The Art of Bootstrapping

11/26/12Follow @seeeyo

With the entrepreneur population at an all-time high, venture capital is flowing faster than at any time since the dot-com boom In fact, in the second quarter of 2012, VCs participated in more than $2 billion in financing, which is the highest amount in the last five quarters.

Yet, many startups fail despite VC funding and support. In fact, Adeo Ressi of the Founders Institute says only 10 or so companies out of 25,000 funded each year ever go on to make a significant impact on their market. This just goes to show that having a good amount of funding under your belts doesn’t always directly translate to success in the startup world.

If startups can’t secure the funding they’re hoping for as soon as the idea hatches, the other option is to buckle down and bootstrap it, which in most cases is the more difficult and stressful approach. If you bootstrap it, you must hyper-accelerate the phases of building, testing and proving the worth of your product so you can receive actual revenue before personal, friends and family, or seed money runs out (which happens fast!). Very few people like to work for free for very long, yet it is usually required in the bootstrapping model.

I started BumeBox with a small team of four employees working day and night with no pay for six months to get the product up and running. We begged and borrowed for our first test clients and risked heaps of personal and professional capital. Our cup overflowed with luck and timing, and in just over a year, with no institutional VC funding, we have more than 20 clients. That means we’re cash flow positive, which gives us more freedom to be in control of our future as a company.

BumeBox was one of those companies that didn’t fit the VC formula early on. And the good news is, you don’t have to either. However, if you choose the road less traveled and go with the bootstrapping model, it’s essential to keep the following tips in mind.

1. The core team must be tough. Make your core founding team aware early on that things may get uncomfortable. Tears, outbursts, nightmares, smashing open piggy banks—get ready for all of it. Only a select few can make it through the most trying bootstrapping moments. Those that do are rewarded with invaluable experience.

2. Put the product first and money second. The best idea in the world sucks with no product. All the money in the world does not guarantee an awesome product. Sometimes investors insist they invest in people, not product. But I believe by investing in people you are also investing in product, because it is so closely tied to the DNA of the core team. Approximately 80 percent of startups fail within their first five years of business. I wonder how many of them were truly happy with their product?

3. Expect a roller coaster. Despite the potential for stress and discomfort, there can also be hugely uplifting moments. A new client, a product breakthrough, an aha moment, your first supporting case study. Celebrate and give credit where it is due, but keep it all in perspective. Don’t get a big head. Many companies have failed because they patted themselves on the back too much.

4. Keep asking yourself: “Why not us?” In the early days of a start-up, 100 percent of the people you talk to will give you an opinion. 95 percent of the opinions will be negative. It is easy to get discouraged. Believing that you are going to be the one who will redefine an industry can be the difference between breaking out and going under. Just make sure to be intellectually honest with yourself and your team if/when something is not working.

Bootstrapping can be done. Even though it can be a scary process, the rewards are limitless. And in the end, startup life without any thrill is hardly worth exploring at all. There are plenty of safe 9-to-5 jobs out there for those who are less courageous.

Jon Fahrner is the founder and CEO of BumeBox. Follow @seeeyo

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