4 ms·

Bootstrapping 101 – How To Start Your Online Venture With Very Little Capital

77 points by imgrind 13y ago

beachstartup 13y ago
i really don't appreciate these black-and-white treatises on debt. it's a hardline, synthetic opinion that is designed to generate pageviews. it's bullshit. debt is one of the most important and misunderstood tools a young profitable bootstrapped company has at its command. a proper understanding of the different forms of debt, how to raise it, how to service it, what to use it for, and what kind of revenues/growth to support with it is absolutely critical for a company to succeed. the bottom line is spending huge amounts of your own cash is incredibly reckless and dangerous, and is not the kind of thing a small, successful, profitable, growing company that has employees, suppliers, and customers (all to ANSWER TO) should be doing. to a certain extend, building a company is about injecting yourself as seamlessly as possible into the existing network of cash flows and money and increasing that magnitude over time. it's incredibly hard to achieve this kind of bootstrap (verging on the impossible) without either equity or debt. real businesses in the real world require capital goods and services, on time, on budget, and guaranteed. debt is a mechanism for getting those goods and services in a reliable manner that has successfully been used for thousands upon thousands (nobody knows for sure - read david graeber) of years. the miraculous thing is it turns the time value of money into something you can leverage now. also - interest rates for commercial debt are not the same as interest rates for personal or consumer debt - it differs in one very important function - commercial debt is supposed to increase profits so it very much depends on what the opportunity you are trying to finance is. consumer debt is a dead end and you better go in with eyes wide open - you're simply spending money on nice things. the same is not true with commercial debt which has an infinite number of permutations regarding motivation and returns. every successful company carries some kind of debt. every single one. doesn't matter if it's the spread on your payroll, net 30 invoices from your suppliers, amex charge card debt, garden variety credit card debt, structured loans, capital leases, or a simple "iou" to the local coffee shop for your daily commissary deliveries, it's a fundamental property of how people interact with each other in the real world.
- hagbardgroup 13y ago
  That's not what this guy is trying to say to people, though. He's criticizing people who buy traffic using corporate or personal credit cards without adequately capitalizing their company (i.e. trying to protect idiots from themselves, which is almost never possible). It's goofy to criticize credit qua credit though, because, as you say, every business in the world uses it. I don't think that articles like these are genuinely helpful to people. A book titled 'Bootstrapping 101' that went through a lot of the things you needed to know over maybe 300-500 pages written at a high level would be useful. 500 words of self-praise mixed with some old chestnuts may be entertaining for some people, but it does not fulfill the promise of the title.
  - rmason 13y ago
    The best book that has ever imho been written on bootstrapping: Start Small, Stay Small: A Developer's Guide to Launching a Startup by Rob Walling and Mike Taber ISBN 0615373968
    - mkal_tsr 13y ago
      Reading the description and reviews on Amazon, I can't quite tell if this book is for my situation - I am post-MVP stage with people paying for it (as a private-beta site) and will need to open it up soon. Am I "too late/far-along" for this book? Thanks.
      - rmason 13y ago
        Absolutely not. You might also want to check out the pairs podcast called Startups for the rest of us: http://www.startupsfortherestofus.com/ http://www.startupsfortherestofus.com/ They also run the MicroConf conference and the videos are golden: 2013 http://www.microconf.com/videos-2013.html http://www.microconf.com/videos-2013.html 2012 http://www.microconf.com/videos-2012.html http://www.microconf.com/videos-2012.html
        mkal_tsr 13y ago
nemasu 13y ago
This is awesome, I was starting to wonder if everyone was on the "let's get into debt" bandwagon these days.
patio11 13y ago
You should not purchase hundreds of thousands of dollars worth of ads until you have a very good understanding of your unit economics and know that this ad spend will be profitable. This is invariant regardless of whether you propose to fund that with cash or credit. Contrary the article, having credit cards available is a very, very useful thing as a self-funded entrepreneur. Particularly when you're mostly cash flow positive, they're an instant discount on many goods and services, and they allow you to cover week-to-week or month-to-month variability in cash flow without business or social consequence. Also, while I would strongly advise against running up $X0k in debt prior to launch, if you've got a decently operating business they're a reasonably cheap and very available form of credit. I've spiked my cards to, hmm, probably $80k or so at points over the years. That implies an interest expense of roughly $1,000 per month (assuming you revolve it). Interest is like any other business expense: $1,000 is cheap at the price if it buys you $2,000 of increased opportunities.
warrenmar 13y ago
You can download The Bootstrapper Bible by Seth Godin for free. It's "Free for 2 weeks only through December 30th!" http://www.sethgodin.com/sg/docs/bootstrap.pdf‎ http://www.sethgodin.com/sg/docs/bootstrap.pdf‎ If you haven't gotten into an incubator, you should think about bootstrapping as long as you can until you find your product market fit. If you burn investor's money before you find a fire that can grow, you will be forced to quit.
AndrewKemendo 13y ago
