Bootstrapping
Why Is Bootstrapping Important?
I think bootstrapping is a signal for passion, dedication, and perhaps more importantly - keeping lean. It also reflects, suggests, shows potential that ideas and plans have been more thoroughly thought-out and a path more distinctively carved out after X years of tinkering, learning, and evolving of plans.
If you go into an incubator or get seed or angel money pre-maturely then you’re only hurting yourself. A well-run business should be trying to run as efficiently as possible, and be as tight - lean - as possible, and a good constraint to follow via added pressure is for a founder (founding team) to try to keep as much equity as possible. Not only is this good for the founders, it’s also potentially a strong signal to future investors that you know what you’re doing and are frugal.
It shows you’re patient as well if you don’t do things pre-maturely and re-enforces, even subtly, that you’re smart. If you’re rushed you’re more likely to make mistakes, just inherent to nature. An example might be if you structure your initial founding team in a potentially disastrous way by improperly vesting newcomers, and whereby an original team member decides to leave after a few months - and keeps 10% with them (perhaps more - eek!) and will never do any work to help grow your business further.
If you’re patient you’ll research, and learn first, the safest way to go about doing it. Someone who likes to research and learn is also an observer, a feeler, and hopefully good at discovering the nuanced aspects to the problem(s) you’re trying to solve.
I would want to invest in someone who shows the ability to analyze, communicate, learn and integrate new information in a micro and holistic way. I think understanding the holistic piece of any situation or experience you enter takes time, patience, and not doing things pre-maturely - and bootstrapping as long as makes sense - is a great metric for determining who’s a good bet for investing - at least if you’re in it for the long-tail and not just playing for smaller short-term gains (with inherently higher risk).
Below is a lovely summary by LIAD relating to what I said;
“No revolution ever started on a full stomach.
Bootstrapping brings to the fore the most important elements of company building. Passion, dedication, focus and vision.
All startups should be forced to go through a mandatory bootstrapping period to help forge the founders and early team.
Bootstrapping credentials should be seen as a far more prestigious badge of honour than closing top tier VC.”
Awesome!
Doing It Right vs. Doing It Wrong
Someone anonymously posed a question to Fred, here’s an excerpt from that;
” … bootstrapping usually eats precious management bandwidth leaving lesser time for the product. Often capital constraints would mean tradeoffs between capital versus time. In such a scenario, the company would grow slowly.
I have seen VCs questioning why did our company only grow to 750 customers in 3 years (150,250,350) and how can we project 4000 customers at the end of year 4, even though we explain that we took first year to build the product, second to build a scalable delivery process and third to revamp our sales process.
We probably could have iterated faster if we had the luxury of capital funding but things are as they are. …”
Here is a response by Philip Sugar who suggested the poster answered their own question;
“I think you answered your own question when you clearly laid out what you did year one build product, year two scale delivery, year three figure out sales process.
The classic line of 9 women can’t have a baby in a month applies.
So another scenario could be you spend tons of money in year one and everybody learns you have a crappy product.
You spend money in year two and you can’t deliver and have unsatisfied customers.
You throw money in year three and don’t have a sales process resulting in chaos.”
Patience versus chaos. How would you like someone running a company you’re investing in?
Finding The Right Fit
It’s one of those things that if you bootstrap and understand the value associated with it, and investors understand the values associated with it - then you can be a good match.
More investors now are putting money into pre-revenue companies and the like - though there’s still a need to be cautious of ‘dumb money’ floating around, investors who are hoping to just get lucky and riding a wave they don’t understand. I’m not sure those investors can help you as well as those who genuinely understand it all (and not just doing what looks popular / profitable).
“If you’re riding a wave without understanding why that wave exists, then that’s risky because you may not realize when that wave’s going to crash down on the shore.” - Me, via comment at AVC
So if there’s a wave you want to start riding, make sure you have someone teach you, explain to you the qualities of the wave they’re riding first - especially if that wave is a tsunami that’s going to change the landscape forever (disruption).
