There has been a massive increase in the (seed) funding Indian startups are attracting. Given the funding frenzy, does it make sense to bootstrap?
By bootstrapping, I don’t mean one’s inability to raise funding – but a decision to not raise funding and instead run the business on *customer funding*.
As a bootstrapper myself (for the record, NextBigWhat has NEVER raised any external funding till this date), I am often asked on pros and cons of bootstrapping and whether it’s a good way to build a business.
Here is sharing a few perspective that I hope will help you decide.
Bootstrapping : Why It’s Cool [PROS]
You are your own boss.
There is nobody to report to. No boss. No investors. Nobody is asking for weekly updates. Boom !
You are free to take the path you’d like to. It’s your bullet (or car whichever you prefer), your petrol. Drive wherever you want to. Stop wherever you want to.
Helps Stay Focused
Unlike investor focused businesses, you clearly know that your only source of income is customer money, which basically translates to only 1 thing – build a great product/service and do what’er it takes to sell. That is, you have very less distractions to worry about. You aren’t buying into *creative* metrics (GMV et al), but the only goal is customer $$s.
Bootstrapping : Why It’s NOT Cool [CONS]
You are your own boss.
And that’s the hard thing about it. You don’t know when you are slipping / when you need a ‘kick in the butt’. Nobody pings you for any business update (unless you have advisory board). You are a free bird. Fly or die! Nobody cares.
Be it about hiring or sales, your credibility is defined by who is talking about you. Media won’t care because you are not a ‘sexy story’.
Having investors brings a lot of credibility. Everybody starts taking you more seriously, just because you have a few branded backers.
Growth Vs. Revenue Debate. Every Day!
From morning to evening, you will be struggling with growth vs. revenue (rather, profit) debate.
If you look at the current startup ecosystem in India, profit is considered a dirty word.
Being profitable is often equated with ‘lack of scale’.
Everybody is talking growth (and an innovative term called GMV). But for those who are bootstrapping, growth mandates one to infuse more money – which simply mandates more revenue (and better profit margin).
That is, you do not have the liberty to lose sight of revenue and instead, focus on the growth (or play with funny metrics like GMV). This can potentially delay your plans – but that’s all what it is!
In all probability, bootstrapping does mean that your runway is not just shorter, but also you have very little fuel left.
To some, it helps stay focused (there is no money to play around with – so better build a rocket that won’t explode). To some, it brings a lot of fear factor as well (especially when you know that your competitor has raised a massive round and is underpricing to win your customers).
But beyond the pros and cons of bootstrapping, there are some more important perspective that one needs to know.
[A] Nobody Will Bat For You.
If you look at it, investors are trying to add more value to their portfolio by doing a lot more than earlier. They are hiring product / design experts. They are conducting hackathon for their portfolio companies to hire.
They ensure that their portfolio companies are invited to the important networking events etc etc. Similarly, other ecosystem players are going to take the funded ones more seriously than others.
Case in point : If you are a funded startup, it’s super easy to get free credit from well known cloud infra companies as opposed to bootstrapped startups. The argument is simple – funded means validated by others. So others are betting on your ‘grand’ future.
But for you, the bootstrappers – nobody is gonna bat for you. If you become part of a community / club, you have a hope. But otherwise, you won’t be invited to any of the above, which also brings down your chances of meeting others / expanding your network.
To put it in an UnPluggd way : You are NOBODY’s AGENDA.
At max, you will be a part of somebody’s CSR initiative (okay ! let’s call them up) – but never, the core.
Your only hope is your customers and (if lucky) brand evangelists!
What does this translate to? Focus on branding from day one. Grab as many opportunities as you can. Be visible.
[B]For how long should one bootstrap? Is it really cool?
I am often asked this question – so sharing a few perspective.
Product-Market Vs. MARKET-Product Fit.
Sometimes startups are too early for a market. The market/investors aren’t ready for the big push and while one can crib about it, the truth is that you can’t change the situation.
Your product definitely solves a pain, but the truth is that market isn’t really that big.
If you have a sense of market and where is it going (vis-a-vis your vision), plan to bootstrap till you have hit the market – product fit. That is, BIGGER market and better valuation.
Some companies/founder/categories need time to settle in – excess money ruins creativity. And that’s where bootstrapping is useful – helps define the model.
It takes time for some markets to grow and it’s best to bootstrap till the market is ready. In my opinion, Mobikwik and JustUnFollow follow under this category.
[C] Dealing With Investors When Bootstrapping.
Bootstrapping is a decision. A decision that you aren’t going to raise external money – but that doesn’t inhibit investors to reach out to you. Right?
So how do you deal with them? Well, some of the bootstrapped startups have been too rude to investors and while that was an easy path to become a hero (among entrepreneurs), the real shit is this -> When they decided to raise money (after few years), no investor was willing to talk to them.
People do business with people. No matter what your (bootstrapping) philosophy is, always remember that whatever you do will always come back to you. Bootstrapping and revenue gives a great kick, but not a license to kick everybody around.
Last but not the least, is it okay to raise growth capital after having bootstrapped?
Well, anything for growth and vision ! [read : So you have bootsrapped – why not shoot for the sky?)
Sujayath, founder of Voonik shares a very interesting perspective which sums up my belief as well.
@cnha Few make the mistake of building unsustainable businesses just because they can be bootstrapped and be profitable for first few years.
— Sujayath Ali (@sujayath) July 28, 2015
After a certain point, you have to grow and move to the next level. Whether you need a massive sales team (to drive revenue, i.e. more money for growth) or you need external cash should totally be a function of your vision instead of idiosyncrasies around bootstrapping as a philosophy.
You are here to win and not to prove a point.
As a bootstrapper myself, all I can tell you is that bootstrapping is f**king hard, but it’s fun! It makes you a better entrepreneur and a patient human being.
[Image credit: shutterstock]