In my 10+ years of running Internet companies, I've never raised a single dime, yet I've still gone on to sell three profitable companies and am currently on my fourth, Carbonmade. Bootstrapping is something I'm very familiar with, so I've gathered together some thoughts that should provide you a step-by-step process of going from idea to product to profitability. I have nothing against raising money — angel or venture capital — it's just not the process I'm most familiar with. How to bootstrap goes hand-in-hand with how to run a lean startup, so expect some crossover below.
How to Bootstrap:
Step n°1 |
Idea generating is only slightly different when you're bootstrapping than when you're looking to raise money. The only important difference is: if you're planning to bootstrap your idea must have built-in revenue generating functionality from the get go. Building Twitter is off the table. You can't wait to hit scale before turning on the revenue features. That's why ideas around Software as a Service (SaaS) are so effective for bootstrapped companies, because you only need one customer to reach revenue — and, with inexpensive hosting costs, probably only a dozen or two to reach profitability.
Bootstrapped companies can't afford to wait around to reach a network effect. You need to start generating dollars as early as possible so that you can quit your day job or put a stop to the draining of your bank account as soon as possible. Bootstrapping startups don't have the luxury to wait around. So when generating an idea for your startup, toss out everything that doesn't involve charging a fee for at least some of your clients. Leave the ad revenue and crazy business model revenue streams to the startups with venture funding. That's just not your game to play.
Step n°2 |
You can either come up with the idea first or the team first. I think it's fine to do it in either order, but it's probably best to come up with the idea before the team. Then you can build a team around the idea. When bootstrapping, you need to find a team that's willing to work for nothing and spend their off hours with you, so finding these types of people can take some searching. You're far more limited in your choices.
The worst thing you can do is work with people who can't comprehend the idea of bootstrapping. You need to work with people who understand that their nights and weekends are going to be fully dedicated to building a product. They'll be working two jobs, not one. You need to explain to everyone you depend on how a bootstrapped company works: Revenue generation is slow at first, though steady, and it could take a year or more of hard work before they can quit their other job and work full-time on the company. But the advantage here is that after a few months off the ground you'll have a clear sense of how soon that day can come. Another advantage of a bootstrapped company on the SaaS model is that it's really easy to calculate your cash flow.
It goes without saying that the people you work with should have complementary skills to your own, but the bootstrapper's "slow but steady" mindset is just as important to the health of your company. You'll find a lot of people may not be comfortable with this approach. Weed those people out as co-founders when you're bootstrapping a company. A one and done approach won't work here.
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