Pulling up your start-up by its bootstraps
Recently, prominent VC blogger Mark Suster was asked who his favourite bootstrapping companies were.
He replied that a Series A fundraise by Foursquare of $1.35million was "pretty bootstrappy".
Maybe raising a small round is considered "bootstrappy" in LA, but for most mere mortals, bootstrapping is when you build your business without raising external capital, relying instead on internal cashflow.
Bootstrapping doesn't prevent you from raising funds in the future, but it is certainly how the vast majority of web start-ups get going.
We have bootstrapped our online event registration start-up for more than two years. Eventarc has been funded through excess capital from our web consulting business, and we have spent over $250,000 to date.
Building a start-up at the same time as running a consulting business is hard. As Paul Graham, inventor of Viaweb, an application that was bought by Yahoo! says, “You trade decreased financial risk for increased risk that your company won't succeed as a start-up.”
Clients from consulting are the ones that pay the bills, so we always found ourselves having to drop Eventarc in order to keep the lights on.
Was our experience any different to what others are facing every day? We asked four other Australian start-up founders about their experience with bootstrapping and how it has impacted their business.
Tribalytic is a market research tool that can be used to analyse Australian Twitter data.
"We have been self-funded from the start", says co-founder Tim Bull. "Recently we've needed to take contract work to extend our runway, but we've been fussy and always tried to make sure that the work and clients align with our values."
Bull has used savings to get started and cover living expenses. Taking such a big financial leap away from well-paid corporate careers is not for everyone however.
"We were fortunate in that we've had savings to get started and cover living expenses. It's a definite advantage of starting later in life,” says Bull.
"The biggest issue is that bootstrapping means you need a particular type of business. You can't go into a capital intensive business by bootstrapping.
“If I had one piece of advice for others looking to bootstrap, it would be to supplement your income with contracting work earlier. You can afford to be fussier, and it always takes longer to negotiate than you'd expect".
Didier Elzinga has bootstrapped CultureAmp for the last year, building a functioning prototype and gaining customer traction before raising external capital.
CultureAmp is building a lightweight, integrated solution to help fast growing companies manage their culture through performance reviews and coaching.
According to Elzinga, running a start-up without external capital helps to determine if you are really cut out for the life of a bootstrapped entrepreneur.
"Bootstrapping helps you understand if you really want to do a start-up. I think it helps to bleed a bit for an idea", says Elzinga.
"You have your house on the line and you haven't slept more than five or six hours in a night for the last six months. You're forcing yourself to learn in two weeks what other people have spent years learning, and yet you still get up for more.”
“Do that, and you have earned the right to go and follow your dream."
It is possible to bootstrap a business while still holding down a full-time job, and that is exactly what Mark Mansour from Agile Bench has done.
Agile Bench provides an online project management system for agile development teams.
"We are self-funded, with all team members at Agile Bench working other jobs. We seeded the company with some cash and our time, using revenue from our customers and the occasional cash injection to keep us going," says Mansour.
"Being bootstrapped helps you prioritise what needs to be done first. Having multiple masters (jobs) is demanding, but we know that everyone involved is dedicated to seeing Agile Bench become the best online project management tool."
Even though building a start-up while working full-time elsewhere is demanding, Mansour remains positive it can be a good solution for the right individual.
"(Business author) Dan Pink talks about the things that motivate us – autonomy, mastery and purpose,” he says.
“When you have your own business you definitely have autonomy, you should have purpose, and you are going to need to master lots of things too. It is the perfect vehicle for a motivated individual. Just start. You'll work out the rest as you go".
Tom Howard and Fenn Bailey are probably best known for successfully applying to Silicon Valley start-up fund Ycombinator, but they were bootstrappers in the early years.
"I'm glad we never took funding in those first few years. We really didn't know what we were doing, and as it was we got ourselves in enough trouble with unkempt books and horribly overdue taxes; it would've been a whole lot worse had we been given a stack of someone else's money to blow," says co-founder Howard.
Adioso is a natural language search engine for flights, and bootstrapping for the first 12 months helped to clarify the idea.
"In the first 12 months when we were self-funded, we treated it as an experimental side-project. We were both working other contracting roles at the time, and at that stage we weren't convinced it was a strong enough idea to commit ourselves to," says Howard.
Howard is a big fan of bootstrapping in the early days of a start-up.
"I strongly recommend starting out self-funded while you're learning the ropes of start-up life,” he advises.
“Equally, I'd warn against bootstrapping elitism. Many tech start-ups can take a long time to attract revenue, but ultimately become great businesses, so if your start-up is of the kind that needs to take external funding to reach its potential, you shouldn't see that as a sign of failure”.
Scott Handsaker is a co-founder of Eventarc, an investment backed start-up focused on online event registration and ticketing.