“Hi, I am Bob, and I am bootstrapping a startup.”
“Oh, great!. What do you do?”
“Well, we are building this service which does that in a different way”
“oh” (with a little disappointment) “So bob, how can I help?”
“I would like to run my business plan with you. Is that okay?”
“Sure, go ahead.”
Ten minutes later..
“So bob, how much do you require as the bare minimum to start operations”
“hmm.. about half a million”
“ah.. bob.. lets think bootstrapping, without any fancy hardware, expensive people, health or employee benefits, and no snazzy offices, furnitures or secretaries… how much do you need?”
“About half a million”
Ladies and gentlemen, that would not be bootstrapping.
The first mindset that you need to have when bootstrapping is possibly the same position that Bill Gates and Allen would have been in when they started Microsoft. Yep, Microsoft was actually bootstrapped and in a very good way. Its probably because of that process that the company continues to thrive – in one or more ways – through the ages (compared to companies such as Lotus, which kinda had an early start and also are below the radar as of now).
Quick fact: Microsoft was bootstrapped, whereas Lotus was Venture financed.
Well, do you think Bill and Allen were a little crazy to want to bootstrap when they could have approached the VCs that have always been around in the valley? Well, actually they did. They didnt go too far. Both Bill and Allen were college dropouts. They were targetting a market which wasnt proven yet, and everyone knew that there was going to be lot of ploughing before anyone can sit before the candlelight and eat the bread made from the grains of that field – if there was a field to plough in the first place (PCs themselves werent a popular concept back then).
The two man team didnt have money, nor could raise money, so they decided to grow organically till the point when they could establish the credibility, the track record and gain the upper hand to negotiate a fair deal. Thats the position that every startup should aim for.
I met a very enthusiastic aspiring entrepreneur yesterday, who quoted me about 200,000 USD as seed capital requirement, but doesnt have a team in place yet. When you start doing a breakup of that initial capital, most of it was going towards the licensing of content for a service they would be delivering.
One thing you learn while bootstrapping is that, you never hand out money like that. You always negotiate and make people believe and bet on you. If you are going to make an investor do that, might as well do that to some more others as well – atleast you will have people cheering for you.
Before getting back on track, I’ll leave a note: Never make an all cash deal when you are a startup. And never make the deal which makes an upfront payment of what you require. I do realize that it is subject to deals, but always make a small downpayment and base the rest dependent on your growth. You will have to do some hardselling here, but that is expected from you when you are building a startup and are going to be challenging someone to take the money in the ecosystem away, into your pockets.
Read this for a fact: Less than 5 – 10% of companies in the Fortune 500 Inc. have taken venture capital. Some chose not to go for it, the rest were actually rejected. Was it a bad choice on the part of the entrepreneur, or on the Investor’s camp is a topic I would not want to venture into, but one thing I can say for sure is that… stay away from easy money as long as possible. What you learning during your “bootstrapping” days, is what will enable you to survive in the days ahead. It will make the difference between a company that rises like a mushroom, and a company that is build to last. I absolutely believe in that.
Disclaimer: This is a post that has been made on my personal blog and is reposted here.
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Deepak,
Great story and there is a good morale to your story. Usually companies that do bootstrap do tend to stick around longer. They also do go public or make their exit a bit later on in their cycle as well. Is that a trend? its certainly one to look into.
Microsoft did go public after a decade. Lotus went so much earlier.
To quote to words of my mentor, “Venture capital is like rocket fuel… it will add great momentum to your business. As sexy and tempting as it sounds, you might want to make sure that your vehicle (company and team) can handle that first by ensuring that the framework, focus and delivery mechanisms are in place before you do hit the nitro…. There are too many companies that have imploded and folded without being able to handle that momentum”. Couldnt be said better.
Vishwas:
The american name was for a couple of reasons:
1. The attitude of expecting half a million dollars to bootstrap is an american hi-life mentality. As much as even the proper entrepreneurs don’t ask for such amounts in the US, 500K is quite reasonable for a good venture given the costs and expenses in the US.
2. For a better story, i’ll go with an indian name 🙂
3. When you talk of characters, A, B, and C, its a standard nomenclature to use Alice, Bob and Cathy. Just going by the standards.. Didnt want to go with Alice .. ahem, for many reasons. Actually women are quite meticulous and better when it comes to cost analysis actually.
4. Why not? 🙂
I have been mulling over a topic that will be a post another day: I would like to know why we seem to be stuck in the mentality that we need to “indianize” everything. Everybody understands bob to be a name, so go with it. Will write more about it some other day.
Very interesting. As you said, Microsoft was bootstrapped (hotel rooms as offices and the like) and so were Dell and HP. You perhaps can’t count the IBM, big oil companies etc. as they were financed by people who already had lots of money. Back home, Infy was a bootstrapped venture, accompanied by the likes of HCL, Reliance, Hero group, Naukri.com etc. But some more had access to seed or early capital: TCS/Wipro, the Birlas, Godrej, TVS et. al.
Financial technologies, Bharti, Suzlon, Indiabulls, Mindtree are examples of those that got risk capital in various stages. Mindtree perhaps was one of the few that got seed stage capital.
But risk capital typically accelerates your growth. Microsoft and HP took upwards of a decade to get to listed. Infy took about 10 years, Naukri about the same. Bootstrapping takes away some of the early focus-shifters, but it is a longer term game.
Little aside: When I bootstrapped my first (not famous, so no big stories) venture, we had only one funda: We either get cash flow positive in three months or quit and get real jobs. i.e. Making revenues rs. 15-20K per person per month plus expenses. This added up to Rs. 90,000 for the four of us. (1998, so excuse the pittance this sounds like).
We did it in three months. Borrowed the office. Rented the tables. Our home computers were our seed investments plus some rokda which would help us pay the registration fees. First purchases: A laser printer, and carpeting at Rs. 18 per sq. ft. for a 180 sq. ft. room to hide the redoxide floor. I had an old a/c to help us cool the office. (180 sq ft., four people, four computers, a printer and being next to the pantry of the borrowed office = too much sweat and too little code)
We could’ve skimped on the carpet. But that would have been silly.
When you figure out that you can deal with not having a paycheck for x months and then you’re screwed, the rest is straightforward. Get there, or get out.
But you know where the problem really is? Getting to cash flow break even, and then the momentum doesnt push up the same way. Scaling up from there is where the chasm is, really. You can tell a man to starve a few days, he’d survive the trip. But it’s when he has to eat roti-pickle for the rest of the year after that is what gets his goat.
So I’d say: bootstrap if you will. Set big targets though. Indulge yourself when you’ve earned it and don’t sweat the small stuff.
Why do Indians still use American names when they are trying to explain something like this? Why not Gopal instead of Bob!
Good topic. While it’s important to make do with less money, the accent on optimal utilization of time is also critical. I would say the scarcest resource for a startup is “time” than money. So much of the founder’s time is preparation, so much is routine, and so much retrospect, that the path of her genius contracts itself to a very few hours that really matter. It’s important not to fritter away precious time after “opportunities” often that are not. Success demands singleness of purpose.