Bootstrapping Our Way Back From the Collapse

9/12/09Follow @sramana

Since the collapse of Lehman Brothers last year (along with broader financial markets) the question at the top of my mind has been, “What next?” or maybe, “Where to from here?”

From my perspective it is clear that small business must be a top priority in the coming months and years. There are approximately five million small businesses in the United States with fewer than 20 employees. Another 20 million moms and pops endeavor day in and day out without employees. Let us hope that in the coming decade those numbers will double, then triple and quadruple. Here is the most powerful engine of economic growth and sustenance. Here is our way back.

I’m a serial entrepreneur who founded three companies after earning my master’s degree from MIT. I continue to work as a technology entrepreneur and strategy consultant in Silicon Valley. I’ve seen how entrepreneurs like RightNow founder Greg Gianforte found ways to get started without capital and how they have been able to create a great many options for their businesses. I believe entrepreneurship is the only sustainable path forward to a healthy economic world order.

So if the next Google is to emerge–and bring with it thousands of new jobs–it must get started where there is not only hope, but available opportunities. So it’s important to create and sustain a startup culture, to cultivate a supportive community and the kind of economic conditions where entrepreneurs can not only start businesses, but also survive and thrive at a higher rate.

To achieve this we must answer a couple of questions: Why don’t more businesses get off the ground? And, once up, why do so many fail?

I’m in an unusual position to give this some thought, as I also write a weekly column for Forbes and the business blog, Sramana Mitra on Strategy. Through much discussion, writing, and brainstorming on each topic, I have arrived at a core thesis: Not just entrepreneurship, but bootstrapped entrepreneurship is the true weapon of mass reconstruction.

So it was with great interest that I read Bruce’s post on bootstrapping from a San Diego Venture Group’s panel discussion in May. In that article he shared lessons from “business leaders and Baron Munchausen.” Likewise, I explore the ways a dozen entrepreneurs define bootstrapping and how they have mastered the art of doing more with less in my book Bootstrapping: Weapon of Mass Reconstruction.

The conventional wisdom is that businesses often fail to take flight because they cannot raise funding. I contend that it makes more sense—especially these days—to start with the assumption that funding will not be available until the business is substantially further along, if ever.

I don’t think most small businesses should even look to raise money, because they do not really fit the framework of professional venture capital. (In the eyes of venture capitalists, even a $25 million business is considered a small.) That does not mean that any business generating less than $25 million in annual revenue is not worth building. To the contrary, the entrepreneur who fully owns a $12-million-a-year company is in a wonderful situation: Total control. Loads of cash. And true independence. Heck, even a $300,000-a-year business has many of these attributes—and can be a deeply rewarding and worthwhile endeavor.

There is currently a lot of discussion about whether or not the venture capital model is working. Except in a few cases where the entrepreneurs have really large ideas, venture capital is a bad deal altogether. Bootstrapping, on the other hand, preserves ownership for the entrepreneur, and there is none of the pressure to build an artificially large business. You can build a $20 million business, you are happy, your team is happy, and you can call it a success. With venture capital, you will have some VCs bugging you to grow at 100 percent year-over-year until you can reach $500 million. Building a $500 million business is a lot harder than building a $5 million business. Most importantly, your idea—your business model—needs to support a $500 million business. That’s rare. A $5 million idea is much more common. I don’t see anything wrong with building your own $5 million business and enjoying the fruits of your labor with a small team.

Once you’ve freed your mind from the tyranny of needing something you can’t have, i.e. capital, you’re ready to consider some useful tips for successful bootstrapping. Many of the successful entrepreneurs I’ve studied shared some common characteristics: They’re extremely frugal; They don’t go off like Don Quixote to chase the proverbial windmill; They focus on practical priorities and execute; And they are tremendously creative and resourceful about solving problems.

So I remain resolute that if entrepreneurs around the world learn to build sustainable small businesses without requiring large amounts of outside financing, the global economy will run without a hitch. No doubt, many of these ventures will go on to seek large-scale expansion capital, and build larger enterprises. But even the companies that don’t grow exponentially still embody something fundamental that I strongly believe in, and that is creating a business with sustainable value. We can and should feel the pride and privilege of accomplishing that—especially if we did it by bootstrapping.

Sramana Mitra is the founder of One Million by One Million (1M/1M), a global virtual incubator that aims to help one million entrepreneurs globally to reach $1 million in revenue and beyond. She is a Silicon Valley entrepreneur and strategy consultant, she writes the blog Sramana Mitra On Strategy, and is author of the Entrepreneur Journeys book series and Vision India 2020. From 2008 to 2010, Mitra was a columnist for Forbes. As an entrepreneur CEO, she ran three companies: DAIS, Intarka, and Uuma. Sramana has a master’s degree in electrical engineering and computer science from the Massachusetts Institute of Technology. Follow @sramana

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  • http://medtechiq.ning.com/ Conrad Clyburn

    Excellent commentary.

    I believe you are correct. I feel compelled to share with the MedTech-IQ professional network, dedicated to the 3C’s of “Content, Community & Collaboration” in translating emerging medical technology from “Laboratory to Market”, at http://medtechiq.ning.com/. See link at: http://medtechiq.ning.com/profiles/blogs/guest-blog-bootstrapping-our

    Conrad Clyburn
    Founding Partner
    The Clymer Group, LLC
    Owner/Operators of the MedTech-IQ Professional Network
    Silver Spring, Maryland 20904
    (301) 404-9128 (direct)
    cc@clymergroup.com

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  • http://northcoastbio.com Johnny T. Stine

    Sramana – well written!
    “A $5 million idea is much more common. I don’t see anything wrong with building your own $5 million business and enjoying the fruits of your labor with a small team.” – there are intangibles here that are immeasurable in value and I will speak of this as a current local Seattle “bootstrapper”.