The general sentiment of bootstrap, get traction, get paying customers etc... is generally accepted by the vast majority of serious entrepreneurs, but I think the idea that moving forward you will be able to get to an MVP with no budget will become very difficult. This is largely because the projected technologies of the future will require much more up-front capability to even prove useful to a potential user than ever. Doing anything useful or reliable with machine learning, computer vision, data processing, image processing, robotics, genetics or nanotechnology takes years of practice engineering and studying. Those are the frontiers 10 years from now and to think you could bootstrap a competitor to SIRI or QR reader etc... without already having a significant background in it is in my mind far fetched. I would love to see this proven wrong with the creation of an API/framework/toolset that allows people with <5yrs in engineering to create such products.
- cabinguy 13y ago
  I hear what you're saying but you do not need to compete with SpaceX or Apple to make tens of millions of dollars. If you're bootstrapping, you should keep it simple and pick a smaller target.
mikekij 13y ago
I can list a hundred tech companies that wouldn't have been successful / acquired had they not raised money. You couldn't really bootstrap Twitter. Or most medical device companies. I have a friend bootstrapping a company right now. He is growing organically, and is cash flow positive. He'll likely be acquired in 4 years for about $20M. That's awesome. But if he would have raised just $3M, he could have built his product in 18 months instead of 5 years. In the end, he'll have the satisfaction of having bootstrapped. But from a purely financial perspective, I think he would have been better off raising money and exiting (or being even more profitable) faster.
- sgeisenh 13y ago
  I think, within a certain threshold, it is definitely more financially responsible to bootstrap. Though, I agree with your point about Twitter, etc: if you're a seasoned developer/entrepreneur with a large scale idea that requires serious capital to get off the ground, you can't bootstrap. But for something that is effective at a small scale and can be built from the ground up, the timeline only shifts a small amount (so long as you pursue all marketing avenues available). I'm assuming that your friend evaluated the risks of fundraising and made a reasoned choice. I don't think it is fair to reason about his venture in hindsight.
- ibrad 13y ago
  A hundred tech companies are still an exception. Yes building an amazon type of business requires more than your savings, but it is not what most businesses are doing. Joel Spolsky made a very interesting post about it[1]. A lot of companies, that are clearly not going to be Amazon sized one day, are looking for investors just so they can make another bufferapp type of deal. We always list Twitter, Facebook, Google, and those hundreds you are refering to, but those are a handful compare to everything that is out there. [1]: http://www.joelonsoftware.com/articles/fog0000000056.html http://www.joelonsoftware.com/articles/fog0000000056.html
ryandrake 13y ago
This advice seems really awesome if you already have a pile of money in the bank to spend on bootstrapping your business (and living while you try). For everyone else, the ability to actually raise capital is vitally important. I'd love to start my own company. I'd do it tomorrow if I could. What's stopping me is that my family likes to eat and my bank likes to receive their mortgage payments each month, and without a "real" source of income those things don't happen.
- pan69 13y ago
  I'm not sure what the advice in the article actually is other than, don't spend money you don't have. I can't really find anything tangible in the article...
alok-g 13y ago
Whatever business idea you are working on, and assuming it has the potential to become a money-making business one day, the decision to raise money or bootstrap should depend on what minimizes your overall risks and maximizes chances of success. If bootstrapping, and if bandwidth-limited, you would be growing slowly while the competition / market could be moving at a faster pace, thus increasing your risks. If this is the case, it may be better to raise money and hire people to increase your pace. If you raise money, it should be to solve some real and key problem you have that is solvable with money. That problem may be skill / bandwidth, advertising, patenting, whatever. As far as the problem is real (which means solving the problem will reduce your risks considerably) and it is solvable with money, it is better to raise money than to bootstrap. If you are wrong somewhere in your assessment on what your risks are, where money can and cannot help, how fast the market will end up moving, etc., you are likely to make a suboptimal choice for yourself.
mkal_tsr 13y ago
I'm bootstrapping now and growing organically (as well as keeping the site invite-only to handle scaling slower) and it's been an interesting ride. I know if I could bring on a business/marketing person I could take it to a VC and really start hammering away at it, but I've also gotten past MVP-stage on my own and the service is profitable and steadily growing (aside from fully covering my living expenses) and I have no loans out for the company / debt-free. I keep getting a stage later than I thought I would on my own, so I dunno ... I'm a software person not looking to run a business but work on my own products/services. There's definitely an ego portion involved I think, but definitely less so than my worry about raising VC debt and losing control of "my baby". At some point I will have to say "this is where someone else more experienced takes over" and I think that day is quickly coming ... so long as I can work on the technical side / features, I think I'm ok with that ... I could not see myself being a CEO because it's just not that interesting to me.
jds375 13y ago
Many out-of-college entrepreneurs want that sweet VC money because of the status associated with it, even if it may not be necessary.... Now it is often the case that one should take/want that money, but to think that VC money is what it's all about is a bit too much and far too common.

