Who Needs VCs? Seattle Entrepreneurs Say Bootstrapping Is the Way To Go (Part 2)

12/2/08Follow @gthuang

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who really pulls the strings.”

“But we also chose not to bootstrap the company,” Petersen says. “We found we didn’t need to bootstrap the company in order to reach our objective…We partnered with a company (Amazon) that had the resources to fund our first 2 years before we arrived at meaningful profitability. We were too small and too cheap to really merit Amazon’s attention and they trusted us to do something worthwhile based on past results. Thanks to that start, now we can use the profits of 43Things to fund other projects. In a way, we took on investment to fund a product, and now we are bootstrapping other products with the profits of the first.”

“What we do have in common with bootstrapped companies is a mad focus on frugal operations,” says Petersen. “We don’t have phones, fax machines, cubicles, business cards, a corporate logo, a PR firm, a marketing department, program managers, advertising, a sales force, corporate retreats, or even a conference room. The Robots use their personal computers for work, that way we skip the whole hassle of having company assets to track or any sort of proper use policies for company computers, likewise we use our own personal cell phones rather than have company phone bills or phones to keep track of. This probably sounds really insignificant (or even foolish) to funded companies. I think that is why so many of them crash on the rocks of a high burn rate. Give yourself the gift of a long runway by focusing on spending from the start. You can buy the swag and aeron chairs when you are profitable.”

“There is one other thought I have on this whole topic,” Petersen says. “VCs love to call companies like the Robot Co-op or 37Signals ‘lifestyle companies’. First of all, I want to assure all entrepreneurs that there is nothing wrong with having a lifestyle or creating a company to ‘bootstrap’ the way you want to live. Isn’t that the whole idea really? If the company you create isn’t going to give you the lifestyle you want, what are you in it for? Life is too short, and the chance of failure too high to put off having a lifestyle you enjoy. But second, I think VCs really use the term ‘lifestyle companies’ to describe companies they would like to invest in, but just can’t. Often this is because the company is already profitable and doesn’t need VC investment. Often too, the company is approaching a market that can deliver rewarding profits to a small team, but which can’t help a VC firm reach the incredible returns they require to make their investment model work. Most entrepreneurs would be overjoyed to have a company that delivers a sustainable profit of $3-5 million dollars. Most VCs would never look at such a deal.”

—Christian Chabot was the co-founder of BeeLine Systems and, more recently, Seattle-based Tableau Software, a data visualization firm that closed a $10 million venture financing round from New Enterprise Associates in August. (Tableau also raised $5 million from NEA in 2004.) In between startups, Chabot was an associate partner at Mobius Venture Capital for three years. “I think the vast majority of venture-backed companies should have been bootstrapped,” he says. “We bootstrapped Tableau for 20 months, with no paycheck. We worked in a warehouse in Mountain View [CA]. The front of the warehouse was occupied by a VC-backed company. We had rat traps. The other company was struggling but spending much more. Too many entrepreneurs do things backwards…The entrepreneur should be undyingly convinced … Next Page »

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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  • http://www.buzzfund.com lthompson

    Grfeat approach, permits sharing more equity amongst employees, teamwork, sense of we are all in it together, and ultimately, it slike going a shore and burning the boats, you have to stay and fight! Amazes me how fully funded and complacency are directly correlated.