I’ve been running ContractIQ as a bootstrapped company and it will soon be four years into that journey.
For most parts, I have been a student and practitioner of the ‘art of bootstrapping’ a cash-flow positive, healthy EBITDA company that has a long runway. We are growing and if we chip harder and harder at it, that magic year is not too far off where the undiluted outcome is equal to or better than a diluted outcome for a funded company’s founder.
That is the premise and one of the promises of the bootstrapping world — retain your freedom, execute the way you think is right and grow at a measured pace, build a healthy & real business. You’ll see the double rainbow one day.
It’s true. I believe in it too.
But (here comes the ‘but bomb’), there are some untold and darker sides to bootstrapping that can kill your company. Let’s talk about them, because it’s important.
When you don’t raise money, your story is completely self-made. That’s only good if you have the smarts and discipline. Herein lie the problems:
You owe an answer to nobody
When you don’t have to answer to anybody, your confirmation bias can take you down to dark alleys with dead ends. You do something because you think you are right. When you don’t have to answer or defend, every realization comes after execution and not through borrowed wisdom.
You are not in a hurry
There is no exit window because there is no investor. There is no peer cohort because you are not a part of a portfolio. You peer cohort is other bootstrapped startups about whom you may or may not know much. Worst yet, there could be confirmation bias there as well, as each one of you would be treading down the same path at the same pace.
You think you can execute in a vacuum
Some markets give you the luxury of being one among five players and yet be successful. Some don’t. Certain marketplaces like hyperlocal or transportation don’t allow you to pace growth — you own the place or you don’t. Bootstrapping to profitability does not mean much in such cases.
You are in a hurry
While your business execution happens without much hurry, your personal finance is hurriedly looking for options. The worst thing that can happen in a funding conversation with your existing investor is the realization that they may not participate in the next round. It may be the end of the story and that’s ok.
While your business execution happens without much hurry, your personal finance is hurriedly looking for options.
The worst thing in a personal finance conversation with your spouse is that it does not have a logical closure or has a closure that affects you profoundly.
Your ideas and your cash flows don’t synchronize
While you can be proud about running a real business, if you are bootstrapped you’ve to give yourself a one year run-way. That’s money not spent on aggressive bets. Worst yet, that’s the money that does not earn you interest and yet goes away as tax, when you are not paying salary for yourself.
Not having enough war chest to go after big bets to consolidate or grow your share of the market is like strapping your sports car to a tow vehicle because you’ve to go conservative on the gas.
There is, however, some truth to the notion that if you bootstrap, you’ve many possible outcomes and most of them will be gratifying. Only that, you’d need to chisel out those outcomes while fighting the trepidation monsters all the way and there is a very real chance that one of them might overpower you.
Like Ben Horowitz says in ‘Hard things about hard things’:
“Startup CEOs should not play the odds. When you are building a company, you must believe there is an answer and you cannot pay attention to your odds of finding it. You just have to find it. It matters not whether your chances are nine in ten or one in a thousand; your task is the same.”
When you are funded, there is a math that dictates the outcome for everyone involved. So that gets talked about a lot. When you are not funded, that math does not exist. But for every variable that dictates the math for the funded company, there is an equivalent variable or monster that dictates the outcome, when you are bootstrapping a startup.
Both fight some monsters. One path isn’t more certain than the other. It would be a disservice to say that bootstrapping is a surer path to a reasonable outcome, and that’s what is being said again and again.
It is not.
This article was first published on Medium.
This post The hard things about bootstrapping a startup appeared first on Tech in Asia.
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