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May 2, 2006
Rules for Bootstrappers
Greg Gianforte of RightNow did a useful presentation at the recent MySQL conference on rules for boostrapping your business. It is, welcomingly, not just some anti-VC diatribe, nor is it some up-with-Web-2.0 moonshine. Instead, the presentation is a fair, reasoned, and practical look at the implications for companies that decide to go it financially alone -- alone, that is, except for check-writing customers.Eight Reasons Why to Bootstrap
1. Build your business on a legitimate, real-world value proposition
2. Initiate the critical sales learning process sooner, not later
3. Don't waste money; make it
4. Accelerate time-to-market and time-to-profitability
5. Be less likely to make big, fatal financial mistakes
6. Force yourself into unconventional thinking
7. Have more freedom and flexibility
8. Own much, if not all, of what you create
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Geez.. I wonder how I lived all my life without knowing that:
3. Don't waste money; make it
... seriously, they all seem to me pretty banal concepts, that you can find in pretty much any book about starting your business.
As someone who's a strong proponent of the bootstrap for all the reasons described above and in the process of it himself I would say that when you bootstrap you're really answering to yourself.
In the venture backed early stage co's I've worked at there's been a certain abrogation of responsibility that comes from being funded by VC's on an unproven concept. I'm sure this isn't true @ all venture funded co's (the successful ones for example) Kind of an idea of "well I don't understand it but I guess someone smart w/money does or they wouldn't have funded it."
Bootstrapping really clears out the bullshit, in some ways that can be very effectively self directing.
In bootstrap companies all money is real money from day one. VC funding can appear as less than real money too easily.
In VC companies, you can move very fast, but with money in the bank, selling is not as urgent a priority. Rule 3 is good advice and often not heeded.
The awful truth: bootstrapping works for many businesses, but it means making many things happen with a small amount of resources and it is hard. That said, if you believe in your ideas, why would you want to sell them cheap to speed things up.
For most entrepreneurs, VC money is selling your business on an installment plan that works against you.
"Under the Radar" by Arnold Kling tells a nice story about bootstrapping.
I wonder if a major unlisted reason is fast failure, or if that's pretty much covered by reason #1.
Devoting years to an enterprise that never "makes it" seems a pretty gruesome outcome. Maybe it's usually better for founders (and other sweat-equity participants) to accept when they can the risk of a boot-strapped failure versus the risk of a zombie (backed by a VC or other supplier of capital).
For a founder the risk of those years is non-diversifiable. Even if the bootstrapping approach has a lower (expected) net present value, failing fast gives a chance to try again (hence some diversification value). Suppliers of capital ought to value fast failure less, because they can diversify through multiple simultaneous investments.