Given that start-ups are often measured by the amount of funds they have raised, does it make sense to bootstrap? By bootstrapping, I don’t mean one’s inability to raise funding — but a decision to not raise funding and instead run the business on customer funding. As a bootstrapper myself (for the record, NextBigWhat.com never raised any external funding till this date), I am often asked about the pros and cons of bootstrapping and whether it’s a good way to build a business. Here are a few perspectives that may help a start-up decide:
Why it’s cool
You are your own boss. There is nobody to report to. No boss. No investors. Nobody is asking for weekly updates. Importantly, you can decide on the companies’ decisions or take risky bets.
Freedom: You are free to take the path you’d like to. It’s your bullet (or car whichever you prefer), your petrol. Drive wherever you want to. Stop wherever you want to.
Helps stay focused: Unlike investor-focused businesses, you clearly know that your only source of income is customer money, which basically translates to only one thing – build a great product/ service and do whatever it takes to sell. That is, you have very less distractions to worry about. You aren’t buying into creative metrics (GMV et al), but the only goal is customer dollars.
Why it’s not cool
You are your own boss. And that’s the hard thing about it. You don’t know when you are slipping or when you need a ‘kick in the butt’. Nobody pings you for any business update (unless you have an advisory board). You are a free bird. Fly or die! Nobody cares.
Credibility: Be it about hiring or sales, your credibility is defined by who is talking about you. Media won’t care because you are not a ‘sexy story’. Having investors brings a lot of credibility. Everybody starts taking you more seriously, just because you have a few branded backers.
Growth vs revenue debate…every day:
From morning to evening, you will be struggling with growth vs revenue (rather, profit) debate. If you look at the current start-up ecosystem in India, profit is considered a dirty word. Everybody is talking growth (and an innovative term called GMV). But for those who are bootstrapping, growth mandates one to infuse more money – which simply mandates more revenue (and better profit margin).
That is, you do not have the liberty to lose sight of revenue and instead, focus on the growth (or play with funny metrics like GMV). This can potentially delay your plans – but that’s all what it is. In all probability, bootstrapping does mean that your runway is not just shorter, but also you have very little fuel left.
To some, it helps stay focused (there is no money to play around with – so better build a rocket that won’t explode). To some, it brings a lot of fear factor as well (especially when you know that your competitor has raised a massive round and is under-pricing to win your customers). Happy Bootstrapping!