So You Wanna Bootstrap Your Startup?

I’m a mentor at @ATDC, the tech startup incubator at Georgia Tech. If you’re starting up a business in Georgia, you should check out ATDC. I spoke at a Lunch ‘n’ Learn recently on the topic of “bootstrapping.” In all the hype and press and especially this week in the wake of @AirWatch netting $200 million in Series A funding, it’s important to note that most businesses don’t get funded.

You heard that right: most startups do not get funded. So…what do they do? They bootstrap it. Here’s the talk I gave a few months ago. The talk was 45 minutes, so this is pretty a long read. Maybe set it aside for when you want to go to sleep, then dream of going public.

Bootstrapping your startup: how to make it work if you don’t get – or don’t want – VC funding.  You don’t need VC and you don’t need to borrow money, and you also don’t need that sweet MacBook Pro 15 or a color laser printer.  Here are some tips & tricks for bootstrapping your business to success.

  • Are you currently seeking funding? VC? Angel? Other?
  • Do you want an Angel investor? Can you get Angel money? Have you tried? Where?
  • Can you get VC?  VC typically want 3-run home runs, not bloop singles.
  • Do you want VC? VC will take a LOT of your equity…because they can.
  • If no to both of the above, have you asked friends and family? Very uncomfortable, and will expose your true passion and salesmanship for your business.
  • Did you plan on bootstrapping?
  • Either case, ask yourself, “why?”

If you said ‘no’ to 1, 2, and 3, you can bootstrap it, or you can give up. You used to be able to borrow money to start a business. Good luck with that today, unless you already have lots of money in the bank or you have had previous really good success or already have a successful model, in which case you’ve already passed the bootstrapping stage.

OK, so why do you bootstrap? Because YOU believe in what you’re doing.

What is bootstrapping? It’s one of the options available to every startup. Here are your funding options:

  • Angel / VC equity
  • Borrow money
  • Bootstrap it

Guess what? 99.9% of businesses bootstrap. In other words, that .1% is pretty darn special, and you’re pretty normal. That said, look at any big VC firm’s record, and you’ll see they’ve got about a 10% success rate. That means 10% of the .1% end up “winning.”

Here’s my bootstrapped startup story from way back in 1999: A look back on what I learned.

  • In may of 1999, my co-founder and I “invested” $250 each. Neither of us ever wrote another check. I worked for free for a while, and missed 5 months of pay in 2009, but never had to come out of pocket again. How much do you have to put in?
  • My Dad did our legal work for a little equity. Not knowing what we were doing, we gave him 5%. That worked out for the most part; however, two issues came up that we should have anticipated, but didn’t. First, he was licensed in Massachussetts. Second, he retired! Today,, $500 for a full LLC incorporation package, including our FEIN.
  • I worked for free, moonlighting, for 2 years. At the time, I worked for a Fortune 100 financial services company, and was bored to tears. I did my job, but 9-5 and nothing more. The job didn’t require anything more. My boss said, on more than one occasion, “Kevin, you really need to slow down.” SLOW DOWN?!? I can’t walk any slower, but that’s corporate America for you. The company can only move as fast as its slowest cog. I wasn’t going to be the slowest cog, but I can honestly say my heart was nowhere near that office. Can you moonlight on your current job? Today, we all know that Google encourages employees to spend 20% of their time on something other than their job. Isn’t that a backwards way into the 4-day workweek? It’s working. Does anyone have a count of how many businesses have been created by people who worked at Google, while they were working at Google?
  • We built a retail web site by trading equity to a colleague, who moonlighted from his day job. He was not married at the time, and stated, “I work 60 hours a week. There’s 128 total. What can I do the other 68 hours? Sure, I’ll do it.” Who do you know who wants to build equity in a startup?
  • Since we had no marketing money, we started an email list. We gave subscribers something of value, namely advice on what to buy for your wireless home (remember, this was before the term “Wi-Fi” was coined). Today, there’s still email, but now we have Twitter, Facebook, LinkedIn, Pinterest, etc., etc. So what’s your expertise? People will follow you or subscribe to you if they get value from what you say, or at least from what you post. What I mean by that is that you don’t have to know everything. If you do the research, and compile or aggregate valuable information, that’s a reason for people to come back and read your stuff, or follow your tweets.
  • After about a year of “etail” sales, we sold the retail site for enough to pay one salary for one year, so my co-founder went full time on salary with our startup, making $75k/year.
  • I finally quit my day job in March 2001, and then lived on my savings for 18 months. You have to have a personal financial plan to do this. I also had a very supportive wife (still do!). She knew I was miserable working for a huge company, so when I told her I’d like to sell my stock and take the leap, she said just this: “Go for it.” Booyah!
  • During that 2 years + 18 months that I moonlighted and then worked for free, we built the business, generated income, and bought almost nothing. When you’re starting up and building the business just to keep the lights on, you gotta ask, “what do you NEED to run the business?” Hint: it’s NOT an MBP15 w/retina display. Perhaps a Chromebook today.
  • You must talk to customers. If you build it, they will not come. The assumptions you’ve come up with in the basement with your co-founder(s) are wrong. Maybe one degree wrong, maybe 90 or 180 degrees, but they’re wrong. Find the customer first, then build the business. Today, especially in the software space, you can build ANYTHING, but if you don’t build what customers want, you’ll suck. Find the customer first. Today, they call this “customer discovery”, and you’re supposed to do it before you build the product/service. If only I had known this then…
  • Make some mistakes. They’ll help you later. That’s how you learn. You won’t have to try to accomplish this goal. If you’re in a startup, you’ll naturally be on an emotional roller coaster. That’s normal. If 51% of the decisions you make are right, you are doing really well. If you make a mistake, write it down, learn from it, and move on.
  • I finally got a salary in fall of 2002: $45k/year. Half what I was making 18 months earlier. What the hell was I thinking? Oh, right: be my own boss, work as fast as I want to, control my own destiny and my own income. Yes, that was it. Sometimes you will lose sight of what you set out to do and why you started this very bumpy journey. That’s why, when you start, you write it down, so when you lose sight of it, you can go back and read it and be reminded. Trust me: it’s worth it.
  • In 2003, we gave equity and very small salary to full time sales guy. So we had content, web, sales, and I did everything else: payroll, insurance, benefits, customer service, banking, taxes. What are ALL of your skills? You’re going to need all of them, and then some.
  • By 2005, we had $250k in the bank, all grown organically. Lesson: get tax advice. We got killed because we were stupid. We were an S-corp, and we did not do our November tax homework, and we got killed at tax time. We got killed so much that, even though I had adopted two kids that year, I missed the adoption tax credits because – on paper – I made too much money. It’s called “phantom income”, and you need to know what it is.
  • Then we got cocky. Did you get that? We got cocky right after we were stupid. We borrowed $250k to “grow the business” in 2008, which was our biggest, most profitable year ever, despite the shakedown occurring in the US economy. Then, in 2009, we lost 3 of 4 principals, laid off everyone else, and had to do a total turnaround. To support that debt that was now all mine, I mortgaged my house. We were back down to just 4 people. Now, I do not borrow money, period. That would be my recommendation if you were to ask me, or Dave Ramsey.
  • Then, whaddya know, all of a sudden, it was fun again, despite massive debt hanging over our heads, a 50% revenue decrease from 2008-2009, and now 4 people doing the work of 10. It was fun. We had a clear objective: turn it around. We did just that. We grew 25% in 2010, and in 2011, we were back to where we had been before. We were profitable, and the debt was ever so slowly but surely going away. Ebay helped that effort, too. As the aforementioned Dave Ramsey says, “sell so much stuff the kids think they’re next.” It works. You really don’t need all that crap.
  • It was so fun, someone else noticed, and we were acquired. After 13 years, it all came to an end. Looking back, the acquisition was one of the easier processes we went through.

