There is renewed interest in bootstrapping, if only because lower costs now make this a bit easier and younger entrepreneurs can live more cheaply. Here then is my 10 point bootstrapping primer:
1. It does NOT mean self-funded. The real bootstrappers put in peanuts of their own money. Bootstrapping means funding with customer revenues.
2. Bootstrapping is NOT compatible with the “build traffic and worry about monetization later” idea. Get external capital to enable that. Bootstrapping is usually for selling to businesses, not to consumers. Just maybe, you can bootstrap a consumer advertising play using Amazon S3/EC2 infrastructure and Adsense (or an alternative for revenue). But has anybody done that, really?
3. It is very hard work, stressful and uncertain. Don’t start down this road unless you are really prepared for this.
4. It is messy. You get pulled by clients in different directions. Managed well, this is great and you get real world input. Managed badly, you end up without a coherent product or strategy. My rule is: 3 custom jobs to get to a product, iterating and abstracting each time. It’s like sailing – you know the direction, but you tack left and right to catch the wind.
5. You need a sign over your desk to remind you about your 3 top priorities – cash flow, cash flow and cash flow.
6. Don’t bootstrap and then raise VC. The VC will stress how much he admires your guts and determination (while secretly thinking “phew, glad I don’t have to do that”) but the current revenues won’t impact the valuation nearly as much as you think. You either get valued on your revenues or your plan, but the mix is hard. Bootstrap and then sell. With your own capital and that track record you are in the game.
7. Don’t trade equity for services. It’s really just a VC round in disguise and the better vendors won’t do it (they don’t need to), so you get weak vendors who drop you when they get a cash deal. With some smaller, entrepreneurial services vendors, it’s good to do cash plus an equity “kicker” as motivation – to get the best people. Whether this is onshore or offshore does not make any difference.
8. You can get external sales people on a mostly success basis, but you have to put up some cash to be credible and you have to give up big % and with evergreen clauses so the sales person gets some annuity revenue. This way you get the sales people who know how to pick the low hanging fruit quickly and easily – which is what you need.
9. This is different from building a prototype proof of concept to get funding. That is viable and you can do it by moonlighting, or friends and family money, but it is not customer funding and not bootstrapping. It is a “self funding bridge to VC”. Without a track record that’s what you have to do. With a track record, VC will fund from day one.
10. Learn how to juggle credit card offers. As long as you really do have revenue and just a working capital cash flow gap (between getting paid and payments you have to make) this is quite viable. You can keep getting those 0% intro offers and then swap around. It takes a bit of organization and effort, but it’s the best free money out there. Then a few years later you can get a bank line of credit.
Conclusion
Most of the software industry started by bootstrapping – think Microsoft, Oracle, SAP. A few online ventures such as eBay also worked this way; they took VC money, but did not need to. On the other hand, no tradditional media business that I know ever got bootstrapped. It is horses for courses. Some businesses are ideal for bootstrapping and some not so. More importantly, some entrepreneurs are ideally suited to bootstrapping and others are not.
Pic: ChrisDag