    Here’s to boot-strappin’!!!!

    Thanks,
    Johnny

  • http://www.jeremygoodrich.com Jeremy Goodrich

    Hm, I’ve founded…9 businesses, in total. Sold two, and am running three at the moment. Never taken dime #1 in funding.

    We’re beating (consistently) companies which have raised anywhere from $5 million to $25 million+ in funding…it’s not whether you raised money (or not) it’s how you play the game…

    …take the first commenter, here. My take? Doomed to failure. Why? Ning, the site hosting his cr@p social network, is also doomed to failure. WordPress multi user = same set of features under your complete control…need distributed login? Use openid, you don’t need Ning.

    Growing up, my dad imported clothing from Bali, Indonesia…I didn’t get a master’s degree, but, I have the first four year degree in my family from more than three generations.

    More than half the employees in the US work for small businesses…to me, that was the stat you *should* have opened this article with, for it to have some teeth. When you put it that way, with California’s unemployment at 12.2% in August…shouldn’t we be paying MORE attention in the media to showcasing a bigger variety of small, non funded business that have a shot?

    You have the expertise, the platform and the knowledge to see the difference between some spammer on ning and a guy running a site that was listed as a top 20 social network, per comScore, in June.

    So…lemme make this challenge to you: I know of almost a dozen highly profitable, self funded sites like mine…are you willing to give us all some air time and help build the economy, as you just said in your article?

    OR is this a crap fluff piece with no real meat? (which, to be truthful, it reads as such). No offense.

  • http://www.sramanamitra.com Sramana Mitra

    Jeremy,

    You should check my site and see how much airtime I give to entrepreneurs and their stories.

    And perhaps you should also check out the book. It profiles 13 such entrepreneurs in detail.

    Thanks, Sramana

  • Jeremy Goodrich

    Just looked…what did I see?
    1) No comments, anywhere (low readership perhaps? but…you have a ton of ads)

    2) I see tetris, I see apple / palm…alibaba…

    3) Ah, one such as you said: OrangeSoda.

    Personally, I think you just proved my point…your blog, part of IDG tech network (per your footer)…and, most of the air time you are giving out to large, established companies. I can get that cr@p from a trillion outlets (new york times, techcrunch, wall street journal, etc).

    You aren’t putting your blog where this article is…and, it’d be a good thing if you did. Shoot, *13* such stories makes a novel???

    Per a post (sorry) on TechCrunch from an academic…less than 1% of successful job creating businesses take some form of VC….so, 13 is a tiny fraction of the available firms you could be profiling and you know, helping to “bootstrap our way back from the brink”.

    Sucks when people have a platform and don’t follow through, but, I commend you for taking at least a step in the right direction…and, I’ll be watching to see how you follow through on your own advice :)

  • http://www.sramanamitra.com Sramana Mitra

    Look, I profile a startup a day, and do an entrepreneur journeys series interview once a week. Plus I conduct roundtables on my platform.

    I believe, those who know my work think of me as one of the most committed proponents of entrepreneurship.

    I suggest you get to know my work better before abusing me.

  • Jeremy Goodrich

    I’m a cynic :) Thus, the comments, the questions…it seems you have a ton of good people you know…building businesses (you built 3 right?) is an opportunity to create wealth…however, to better your own business skills you need to both listen and share…correct?

    Eg, if you spend all your time talking – how will you learn anything new? Yes, your blog speaks for itself:
    1) a book on positioning…but, it’s golly gee difficult to figure out WHY I’d read your stuff on positioning, from your home page, vs anything else available…even after reading your bio (here) and your blog (perhaps 20 pages) I don’t know what companies you founded (did they sell? go public? were you CTO, CEO, CIO, etc? – given your academic background, it’s a toss up between CTO / CEO for me, personally).

    2) If I wasn’t trying to get to know your work better…would I be asking questions? Sharing my perception *of* your work? Nope, I’d simply ignore it, not make comment #1, and move on. Clearly your writing is reaching people…I see the latest book is bought with “tribes” of Seth Godin fame. I’m sure you read his stuff, ya?

    Ironically, the latest post on his blog deals with (perhaps…) the issue you are having with my comments, about ‘customers’ being always right. Well, thing is I haven’t bought your books. But as I’m in a market where unlike silicon valley, it’s not overflowing with digital gurus…well, I’m casting about for strategic insights, things to learn, etc. Thus my commenting here.

    But…well, it seems like rather than take feedback when it’s offered, you’d rather claim that your work is “as good as it gets”, which smacks of arrogance…but, I don’t know you, so I’m reading thing wrongly for certain.

    However, personally, I’m going to take this as a lesson in my own work: when somebody comments on something, takes the time to leave their name, etc…the last thing I should be doing is looking the proverbial gift horse in the mouth and instead, seeking to sharpen my own business acumen :)

  • http://www.sramanamitra.com Sramana Mitra

    I profile one startup a day on my Deal Radar series. Since 2008, hundreds of startups have been profiled on this series. If you want to be profiled, you are welcome to pitch, and if we see your story as a fit for our audience, you will get airtime. But I can assure you, you won’t get any airtime from me by trying to bully me or being rude.

    In addition, I do an Entrepreneur Journeys series on how people build their companies, their trials and tribulations. This series has already led to 3 books that are generally quite well received. You can read reviews and discussions on them online.

    As for my career, I was the founder and ceo of 3 companies, and have worked for myself my entire career.

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