Given that my limited posting to this blog has centered around alternative ways to do a startup and/or support the startup community I will continue this theme with a few more thoughts for discussion…
I just finished reading a blog post by Brian Link – Entrepreneurs Need to Bootstrap to WIN – and it prompted me to start writing this post, likely because in comparison to similar articles, it is short and sweet, clear, and to the point.
It’s an opportunity to comment directly on some of the messages in the article and perhaps use them to present an alternate view and ask a few questions for debate. Here we go:
…Bootstrapping is hard. You need to stick your neck out; quit your job; have some money to spend; have a great network to lean on; and have a lot of confidence and guts. It’s certainly not for everyone. But for the brave who have a great idea, the reward can be huge.
Do you always have to quit your job? What about bootstrapping in your spare time? I know many will argue that you can’t be successful unless you throw yourself into something and take on the appropriate amount of risk. Still, I’d like to argue that there can be opportunity to bootstrap on the side. Granted your project will move more slowly but, a lot of wannabe entrepreneurs could use this approach to get further along – develop early beta product, find a few customers, maybe even find some revenue. Using this approach, perhaps boostrapping becomes a great way to get off the ground without all the risk and can help put entrepreneurs in a position to raise their first round from a stronger position and then fully take the plunge.
Let’s move on. The next bit moves on to Brian’s four major points.
The best practices for bootstrapping can fill volumes of books, but here’s a quick summary of some ideas and strategies:
1. Equity. By bootstrapping, you can control your own stake and your partners’ equity percentages better. Equity is your most powerful tool to attract big talent. But be careful, there’s great need for balance here. Don’t dole out too much too soon and conversely don’t hesitate to share your equity for the right reasons. Many entrepreneurs fall into the stingy founder’s trap – they refuse to give up equity and because of that, they never get the help they need to launch the company. In that scenario, they have 100% of a company that’s worth nothing. Instead, offer equity to those who can dramatically move your business forward, but get advice about what percent makes sense at your current stage of growth. Equity, they say, is the most expensive compensation you can dole out (1% of your company when it becomes a $100MM company will be worth a million dollars!).
Again, nothing here would stop you from bootstrapping on the side and maintaining control of your equity. Just be careful to understand the details of your current employment contract to ensure that your employer doesn’t have rights to something you might work on independently from your full-time job.
Brian’s point about the stingy founder is an important one. It is very easy to guard the equity of a company that’s worth exactly zero, and this will get you no where. Still, the informational resources available to the startup community often create this sort of mindset for new entrepreneurs as they are warned against the evils of bigger investors who will attempt to take too much equity and ultimately, too much control. While it is fine and good to talk about raising money when you don’t need it, I think this is unrealistic in many scenarios. Bootstrapping your way to a mature product, a critical mass of customers and revenue is very difficult without a reasonable first or second round investment. That all being said, there is no single approach to this issue and simply put, the founder(s) need to be careful and strike the right balance to find and motivate valuable people and resources while ensuring dilution is not too significant now and in the future. Not an easy task I suspect. I have to be careful not to come off as an expert on this matter. In fact, I’m far from that and simply read and write about this subject out of interest and to spur some discussion. Essentially, and I’ve said this before in other posts, I think a lot of information and advice targeting new entrepreneurs is generic, unrealistic and only speaks to a small audience. For those reasons, I’m prompted to have a different or expanded dialogue on the subject.
2. Partners. Choose your partners and co-founders wisely. They should complement your skills and pass both the beer and elevator tests. Is this person someone you’d want to hang out and have beers with? If you were stuck in an elevator with this person for 24 hours, would you murder them? You’ll be spending more time with your co-founders than you might with your family, so best to have a great relationship and high level of trust and respect.
This goes without saying and I’m certain is one of the most important steps in the process to have any chance at success. An interesting aside to this is the concept of co-founders as “good” friends. In discussions with my wife on the topic, she gets very nervous about the idea of going into a new venture with a friend. She believes that there is so much risk involved that you have to be willing to accept the fact that you are suddenly putting your friendship on the line. I, on the other hand, believe that in order to meet some of the requirements listed above to find a good partner, it’s going to be quite difficult to find someone who is not already a close friend of sorts. Part of the process and agreement has to be to create a strong foundation on a shared understanding of your approach and goals. Furthermore, you must always remember that this is business and shit happens. If your friendship going in is strong, then it should weather the many storms that you are sure to encounter during the startup process. While Brian doesn’t quite say this, I think that a similar belief comes through in his message.
3. Business Plans. Don’t dwell so much on the format and length of your plan, but rather on the concepts of the business, the product or service and your competitive advantage. You should know exactly what your customer looks like, what alternatives they have, what the value is of what you’re offering and where you’re going to find those customers. And if you don’t have all those answers, get yourself some partners or team members who can. An executive summary of 1-2 pages is best. It should explain the big picture as concisely as possible. Don’t drag anyone through the details of your product until you’ve completely nailed it at a high level. Also prepare a Kawasaki 10/20/30 presentation and the two sentence and three paragraph versions. You’ll need those for marketing and email conversations to get people interested in having conversations with you.
Can’t really disagree with anything here. I certainly take the first point – don’t worry too much about the format but rather, ensure that you’ve covered off the most important aspects of the product or service. I’ve done this myself and it’s just a waste of time – especially early in the game. There is plenty of time much later to spend time on formatting and adding information that certain stakeholders might be interested in seeing but aren’t necessarily critical to the concept.
4. Investors. You’re going to need investors at some point. Hopefully later instead of sooner. But as CEO of your company, your role is chief fundraiser, so start building great relationships. Find a trusted few to be part of your inner circle to give you honest and direct feedback. It’s never too early to plant seeds and start conversations. But be sure your message is polished enough before you request the face to face meeting. It’s not as hard as you think to get meetings with investors. But it’s very hard to build a compelling enough story to make them part with their money. Practice your pitch a dozen times on friends and friendly investors before you start talking to your big target investors. Also, do not assume that the big VC is your only option. Angel investors and chunks of $10-20K are extremely viable. It’s a lot easier to find a dozen people or more with $20K than it is to ask for large fractions of a million dollars from any investor.
Again, it’s hard to argue with anything here. I think Brian’s last point is the most important one, especially if you’re doing your venture in Canada. The VC industry in Canada is very small and limited and it seems more realistic these days to raise money through angels, formally or informally. Creating a network would be vital to raising money and there is no reason that you can’t be doing this all the time, whether you’ve quit your job and thrown yourself into the project or are working on it more quietly on the side.
So in the end, I suppose I wrote this post for two reasons. Firstly, I liked Brian’s article for it’s simplicity and straightforwardness. There is so much stuff out there and often it’s convoluted and doesn’t really tell you anything. This, at the very least, is a quick and helpful reminder of some things to think about when going down the path of bootstrapping your startup. Secondly, I wanted to add my own point around the concept of taking this same approach but doing it in your spare time. I’m sure that a lot of people already do this and it’s quite possibly the way that most ideas get off the ground. What I don’t see is a wealth of information and resources that speak more directly to this approach. Perhaps that’s because most people in the startup community in some form or another don’t believe that it’s effective. I’m interested to hear your point of view on this.
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