“Always think outside the box and embrace opportunities that appear, what-ever they might be, that you see.” Peter/CXO Wiz4.biz
Topics to become Successful Entrepreneurs: Idea > $$$, $$$-Efficient” Product, Old > New = $$$, Scratch, Green, Sell, Marketing, Community, Boring, Later, Un-Fundable,
There’s a widespread belief among Founders that Venture Capital is a necessary for success. It is true that VC $$$ is a common denominator of the most successful Tech startups, but it isn’t a pre-requisite – especially at the early stages. Entrepreneurs can prove their Idea with little to no capital. $$$ doesn’t make funded Founders any more insightful than their BootStrapped brethren. If someone can’t creatively turn $1 into $10, Why would you expect them to be able to turn $1M into $10M?
Examples: To help illustrate how companies can get started without a Seed round, we’ve collected over 50 examples of businesses that started with a few thousand dollars, or even just “sweat equity” and went on to become role-models of “efficient entrepreneurs.” Many of these companies have subsequently earned $B valuations, some even have billions of dollars in revenue, but none started with anything greater than what would be considered a seed. Most had far less. A large percentage of these startups raised money from VCs, but only after they had established the fact that their success would come w/ w/out an investor. Even now, many of them aren’t widely known. They are the invisible Unicorns of the tech industry.
So before scrambling to schedule meetings with Investors, read these stories. They provide a counter-balance to the VC-centric outlook held by many Founders and provide alternative ways to think about funding. Taking VC should be a choice, not a compulsion. These companies show the power of a counter-cultural approach to Funding.
A. Figure Something Out, then Ask for Money
You don’t need a VC to get started if you can solve a real problem for customers and charge money for it. Here are three ways to think about this:
Automate your Workflow
The easiest way to build a useful product is to automate some part of your daily Work-flow – which ensures you’ve got proven demand for your product and a pre-existing funding source.
MailChimp: In the year 2000, co-founder/CEO was running a Design Consulting business and had a stream of clients who wanted Email Newsletters created. The only problem was that he hated designing them. So, to spare his team the tedium, he decided to build a tool that would streamline the process – MailChimp now a $400M business, was born.
B. Start with a “Capital-Efficient” Product
Instead of trying to compete with a company like Apple, these scrappy startups filled the gap left by RadioShack and built multi-million dollar businesses worthy of emulation.
AdaFruit Industries: the Founder started her DIY electronics eCommerce empire as a student at MIT by assembling DIY kits comprised of off-the-shelf parts. She not only merchandised the same building blocks found at electronics stores. but also crafted quirky content that made the prospect of soldering a replica Space Invaders cabinet seem reasonable. Now, she has 85 employees and earns $33M/ year.
SparkFun: Similar to AdaFruit, the Founder started Sparkfun from his dorm room by selling electronics kits & oddball components to engineers who wanted to explore exotic new sensors & systems. Now, his eCommerce empire employs 150+ and has revenues of $32M/ year.
C. Old Problem + Existing Business Model + New Tech = $$$
Solving an old problem with a new technology or UX layer can be enough to build a multi-billion dollar business.
Shopify: It’s Founders were searching for a Shopping Cart solution when they were setting up an eCommerce site for snowboarders. Unable to find one, they decided to scratch their own itch and built a solution on the then red-hot Ruby-on-Rails framework. It turned out to be a perfect solution for plenty more people, and the Founders ran the business independently for 6 years on the revenue they generated. They ultimately raised money from VCs and later IPO’d, which rewarded them with a $14B valuation.
D. Scratch your own Itch
Many entrepreneurs who waste their time “playing CEO,” crafting a strategy and drawing up a dream Org chart for what their business might become. The best Founders avoid daydreams and focus on “What can be done”, using only the resources at their disposal.
Quizlet: While not the biggest business on this list by any stretch, Quizlet is notable in that it was founded by a precocious 15-year-old who wanted to ace his French final. By the time Quizlet raised a Series A in 2012, it had a 22-year-old CEO, 40M users and was a top 50 website in the US.
ShutterStock: Founder was a professional SW developer and an amateur photographer. He combined this set of skills by using 30,000 photos from his personal photo library to start a stock photo service that is currently worth $2B. His capital efficiency paid off and ultimately turned him into a truly self-made $B.
SimpliSafe: People scoff at the idea of trying to bootstrap a hardware business, but SimpliSafe’s Founder did it. He raised a small amount of money from friends & family, then spent 8 years building a self-install security business – literally soldering the first prototypes himself to save money. Eight years later, the business has hundreds of thousands of customers, hundreds of $M in revenue, and $57M in VC from Sequoia funders.
