With the constant media onslaught of startups raising colossal funding rounds and the perceived “norms” in the startup world, the common path for early stage companies is to raise venture capital; however doing so too early can put the future of your business in jeopardy.
Getting your startup rocking and rolling obviously requires cash but where do you source that cash? Believe me, raising money requires a lot of precious time and focus, which could be better spent developing your product and fulfilling customer needs. If you raise VC money expect to serve these Sith lords when commanded, again something that requires a lot of your time and patience.
Like any dichotomy, there will always be entrepreneurs battling on either side. To raise or not to raise, that is the question.
From personal experience, bootstrapping your business can be one of the biggest saving graces, one that will help you create a much more resilient and more valuable business.
So without more bla bla, here are 5 reasons you should take the risk and bootstrap your business.
1. Jedi Like Focus And Self-Imposed Pressure
Bootstrapping a business means the funds you are burning are yours, not the butcher down the street nor the bankers…yours. There is no better incentive than having personal money invested to make sure you are 1000% focused on every element of the business so it comes out of the oven looking like Ferran Adria’s latest culinary delight rather than my attempt at cheesecake. If you don’t make this work then there is no getting that money back.
One of the greatest things about bootstrapping is that it allows you to focus your time on creating an uber mega super startup without having to worry about spending hours of your day wining, dining and pleading to investors to give you money. You have more time to focus on building a product that customers actually want and focusing all of your time on your core business.
A lot of the time entrepreneurs who bootstrap find a sustainable model more quickly than companies backed by VCs as the founders have more time to focus on the build-iterate cycle thus arriving to market fit more rapidly than their wealthy brothers.
Bootstrapping means no investors involved so the pressure comes from internally (is your own). So instead of outsiders shouting at you and pressuring you to reach deadlines, hit targets and employ more people you can just stand in the mirror and shout at yourself. It’s much nicer and more fun.
2. You Become A Master of Prioritizing And Will Burn Less
When your own money is on the table and knowing that when you hit a certain limit that the funds are gone, you really learn to watch your burn and to prioritize what comes first. Bootstrapping means you need to become an expert at controlling costs and keeping overheads to a minimum, staying lean and focusing on achieving higher profit margins. It will help you to take a step back and look at your company from an outsider’s point of view. It’s incredible what you will see and how capable you will be to turn things around.
Bootstrapping forces you to prioritize every single cost and to cut out any nonsense that isn’t needed, and believe me you will find plenty. Social media expert who is spending 10 minutes a day posting on FB, Get outtttaaa hereee!
As you have become a Jedi master of focus, the quicker your business model will be validated and the more chance you have of revenue coming in which reduces your burn and makes everyone a happy little camper.
3. Hey Mum Look At Me, I’m Independent, And I’m Flexible Too!
If you raise venture capital, be prepared to feel the heat (actually its more like a horrible sunburn that won’t go away). VC’s expect you to spend their money quickly and to see results even more swiftly so expectations are set very high. Every VC is different, some will play a very active role and some won’t but they all like things done their way.
Most VC’s have expert entrepreneurs at hand who have “been there and done it” who are there to help but this is your baby and you don’t want anyone else playing ball with it or telling it which way to run. Investors are thinking about their return so expect them to want to implement their own methods, monthly meetings, and possibly even people (if you don’t perform well they might replace you with a CEO of their choice).
Being a good ol’ bootsrapper means that you have the independence to run the business the way you want without anyone breathing down your neck. You now have the power to revolutionize the world with your idealistic vision without anyone stifling your creativity. Instead of being directed in a way that might lead you off your yellow brick road, you are accountable for your own decisions so don’t go looking over you shoulder for someone to blame if it doesn’t work out.
Less funds means a short runway and a huge necessity to work quickly to prove your business model. Bootstrapping means you don’t have an endless supply of cash to bring your product to perfection (which if you follow the lean methodology you don’t want to be doing either), so forcing you to get it to market more quickly.
Knowing that you are going to bootstrap a business means you start and get it to market more quickly than if you were chasing investors around like a loco and then trying to perfect your product a zillion times before it’s released.
5. Keeping A Big Piece Of The Pie
Not raising money means not giving up equity, yeyyy! If you bootstrap in a successful manner and manage to grow your business to a mini behemoth then you will have your chance to raise venture capital.
As you will have given up no equity, you’ll be in a much better position to negotiate with investors. If you raise money at an early stage, you’ll have already given up lots of equity that will be further diluted on every following round. Bootstrapping means you keep a bigger piece of the pie and if you do well and are acquired/go public then the math says that on payday you’ll have a bigger smile on your face.
Also when raising VC money, the clauses in the term sheets can be pretty strict on the founders, especially at the early stages. Founder’s shares (which were yours anyway) are usually vested over a period of 3-4 years, which means that if you don’t stick around then you lose the majority of the shares. Plus decision-making processes can be more lengthy and difficult as certain things must be approved by the board. Obviously having a sensible shareholder agreement between co-founders is essential but more often than not the conditions aren’t so harsh.
Bootstrapping can put a lot of financial pressure on the founders and in some cases it might not even be a viable option. It does however give you a great starting point and strong foundations for future success. There have been many success stories of bootstrapped startups selling their startups for billions of dollars so without a doubt it can be done. Give it a whirl on your next adventure!