fm Harvard Biz Review 02 Mar 16 enhanced by Peter/CXO Wiz4biz
Easy Money for Funding $?$. As the past few years have shown, raising money for a startup seems easier. But building a profitable, sustainable business is still really hard. Public & private markets alike, are starting to remember this, correcting for years of overly exuberant startup funding. As financing dries up, entrepreneurs would do well to remember the benefits of Boot-Strapping.
BS Advantages (the other BS) LoL. Though taking money from investors might seem like the path to success, Boot-Strapping has several advantages.
1) it helps you to stay scrappy and to realize talents you may not know you even had.
2) counter-intuitively, it can help attract the right talent.
3) it helps you maintain control of your company while finding the right partners to help you scale.
Accelerate or Crash. When you Boot-Strap, you are forced to get good fast. As humans, we prefer to put in only as much effort as we need to, but whether we recognize it or not, we all have extra energy. Sometimes it’s not until things get really tough that we find the energy from our passion, that allows us to shift into overdrive — that is what Boot-Strapping does for you. Admittedly, it is hard, but it forces you to get creative with your strategy and come up with solutions you would never have thought of.
Trade No-Show, Yes/No ??? In 2004, I attended my first trade show. I had borrowed a trade show booth and bartered with the event organizers, to give me the booth space for free. Once I arrived, I quickly realized I had nothing to hand out and my Kinko’s signs weren’t appealing enough for people to even stop & chat.
Satisfying their Thirst. Other companies had spent tens of thousands of dollars on their spaces; I was the odd man out. But it was hot and everyone was thirsty, so I got creative and bought 100 Vitamin Waters at a nearby CVS. Back on the show floor, I offered them to people in exchange for watching a demo. I ended up making two more trips to CVS and giving away more than 300 Vitamin Waters.
Learning to Improvise like that, is essential to startup success, and it’s hard to learn – unless it’s forced upon you. Boot-Strapping does just that.
BS also helps attract Talent. If you’re Boot-Strapping, you probably don’t have enough cash or cachet to attract high-profile talent. Early on, Boot-Strapping companies aren’t able to hire candidates with tons of experience. Instead, they attract people who are willing to bet on themselves — and on your vision.
Bet on Yourself. What does it mean to ask people to bet on themselves? It means they are crazy enough to turn down a $60,000 salary to work for $8,000 a year in someone’s garage, because they believe they can turn an idea into a million-dollar business. The result is a culture able to solve problems with fewer resources, which creates a huge competitive advantage.
You’re in Control (or better be). Boot-Strapping means greater control over both your business & your partners. I became an entrepreneur, because I wanted to write my own story. But securing funding while still a budding business, naturally limits a company’s options down the road. Instead of being able to develop, evolve, & grow into an enduring, profitable business, the company can have a tendency to focus on pleasing & appeasing the funders, This – all too often – creates a short-term focus or pressure to realize an early exit.
Funded isn’t as much fun. After Boot-Strapping for a decade, my company, Qualtrics, did raise capital. It has raised nearly a quarter-billion dollars over the past few years. Today, people congratulate us on our success in fund-raising, but as entrepreneurs, that’s not what we’re most proud of. We started with the goal of building something great that would change the world and last for a long time. This is why it has never made sense to me to congratulate people on accepting funding — that is the easy way out – lacking the challenge & forced creativity of Boot-Strapping.
Conclusion. We live in a world of instant gratification. But in the entrepreneurial community, we need to remember to hold out, to take the time to build the business into something actually worth VC funding. Then, when funding comes, you will be able to use the investment to scale quickly, not to figure out what you are trying to do. At that point, you can raise money from funders who function as true partners. Above all, you will still control your own destiny.
Comments: Share your experiences in Boot-Strapping & its advantages.