Skyscanner: started as a Spreadsheet to help its Founder find the best flight prices and has since become Edinburgh’s leading tech company with 500+ employees. The company got off the ground under its own power in 2001, raised $6M in 2007, & $192M in 2016 – 15 years after launching.
E. Everyone’s Money is Green
Funding doesn’t always come millions of dollars at a time. Founders can scrape together money from Grants, Incubators & Angels or even pre-sales. The savviest entrepreneurs design their business model so that they collect before they deliver their product, turning customers into a source of growth capital.
Wirecutter: Who says Blogging doesn’t pay? Founded by a former Gizmodo editor, it promised more thorough & fair-minded reviews, paired that with Amazon affiliate feed, and the self-funded startup was ultimately rewarded with a $30M exit.
F. Sell! Sell! Sell!
The best source of capital is often a customer and selling has two benefits. First, you make the cash flow immediately. Second, You quickly learn what resonates with customers and can use those insights to refine your offering.
Klaviyo: The co-Founders agreed to postpone their first hire until they had a $1M. Thanks to keen product design & a tireless sales effort, the emerging Email marketing platform quickly blew past that number, but held off on raising capital for three years.
RXBar: When one of the entrepreneurs behind RXBar shared his ambitious Biz plan with his father, he told his son to stop theorizing and start pounding the pavement, “You need to shut up and sell 1,000 bars.” That advice, plus $10K in savings, proved to be worth $600M as Kellogg’s ended up gobbling up the startup.
Spanx: Shark Tank judge Sara Blakely is the most famous founder on this list, having turned a $5,000 investment into an Oprah-approved garment that generates $400M in revenue annually. Her fashion sense earned her a following, but her keen appreciation of the principles of capital efficiency earned Blakely a $B status.
G. Be Miserly with Marketing
Startup marketers might not want to waste time with un-measurable brand marketing. Efficient entrepreneurs need campaigns to be additive, immediately.
Cards Against Humanity: With just $15,700 in funding from Kickstarter, the Cards Against Humanity Team built a business that grossed over $12M in its first year. They’ve also sustained their brand with a series of canny marketing stunts, selling cow poop, cutting up a Picasso, digging a big hole representing the ennui of a post-Trump America, then selling Trump “bug out” bags, and simply asking for money. These promotions aren’t cheap to run, but they make enough money to defray costs while earning a disproportionate amount of free media.
GoFundMe: Viral marketing is dismissed, rightfully, when it is tacked on to a business model, but it can be a powerful driver when properly integrated into a product. Paired with hyper-efficient Conversion Rate Optimization, it can be unbeatable. The Founders of GoFundMe were able to use these twin forces to bootstrap a business to the point where it was valued at ~$600M.
H. Build a Community
Technology is important & business models matter, but assembling a group of passionate users can create a Evangelists that is more powerful than either.
37 Signals/Basecamp: this Project Management SW doesn’t disclose revenue, but the Founder has said the company generates “tens of millions of annual profits.” They were also one of the earliest voices championing capital efficiency and their “Bootstrapped, Profitable, & Proud” series is a must-read for anyone looking for tips on how to spend every dollar wisely.
Craigslist: parlayed an early launch in the first dot-com boom into a durable long-term advantage. Despite having only 40 employees and not substantially updating the site for decades, Craigslist is the #17 most visited site in the US and is reported to generate hundreds of millions in profits.
Mojang: The masons behind Minecraft never raised any VC, employed just 50 people, & earned nearly a $1B in profit before selling to Microsoft. The Swedish studio never got sucked into fads like Zynga-inspired social spamming & predatory micro-transactions. It grew by charging users a flat fee, resulting in a $2.5B acquisition.
Plenty of Fish: The dating site was founded in 2003 and didn’t change functionality or aesthetics much over the following decade. Plenty of Fish’s biggest asset was its reputation as a well-stocked pond. Ultimately, the company ended up selling for $575M.
I. Fortune favors the “Boring”
Boring isn’t a value judgment. Many of the most impressive, successful companies that managed to grow without capital, thrived by solving acute – if somewhat dull – problems and getting paid handsomely from the start.
Datto: Founded in 2007 by running up $80K in credit card debt, this Data Storage startup company is now valued at over a $B.
eClinicalWorks was founded in 1999 when the mantra was “get big fast,” and many of its contemporaries crashed and burned. By focusing on excelling at the dull, yet profitable work of managing clinical data, the company survived and now employs over 4,000 workers and generates $320M in annual revenue.
Grasshopper is a Phone Networking company that had 150,000 customers, over $30M in annual revenue, but no VC on the books, and was eventually acquired by Citrix.
