In part 1 of this series, we wrote about how many “founders” make the mistake of believing that if they just raise enough capital, they’re sure to be successful. However, not only is that idea false… it’s also dangerous. We looked at some of the common dangers and flaws of the startup scene as it relates to investment and valuations.
Intro: “Every Startup Should Bootstrap”
In this article, the Harvard Business Review explains that “As the past few years have shown, raising money for a startup is easy. But building a profitable, sustainable business is still really hard.” Bootstrapping, while slower, teaches lessons about the fundamentals of building a business that far too many startups would rather overlook today. Focusing on a solution rather than on an exit drives people to try harder, dig deeper and not give up on the dream of making the impossible possible. And as financing dries up, these lessons will be absolutely invaluable to those who wish to grow a successful business.
Here are my top 10 reasons why every startup should bootstrap:
1. Steep learning curve
Bootstrapping will force you to find solutions on your own where you would otherwise pay for help. The drawback of financing is that you have a little piggybank to use for things like AdWords experts, outsourced SEO experts, webpage developers, outside sales teams, and so much more… when in reality, you should be learning to do each of these things on your own.
2. Learn how to turn dimes into dollars
You are literally forced to understand how to create and grow revenue whereas companies with financing often tend to suckle on the tit of funding and slowly miss the leaks in the system where they are losing cash. It’s a hard truth. Bootstrapping forces you to learn all the nitty gritty details of how to run and maintain a business… which can save you hundreds of thousands of dollars in the long-run.
3. Not wasting time fundraising
Another benefit of bootstrapping is that you’re not wasting time fundraising. Instead, you’re refining your product and finding every possible way to provide value to clients… because the more value you provide, the more value you will see returned in the long-run.
4. Early stage investing is full of questionable characters
I have seen literally hundreds of pitches by “founders” who are so focused on raising money that they’re not even quite sure how they’re going to use it when it comes in. Plus, to make problems worse, early stage investing is full of questionable characters who may or may not have relevant experience in your sector. Often, just like the startups, these early stage investors are only looking for a quick buck.
5. Learn the value of money
Now, let’s look at the flipside of that coin: do you think a bootstrapped startup knows exactly where to put a few extra bucks? You betcha they do. Nothing teaches the value of money like struggling for every dollar.
6. Focus on cash flow
Bootstrapped companies are forced to focus on cash flow from day one because the only thing that’s going to put food on the table is learning how to properly set and achieve sales targets. If there’s any single most important lesson to learn in business, it’s how to generate revenue from your products or services while sticking to your values.
7. Increase your leverage
As you grow, you can increase your leverage and negotiate better terms because you actually have results and paying customers with good feedback to prove that your product works. By reducing the “risk” that most investors associate with early stage funding, you can get a significantly better offer. Moreover, if you manage to successfully bootstrap for long enough, you will likely find the right type of investor banging on your door and asking to have a chat.
8. THE PEOPLE
Perhaps the best part of bootstrapping is the people you meet. Bootstrapping a startup is hard but it creates steely resolve within the people who do it. The mission to see your passion project come to fruition where you believe in it to the point where you are willing to take on personal risk is all too uncommon these days. Therefore, you will meet other bootstrappers who are focused on driving impact on the things that matter most to them, regardless of personal sacrifice. They’re not in it for the fame or for the exit or for the money, they’re in it to create a tangible difference in our world.
9. Retain ownership
Last, but probably most importantly, is that you can retain 100% ownership of your company, having complete control over your mission, products, and team. Whereas, if you were to take on investors, the large majority of your important decision will be up to them and will be scrutinized in terms of cost, value, time and ROI.
10. Build your own culture
Lastly, but equally important, you can create a company that reflects your own unique style, personality, culture and values. While the is probably also somewhat possible with investors, it’s certainly not a guarantee. Nothing beats being your own boss. Besides, building and running a company that suits your beliefs, values and passions is kind of the whole point of starting a business, isn’t it?
Sure, there are some drawbacks to bootstrapping. It’s slower, riskier and you may lose your competitive advantage while other companies move in with a similar product but these are things that we will look at in Part 3. Stay tuned.