Bootstrap or Die.
99% of all startups should never, ever, ever, take outside investment.
Taking outside investment money, even from “family and friends” will put undue pressure on a growing business.
Sure it may help to jump start things, but there are always a way to launch your business from the ground up using lean startup methodologies.
In fact, you can make your first sale without ever having a product as part of your testing and validation phase.
By the time that product is ready to be distributed widely, it will already have established customers.
The Lean Startup Methodology
I read Eric Ries’ book, The Lean Startup early in my career. And by utilizing the processes outlined in the book, my business partners and I were able to build a $15 million dollar a year business, without ever taking a dime of outside investment.
How we bootstrapped our way to building a $15 million revenue business:
- We utilized The Lean Startup Methodology by testing ideas out, building a minimum viable product first, before investing any further time or resources into the project.
- We leveraged open source technology. While our competitors built their own software, we simply built our business on top of pre-existing software that was already sufficient at meeting our needs.
- We constantly optimized our business, that meant cutting costs, looking for cheaper alternatives to web hosting or various SaaS products we were subscribed to, etc. Always question the status quo.
- We always had 6 months of cash reserves. Once you bootstrap your company, you want to make sure that you have a proper emergency fund.
- We only hired new employees after a prolonged period when it was urgently clear that we needed to hire that position.
Utilizing the above methods, we were able to outlast many competitors in our space and continue to slowly, but surely grow our business.
Competitors who raised money, simply fizzled out and died.
Our $15 million revenue business did not happen overnight.
It took nearly 8 years to reach that mark. But bootstrapping afforded us the opportunity to take the time to reach this milestone.
Would we have liked to grow faster at times? Sure. But, not having to answer to investors was key to our success.
Many of our competitors who raised VC or Angel money, could not turn a profit quick enough to stay the course.
Being profitable allows you degrees of freedom you don’t have when you rely upon other people’s money.
Mark Suster – Both Sides of the Table
The many companies in our industry that raised money, could not find a way to make a profit fast enough to compete and/or raise additional funds. They went down in flames.
Bootstrapping your business, gives you the flexibility to chose to retire early
Not having any shareholders aside from the founders, is a key factor in deciding the trajectory of your company.
Most VCs are looking to make many small bets, with the hopes that 2 out of 10 hit big and provide all the returns for their portfolio. This is simply how venture capital works.
But even with these odds, the probability of eventual success will be less than 20% because failing to execute on any one component can torpedo the entire company.
HBR – How Venture Capital Works
But by being profitable, YOU have the flexibility to decide how you want to run your organization.
YOU decide, how much money you take off the table.
YOU decide, how much you invest back into the business.
YOU decide if you want to simply sell the entire business.
If we had chosen NOT to sell, but to continue to run our business independently we would have started a phased approach to paying ourselves a share of the profits.
By bootstrapping, you are providing yourself the freedom to make the best decision for your company. You are able to make the best decision as to whether to exit or profit share.
Lastly, when you bootstrap, you can decide when to step away from the business. And, if you decide not to sell, you can hire and train a replacement executive team and continue to earn a profit for your hard work.
Bootstrapping puts you in the driver seat of your early retirement.
Maybe the secret is to never need the need for outside approval.