Bootstrap II: Advice from an Entrepreneur to an Analyst

David Saad, the CEO of Clupedia, recently commented (and emailed me) regarding one of my posts titled, “Bootstrap 101: How to bootstrap a startup”

I like David, and you probably will, too, after you watch his videos on Vator.Tv.

Like me, he seems to be ADHD and bright (although I cannot say that for myself…I’ll end up getting called arrogant again by one of David’s colleagues)

Still, he successfully brought together his thoughts on bootstrapping in 460 words. Augmented into this was his reasoning on why venture capital analysts should not have an opinion.

I decided to publish his comments (and email), as I feel it brings up some interesting points.

Here’s a snippet from the post I wrote that has irritated a couple people from Clupedia:

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, you can check out David Saad’s comments in the actual post, but I’d like to display it here and comment on each snippet myself.

Here’s a crush course for you on bootstrapping.

I do hope you mean “crash course.” I’m not that type of guy.

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.

I have to disagree here. Bootstrapping is not for one type of business or another. As I said in my post, and as many other individuals espouse, bootstrapping is a mind-set. And, I’d take a privately held organization with a close, dedicated team with a quality product than a bad product that everyone knows about (also, I’m not referring to any particular company when I use that as an example).

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.

Well said here. I agree in that many things are relative–especially in the inefficient market of startups.

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”.

Thanks for pigeon-holing me into an “analyst who works for a VC.” I’m curious as to what it takes to become an entrepreneur? Does it take successful cash-flow, a popular website or a fascination for tech/web 2.0? I’ve got all of the above; but, I’ve been soul-searching. Yes, I’ve been soul-searching for an appropriate title. Why? Because I’m not just an analyst. I’m a catalyst, a capitalist and a creator.

While ideas are dime a dozen, so are advices, especially the ones who come from an inexperienced analyst who works for a VC.

Thanks again for restating my title. I didn’t quite get it the first time I infer you think I’m inexperienced because I’m young. That’s interesting, and it isn’t the first time I’ve been labeled inexperienced because I’m young. My question, not only to you, but to society, is, “Why must experience be measured by another’s age? Why not results?” If you look at most major home-runs recently, they were started by young individuals (Facebook, Myspace, Youtube, Google, etc.) Perhaps your inference was a compliment, afterall?

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.

Entitlement? Most people don’t believe in entitlement, including myself. The only thing people are entitled to is their payday-once they’ve exited Not only have I been through most of what you’ve just mentioned, I’ve watched my father and grandfather go through the same. Do I score points for going through that thrice over? But more importantly, are these things that people should actually strive for to be considered an “entrepreneur” by yourself, or are they merely signs of an entrepreneur that plans poorly?

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.

Perhaps you read the post through a different lens being that I referenced Clupedia as lacking a business model; questioning a person’s humility, humbleness and compassion towards entrepreneurs because they’ve stated their opinion is flat out wrong. Reaching out to entrepreneurs is why I’ve blogged, and shall continue to do so. As an Analyst, I could have easily decided to keep quiet, to refrain from launching a blog and not doing anything to reach out to entrepreneurs (via venturedig). Instead, I chose a different route. And within my chosen route lays an obligation to be honest with my readers.

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.

Again, thank you for restating my role as an analyst who works for a VC firm. I didn’t quite get that the first three times If stating that a web 2.0 play doesn’t have a business model causes me to burn bridges, well, that’s unfortunate. But it’s life, I suppose. Still, what is even more unfortunate is giving my readers watered-down posts while hoping I don’t perturb anyone.

BTW, since you are an analyst who works for a VC, here is a good article for you entitled “Reforming Venture Capitalism”

Number 4

Hope this helps

It did help, David. Thank you for your thoughts

While recognizing that David and I respectfully disagree (I at least hope there is respect), one thing that we both agree on is that the venture capital model must be tinkered within the coming year. My Managing Director feels the same way. Our firm has even suggested to CalPERS that VC’s only get paid 20% carried interest (and take an avg management fee–a stipend to live off, if you will).

I’d enjoy everyone’s thoughts not only on the interaction between David and myself, but also this idea.