InsideSales.com: Started in 2004 with a $10,000 investment, the AI service provider to internal Sales has grown to 570 FTEs. It waited eight years to raise its first $4M in 2012 and has raised over a quarter $B to date.
JetBrains: A Prague-based developer of the leading JAVA IDE and the Kotlin programming language has grown a list of 230,000 paying customers, signed up 431 of the Fortune 500, and employs 691 people – all without the benefit of VC.
Qualtrics started as a tool to administer surveys for schools and businesses in a basement in Utah and now employs 1,000 and rakes in $100M a year in profit.
Protolabs does for plastic injection molding what Vistaprint does for business cards and is currently worth $1.2B.
SurveyMonkey was founded in the dot-com bubble of the 90s, and though it wasn’t as disruptive as peers like Kosmo, it was more durable. It survived the dot-com crash and steadily grew into a nine-figure run rate, only raising $100 million 11 years after getting started.
Wistia: Usually, corporate Training videos are famously lifeless, the only thing that could be more boring is a startup dedicated to hosting them. Despite a dull as dishwater market, Wistia has managed to build an 80 person team that serves 300,000 customers including Starbucks, Cirque Du Soleil, & Casper (the friendly Ghost) empire.
Zoho: 4,000 FTEs. 18M customers. $300M+ in revenue. Not bad for a bootstrapped startup taking on Oracle & Salesforce!
J. You can always raise Capital later
Putting off raising capital pays off in mind-blowing ways.
Nerdwallet: The personal Finance service that promises to help young people save money, lived on a tight budget from the time it was founded in 2009 until it a raised $64M series A in 2015. The company earned a $500M valuation based on $100M+ in annual revenue.
Zip Recruiter: “We started out with humble ambitions, to bootstrap a lifestyle business,” said the Co-founder in an interview with Forbes. Those ambitions were met, superseded, and as the recruiting platform continued to grow the Founders decided to raise a $63M series A to tackle more ambitious plans.
K. Blessed are the Un-Fundable
A benefit of starting a business outside of a Startup Hub is that there isn’t much VC available. This may sound like a curse, but It can be a blessing in disguise. Unable to daydream about deploying capital, Entrepreneurs are forced to make their paying customers happy – which brings in more business.
AppLovin: It is shockingly common to hear Founders talk about how they couldn’t sell Investors on an idea that went on to become a $B business. Before selling his company for $1.4B.
Atlassian: based in Australia, bootstrapped its way to a $13B market cap, but if it had easier access to funding, the team might have chased low-quality growth and gone under -before they figured out how to scale efficiently.
Campaign Monitor: When a company’s first round of funding looks more like proceeds from an IPO, you know you’re dealing with Gr8 entrepreneurs. This is the case for Campaign Monitor, a Sydney-based startup who offers superior Email analytics to companies like Disney, Coca-Cola, & Buzzfeed – whose first round of funding amounted to $250M.
L. Scratching the Surface
What’s astonishing is that these 50+ stories represent just a small sample of capital efficient companies. More companies fit this mold that we don’t spend as much time on, because of their age or idiosyncrasy.
Autodesk, the leader in CAD technology, is currently worth $25B and was started with just $60K back in 1982.
Epic was founded in 1979; the Wisc-based electronic Medical records provider is one of the most significant bootstrapped SW company operating today.
Microsoft might be the most impressive bootstrapped startup of all time and has been well studied elsewhere.
Conclusion: Where you draw the line? Harvest has been profitable for over a decade with 50 employees, TextNow turned a little over a $M into a 75 employee company. If we included every company that fits this Rubric Cube, the number of profiles would surely be in the hundreds, perhaps thousands!
M. Don’t Design your Business around VC $$$
Startups used to figure stuff out and then ask for money. Today, they ask for money to figure things out. Outside of drug discovery or aeronautical hardware, this is usually the wrong decision. Making progress without resources is the best way to pique a VCs interest.
This article isn’t meant to promote BootStrapping & $VC has powered nearly every major tech company from Apple to Zappos. Just remember that you don’t need a penny to get started. You don’t need permission from Funders to start & scale a business. So the next time a VC tells you they “pass,” remember these three principles:
- It’s possible to get a tech-enabled business off the ground with no capital.
- It’s feasible to scale a tech business rapidly with very little capital.
- It’s often in the founder’s best interest to limit the amount of capital they take.
Comments: If you know of other companies that self-funded their way to an extraordinary outcome, please let us know.
fm Hacker@Noon 3/20 enhanced by Peter/CXO Wiz4.biz