Forums: Discussions for entrepreneurs and small business.

I`ve been bootstrapping my biz out of necessity and I`ll tell you what, the stuff I`ve learned because of it I will take with me the rest of my life. That kind of resourcefulness and financial thinking on your feet can`t be learned from a book or a class. I`d rather Rabbit Mountain grow slowly into a stable, reputable company that`s around for the long haul than a flash that fizzles out quickly.

I`d be interested to know what percentage of bootstrapped companies survive beyond 5 yrs, vs. those that get VC/angel money right off the bat.

—paula

It all depends upon the business model, the situation, and the type of company you want to build.  If you have never bootstrapped, then may not appreciate the struggles, challenges, and opportunities that come with trying to do a lot with so little.

However, some companies cannot do well if they are not properly funded.  For example, if you were trying to build the next facebook, without the proper funding it is very unlikely that you could do it.

Right now, my new startup is right in the middle.  We are bootstrapping it now, but as we push to market it nationally, we are likely to require outside funding to ensure that we reach enough markets before someone bigger takes the idea and outspends us across the country. However, we don`t want to take funding until we build enough strength in the business to create a valuation that we will be happy with. 

I don`t know the numbers, but clearly more bootstrapped companies fail simply because there are more of them.  As for percentage, not sure but the concept of failure there is sometimes very different.  For example, if a company invests $5M into a startup, they are not interested in turning that around and selling it for $10-15M (most of the time). Instead, they would rather put it on a very high growth curve to hit $50M or more even if the risk is greater.  That`s because of the expected value calculations (30% chance at $10M is worth $3M while a 15% chance at $100M is worth $15M). 



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-jc

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JC Cameron, President
VendorCity, Inc. - Your source for highly recommended Vendors

http://www.VendorCity.com

JC`s View: My take on technology and entrepreneurship

Bootstrapping basically means using revenues from the new company sales to build the business. To do that, you have to have those revenues. If you`re not getting the money coming in, it forces you to always re-evaluate the business idea, business plan, customer operations, marketing, and so forth.

One of the things we`ve found, going along with RabbitMountain, is that because we`re bootstrapping, we also had to deal with a lot of slow periods initially.We also tended to view things a lot more personally, because we were so directly involved in every aspect of the business.

Given the personal identification and the slow periods, we`d often get anxious that people weren`t buying our stuff because they hated us personally, thought we sucked, didn`t like our (fill in the blank), and otherwise could care less.

Okay, sure, it was mostly paranoia and fear, but it led to constant re-examination, quality checks, and testing every single premise over and over again. In that testing process, we routinely found better ways to do things, better quality solutions, and interesting new ways to market.

We also came up with completely unique ideas for product variations, new product lines, and growth pathways. All of it was because we had the time! It`s the slack-time between sales that provided these opportunities. I think if we`d had a strong capital base to start, we likely wouldn`t ever have gone back and repeatedly tested our basic business assumptions.

So there`s good and bad to either type of startup. At this time in our lives, being older and not necessarily requiring instant family income, I`d argue that we`re a better company because we`ve had to do everything without much money.

I wonder how often a company pushes forward with outside investment money, without really staying focused on problems that will eventually become major crisis points?

That`s very much my experience as well (although my years of building print ads for used car dealers freed me from taking-things-personally paranoia). I think bootstrapping forces a business to develop itself iteratively, in effect forcing it to evolve into conformity with whatever economic niches are available. This bodes well for the long-term profitability of the company IMO because this is what any business needs to do to stay viable in a changing market. 

I`m inclined to think that heavily capitalized startups are going to be inflexible beyond a certain point, and incapable of surviving major market shifts, because all that startup capital acts as a protection against market forces. That`s its purpose. At what point does the organization learn adaptation? Personally, I`d rather my company were nimble than huge.

Not to say I think there`s no room for startup capitalization... just for me, I don`t know that I`d want to go that route myself now that I`ve been through the worst of the bootstrapping process. If I`d have had startup capital, my company would be far less likely to survive the long haul, which is what I want it to do ultimately.

—paula

Probably, that happens quite often, Craig.  Having been involved with businesses under both conditions I find that I prefer bootstrapping for many of the reasons you mentioned. Bootstrapping does cause you to be much more resourceful.  That, and leveraging those resources are what I consider key components to successful bootstrapping.