My bootstrapped startup story today: WOW! Look at what’s changed!

I invested $10k to get things started. It took about 30 days (and no equity) to get me a fully completed LLC incorporation package. Web site hosting, storage, and much functionality is ridiculously cheap. Ecommerce is dirt cheap and very clear. I gave equity to a developer to build the infrastructure. The biggest expense was building the iOS & Android apps. I have used in the past with good results, so I used them again. I used to create our logo and establish our branding colors. Total cost: $400.  An on demand L.A.M.P. environment at AWS is basically free to start. WordPress is free. Total startup costs < $9k. Social networking is free. Always has been, but now your reach is the globe, not your neighborhood.

I applied to pitch the idea at Startup Riot and The Ritz Group (that was just last week!), and continue to speak to local angel investors and crowd funding options.

So, you decide to bootstrap…what you must know

  • It’s YOUR money.  You’ll be wiser with it.
  • You’ll have to take chances, risks, but you’ll be more careful because it’s your money.
  • Know who and what you are: your skills, finances, availability, work ethic, stamina, family situation, etc.
  • Make some mistakes. They’ll help you later. That’s how you learn.
  • Start it. You never know what can happen.
  • Two heads are better than one: if you take VC, you’ll give up a HUGE amount of equity. Take on equity holders for skill sets and give up much less. Remember, 100% of nothing is nothing. 50% of $2M is a million bucks.
  • Grow organically, at a measured pace, because it’s your money, and it’s limited.
  • You have to sell something, otherwise you won’t have any money.
  • When you succeed with your money, you’ll realize you can do it, and you didn’t need VC…and that’s when you can get VC! #irony
  • “The leading cause of failure of startups is death, and death happens when you run out of money.” (Guy Kawasaki) As long as you have money, you’re still in the game.
  • You won’t buy that sweet MBP15, because it’s your money.
  • Function, not form. 5 yr old PC. Plastic chairs. Dump office. Busted pencils. Eventually, when you want – and can get – VC money, they will know that you’ll be frugal with THEIR money.
  • Don’t buy it until you can afford it. “Afford” means pay cash without sacrificing the business or your personal income.
  • Work from home. Rent costs money.
  • Barter.  
  • Create a plan to start. A high level, like 5 points including a budget, plan on what you’re going to do. You may not follow it, but when you divert from it, you’ll know and can adjust. Fail to plan = plan to fail.
  • Don’t hire until you cannot possibly get the work done by yourself or your team.
  • What do you need to conduct business?
  • You must talk to customers. If you build it, they will not come.
  • PR – any media attention can be good, as long as they get your web site correct: Remember
  • It’s ALL about cash flow.  A million dollar order with net 180 payments is worthless to pay next month’s rent.
  • Perfect is the enemy of beta. Get your product/service out there and learn from it.
  • “God invented ecommerce so that you could sell direct and reap greater margins.” (Guy Kawasaki)
  • What you generate income from today may not be, and does not have to be, your primary business. Work towards it.

What do you think about that?

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