bootstrapping inability. We recently closed on an early round for a company that bootstrapped the first 3 years. This is a life science/biotech company, and since they were able to get by on so little, their value was exponentially higher after a small institutional investment. Great opportunity for us too!
In terms of Mark’s comments above, I think it’s quite a statement to say that Scott is arrogant or doesn’t know what he’s talking about because he’s either young or works for a VC. Experience isn’t always about the # of years on the CV – often times, it’s the value you’ve created in a short time. Ask Zuckerberg (not that I’m a Z fan, but you can’t argue with the value created). From what I’ve seen, a “young and inexperienced analyst” might be able to teach some entrepreneurs a lot.
sweet article Scott. I can relate to a everything you stated in your post. I am currently looking for persons: (i) and (ii)
Here’s a crush course for you on bootstrapping.
Bootstrapping is ideal for small businesses such as mom-pop shops, services, and the likes in a well-established and mature markets. On the other hand, bootstrapping would be the kiss of death for potentially large businesses in emerging markets. In the latter case, if any of the players raise money, the remaining players have no choice but to raise money otherwise they wouldn’t have a prayer to survive. Therefore, in emerging markets, first-to-market, market penetration, market share, mind share, and the likes become part of the metrics mix for success, which cannot be achieved with bootstrapping in such conditions.
The lesson learned is that in business, especially for entrepreneurial businesses, there are no absolutes or ultimates, everything is relative. What works in certain circumstances wouldn’t work in others. For example, bootstrapping would have never worked for MySpace, Facebook, YouTube, Google, Amazon, and eBay at the time they launched their respective ventures. Nowadays, considering the current dismal economical conditions, bootstrapping is the only option available especially for early stage companies. Thus, your post is very timely. Similarly, relativity also applies to business models – what works for some under certain circumstances wouldn’t work for others. For instance, Dell would have never succeeded if they would have adopted the traditional distribution channel. Vice versa, the direct model never worked for all other PC manufacturers who tried and failed after Dell’s success in selling direct.
Now that I have commented on the substance of your post, let me take the opportunity to give an advice from an entrepreneur to an “analyst who works for a VC”. While ideas are dime a dozen, so are advices, especially the ones who come from an inexperienced analyst who works for a VC. Unless you’ve been an entrepreneur, run a business, managed people, mortgaged your house, maxed out your credit cards, and spent sleepless nights, you are not entitled to sit at the same table as entrepreneurs, let alone advise them. A bit of humility, humbleness, and compassion towards entrepreneurs would serve you right. Thus, my advice is for you to change the tone of your writing.
Finally, the best advice is to never burn your bridges by commenting on companies that you know nothing about, such as the reference to Clupedia. You are an analyst who works for a VC in Southern California, and hence part of the eco-system. As a result, you can’t afford to take the risk to shoot yourself in the foot even for remote possibilities, never mind probabilities, of running into the entrepreneurs and companies that you are bad mouthing.
BTW, since you are an analyst who works for a VC, here is a good article for you entitled “Reforming Venture Capitalism”
Hope this helps
Hi Scott – Great article and thanks for the mention. I’m the Founder/CEO of http://www.UsedCardboardBoxes.com. You are right, I quit “Corporate America” and started my first company (actually called Boomerang Boxes back then) with a few bucks and a lot of personal credit cards. It was definitely bootstrapped… and unfortunately, after 3 years, we were not able to make it with just my own funds/personal credit. So, in 2006 I raise venture capital to create a new company: UsedCardboardBoxes.com. Our business concept is the same (selling eco-friendly used cardboard boxes for less than new) but our business MODEL is completely different today. Today, we are a 100% technology company, much like 1-800-FLOWERS. So, bootstrapping is definitely a mindset… and only works for some business models. It “worked” for us, in that it allowed me to build a business from the ground up and learn everything I needed to learn. We spent 3 years bootstrapping and trust me when I say, we learned A LOT, but were not able to make it a financial success with that model. With all that knowledge, we raised venture capital and created UsedCardboardBoxes.com. We went from being able to service just the Los Angeles area, to being able to service the entire nation, with FREE shipping in 1-2 business days. Completely different business. Completely different metrics and completely different financial results. So, coming from a guy who has both bootstrapped and raised VC money….. who has both created a company that failed and created another that succeeded… there are definitely different models/approaches for different people, with different goals. I think it all really depends on what you are looking to do… and what you want to end up with! Keep up the good work on this blog. Good stuff. If you (or your readers) want to chat about success/failure with bootstrapping and/or VC-financing, please feel free to contact me. You can find me at http://www.UsedCardboardBoxes.com.