A Defining Time for Bootstrapping and Survival—Lessons From Business Leaders and Baron Munchausen

5/29/09Follow @bvbigelow

When the CEO of Carlsbad, CA-based MaxLinear cited a 1785 translation of “The Surprising Adventures of Baron Munchausen” for the term “bootstrapping,” it’s safe to say nobody in the audience knew where the discussion was headed. But MaxLinear’s Kishore Seendripu was making a point during a panel discussion on “bootstrapping a business” that was hosted yesterday morning by the San Diego Venture Group: bootstrapping can mean different things to different people.

To Seendripu, bootstrapping means “a self-sustaining process that proceeds without external help.” He explained that nobody was funding fabless integrated circuit startups in 2003, when Seendripu and seven other veterans of the semiconductor industry started MaxLinear. So the co-founders bootstrapped their business by generating revenue from consulting projects. Seendripu even provided some RF consulting for the company’s first landlord.

Fellow panelist Kenneth Potashner agreed, saying, “I’ve seen companies that confuse bootstrapping with cutting costs.”

With a clear understanding of what they were talking about, the panel’s discussion moved to some good anecdotes and creative suggestions for surviving through hard times. Aside from Seendripu, the panel was comprised of Potashner, chairman of the Newport Corp., an Irvine, CA, maker of laboratory fixtures, and Nicholas Cavarocchi, founder and partner of Cavarocchi-Ruscio-Dennis Associates, a Washington, D.C. lobbying firm. The moderator was Ted Alexander, a managing partner at San Diego’s Mission Ventures.

Here are some highlights I gleaned from their discussion:

—Federal funding. The economic stimulus package has allocated $50 billion to fund innovations in science, energy, and healthcare, but Cavarocchi says funding agencies lack knowledge about startups. So don’t wait for the regular research funding announcements from the National Institutes of Health and National Science Foundation that appear in April, August, and December. “They’re saying they would really rather have people come in and talk to them about what they’re doing and what they need money for,” Cavarocchi says.

—Leverage existing relationships. “Innovation is built by people, not corporations,” says Seendripu. He recalls how a onetime business associate at Mitsubishi helped him gain access to business customers throughout Japan.

—Outsourcing. “If you’re the best at something, that’s where you put your dollars,” Potashner says. For other things, he advises relying on strategic partners, consultants, and others. Potashner says he also likes to take advantage of technology licensing as much as possible. While he was the CEO of Maxwell Technologies, the San Diego energy device maker, Potashner says he licensed its pulsed power technology to purify water at McDonalds’ restaurants in Mexico and to sterilize intravenous bags for Johnson & Johnson.

—Get Creative. Potashner says when he first took over at Maxwell, the company was a stodgy government contract laboratory “with a big vision and no cash.” When he decided to move the company into a new building, Potashner says he got creative by negotiating a free lease with the new landlord by promising future business. He also negotiated to get exclusive signage on the building and borrowed artwork from La Jolla galleries to decorate the headquarters’ interior.

—Renegotiate. Negotiate with service providers for a lower rate, or see if they will let you pay later, Potashner says. “I think the environment is tough enough that you can get patent attorneys and others to renegotiate their rates,” Potashner says. And it’s worthwhile to take a stab at renegotiating everything from property leases to office supplies. “There is absolutely a lot of flexibility right now.”

Asked what the biggest risk of bootstrapping is, MaxLinear’s Seendripu said it’s merely losing the time spent on a project. “The important thing is not to fixate on an idea,” Seendripu said. “Try to identify what skills you have and what markets you can address.”

As Potashner put it: “Bootstrapping is a choice that’s thrust upon you, rather than one you choose to make. It happens when money is too expensive or just not available.” Potashner later added, “If you’re not living on the edge, you’re taking up too much space.”

As for the literary reference to Baron Munchausen and bootstrapping, I found a reference online from a 1948 edition of the Baron’s tall tale from the 18th Century:

“…with such violence I fell to the ground that I found myself stunned, and in a hole nine fathoms under the grass, when I recovered, hardly knowing how to get out again. Looking down, I observed that I had on a pair of boots with exceptionally sturdy straps. Grasping them firmly, I pulled with all my might. Soon I had hoist myself to the top and stepped out on terra firma without further ado.”

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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