This post is part of a series on my notes from Startup Day 2009, a conference for pre-entrepreneurs interested in founding or joining a tech startup in the Seattle area.
What is bootstrapping? Self-funded thru cash flow, not VC or angel backed.
Why bootstrap?
- No money. It’s very difficult to raise funding, especially in today’s economy.
- Retain control. Taking funding will likely give you more “bosses,” all with different agendas. Most VCs have backgrounds in things that aren’t probably relevant to your org.
- Cash-poor leads to better decisions. Limited cash drives better decisions earlier, must cut all non-essential expenses, must generate enough cash to pay the bills. Company DNA is set very early and being cash poor creates the right type of DNA.
- Reduce risk. No strings attached.
- Don’t get ripped off. Most entrepreneurs don’t understand the impact of liquidation preference, etc and can easily get ripped off.
Bootstrap tips:
- Build a team with complementary skills
- Start with a one-year runway of cash
- All decisions are based on $ today
- Not revenue focused = not customer focused
- Technical IP, product features, team expertise are all secondary
- Be creative
- Don’t write a business plan. Do, don’t plan.
- Imitate best practices of VC-funded companies
- Maintain big aspirations
- Distribute ownership among employees: stock option plan
- Don’t mix personal/business
Why NOT bootstrap:
- Capital-intensive business
- You’re willing to make your business your life
- You have NO other alternatives
