Bootstrap Best Practices
Funding your startup can be challenging, but bootstrapping offers benefits that you may not realize.
The fantasy of every would-be startup entrepreneur is to get a deep-pocketed investor on your side and build your dream company, free of financial constraints. The reality, though, is that not every business that reaches success gets to the top using this method. And furthermore, there are even some hidden downsides in pursuing this path…
What is bootstrapping?
One alternative to the investor route is known as “bootstrapping,” which essentially means building a company without outside help and setting out a “strategic roadmap for achieving sustainability through customer funding (i.e. charging customers)”. It’s worth noting that most companies outside of the tech world are usually bootstrapped. In other words, you wouldn’t start a company if you didn’t think, at some point quite soon, it could be profitable without another investment round. But in the strange Silicon Valley ecosystem, it’s become somewhat normal to build popular but financially unsustainable companies that essentially rely on more money from investors. You don’t have to look far to see companies that have suffered from this strategy, like the social media giant Twitter. It has never come up with a convincing revenue model despite its household name status.
As the Harvard Business Review points out, there are numerous benefits to bootstrapping: “First, it helps you to stay scrappy and to realize talents you may not know you even had. Second, and counterintuitively, it can help attract the right talent. And, finally, it helps you maintain control of your company while finding the right partners to help you scale.” In other words, bootstrapping means you will focus on company-building rather than fundraising—and there’s every chance your finished product will be the better for it.
So if you’re convinced that bootstrapping is the way forward for your company, you may be wondering what best practice is. Here is some advice from the experts:
Ask your employees to bet on themselves.
It’s true that one of the main downsides of bootstrapping is that you can’t offer the employee perks and salaries that an investor-backed company can. However, what that often means is that you find employees who really believe in your mission. When hiring for a bootstrapped company, be honest about what you offer—don’t try to compete with a high salary. As Ryan Smith, the co-founder of Qualtrics, wrote in HBR: “What does it mean to ask people to bet on themselves? It means they are crazy enough to turn down a $60,000 salary to work for $8,000 a year in someone’s basement because they believe they can turn an idea into a billion-dollar business. The result is a culture able to solve problems with fewer resources, which creates a huge competitive advantage.”
Don’t rule out funding, but make it “right action, right time” funding.
Getting initial investor funding is often a kind of shortcut to what bootstrappers do: self-funding the founding phase via sources like savings, “sweat equity,” or credit cards. Once you’ve done this and built a financially viable company with customer-based revenue streams, you may see the potential to scale quickly by taking outside funding. Don’t rule out this possibility just because you want to maintain your reputation as a bootstrapper. As the LeanStack blog put it, “[don’t] limit the definition of bootstrapping to the more commonly held one about building a company without external funding but rather [view] bootstrapping as a philosophy summarized as “Right Action, Right Time”.
Your customers must become evangelists.
If you want to grow as a bootstrapped company, you have to garner and retain customers that are going to help you do that. They are, after all, your revenue stream. So, make sure you achieve this goal by thinking beyond customer service. It’s not enough to tackle problems as they arise, you have to think holistically about what’s going to impress your customers. As the CEO of bootstrapped Kayako told TechCrunch, “companies are still in a situation where they use tickets, as a means of just solving that problem, rather than going beyond tickets and thinking about the entire customer experience. And thinking about what is next, after that problem, to make sure not only customers are satisfied but that you turn them into advocates and promoters.”