There are two kinds of ways to launch a startup. There is the venture capital hustle, and then there is bootstrapping. To bootstrap is to get off the ground without seeking external funding. Instead, bootstrappers fund their ventures out of pocket and reinvest all cash flow until profits are stabilized. Bootstrapping, of course, is difficult to pull off. However, Vator Splash Oakland speakers Gleb Budman, Drew Curtis and Gary Tsifrin made the case that the sacrifices can be worth the autonomy allowed by self-funding.
“I don’t think raising venture is a metric of success,” said Gary Tsifrin, who is responsible, along with his DriversEd.com business partner, for getting driver’s education online by bootstrapping (at least initially), “I think raising venture is a means to an end.”
The other panelists agreed that too often startups devote months or even years to pitching an untested product to funders when they should have been pitching to customers and reiterating the product until it’s credible.
Gleb Budman, founder of three successful companies including Backblaze, shared this sentiment. Funders aren’t fortune tellers, he explained, and funding doesn’t make a flawed product work.
Funding often tempts startups into taking on needless expenses and loans.
“I’m very, very cautious about hiring people,” said Drew Curtis, founder of the humorous news aggregating website Fark.com, “I let contractors hire themselves but I’m wary of committing to sustaining a whole position until I’m positive it can pay for itself.”
Of course, not everyone has the luxury to bootstrap. Only those with $50-100,000 in savings (or wealthy family members), the ability to defer compensation for a year and really good credit can afford to launch independently of investors.
However, startups that choose to bootstrap often do so because they don’t want profit to be the primary directive of their venture. Sole ownership allows founders to prioritize things like style, quality of life, and integrity of vision over their bottom line because they are not beholden to funders.
“If ‘lifestyle’ businesses have a negative connotation, it’s because investors don’t like them. Investors don’t like them because they know they’re not serious about profit above all,” said Curtis, “to me lifestyle is the most important thing.”
The panelists’ advice for young bootstrappers?
Tsifrin advised those with business partners to agree on a vision for their venture that parses out the tough financial decisions ahead of time. “Have the conversation about money and value and ownership before there is any,” he said, otherwise differences in opinion won’t surface until it’s too late.
Curtis encouraged entrepreneurs to retain a 20% financial buffer at all times to avoid unexpected shocks to the system. “That buffer has saved my ass four times in the last fifteen years.”
All the panelists shared horror stories about freak calamities that threatened the existence of their vulnerable fledgling ventures. “You can’t be prepared for everything. For example, we didn’t know we had to be prepared for flooding in Thailand,” said Budman referring to a natural disaster that wiped out their hardware supplier.
Photo courtesy of Hasain Rasheed