77 points by imgrind 13y ago

i really don't appreciate these black-and-white treatises on debt. it's a hardline, synthetic opinion that is designed to generate pageviews. it's bullshit. debt is one of the most important and misunderstood tools a young profitable bootstrapped company has at its command. a proper understanding of the different forms of debt, how to raise it, how to service it, what to use it for, and what kind of revenues/growth to support with it is absolutely critical for a company to succeed. the bottom line is spending huge amounts of your own cash is incredibly reckless and dangerous, and is not the kind of thing a small, successful, profitable, growing company that has employees, suppliers, and customers (all to ANSWER TO) should be doing. to a certain extend, building a company is about injecting yourself as seamlessly as possible into the existing network of cash flows and money and increasing that magnitude over time. it's incredibly hard to achieve this kind of bootstrap (verging on the impossible) without either equity or debt. real businesses in the real world require capital goods and services, on time, on budget, and guaranteed. debt is a mechanism for getting those goods and services in a reliable manner that has successfully been used for thousands upon thousands (nobody knows for sure - read david graeber) of years. the miraculous thing is it turns the time value of money into something you can leverage now. also - interest rates for commercial debt are not the same as interest rates for personal or consumer debt - it differs in one very important function - commercial debt is supposed to increase profits so it very much depends on what the opportunity you are trying to finance is. consumer debt is a dead end and you better go in with eyes wide open - you're simply spending money on nice things. the same is not true with commercial debt which has an infinite number of permutations regarding motivation and returns. every successful company carries some kind of debt. every single one. doesn't matter if it's the spread on your payroll, net 30 invoices from your suppliers, amex charge card debt, garden variety credit card debt, structured loans, capital leases, or a simple "iou" to the local coffee shop for your daily commissary deliveries, it's a fundamental property of how people interact with each other in the real world.

hagbardgroup 13y ago
That's not what this guy is trying to say to people, though. He's criticizing people who buy traffic using corporate or personal credit cards without adequately capitalizing their company (i.e. trying to protect idiots from themselves, which is almost never possible). It's goofy to criticize credit qua credit though, because, as you say, every business in the world uses it. I don't think that articles like these are genuinely helpful to people. A book titled 'Bootstrapping 101' that went through a lot of the things you needed to know over maybe 300-500 pages written at a high level would be useful. 500 words of self-praise mixed with some old chestnuts may be entertaining for some people, but it does not fulfill the promise of the title.
- rmason 13y ago
  The best book that has ever imho been written on bootstrapping: Start Small, Stay Small: A Developer's Guide to Launching a Startup by Rob Walling and Mike Taber ISBN 0615373968
  - mkal_tsr 13y ago
    Reading the description and reviews on Amazon, I can't quite tell if this book is for my situation - I am post-MVP stage with people paying for it (as a private-beta site) and will need to open it up soon. Am I "too late/far-along" for this book? Thanks.
    - rmason 13y ago
      Absolutely not. You might also want to check out the pairs podcast called Startups for the rest of us: http://www.startupsfortherestofus.com/ http://www.startupsfortherestofus.com/ They also run the MicroConf conference and the videos are golden: 2013 http://www.microconf.com/videos-2013.html http://www.microconf.com/videos-2013.html 2012 http://www.microconf.com/videos-2012.html http://www.microconf.com/videos-2012.html
      - mkal_tsr 13y ago

nemasu 13y ago

This is awesome, I was starting to wonder if everyone was on the "let's get into debt" bandwagon these days.

patio11 13y ago

You should not purchase hundreds of thousands of dollars worth of ads until you have a very good understanding of your unit economics and know that this ad spend will be profitable. This is invariant regardless of whether you propose to fund that with cash or credit. Contrary the article, having credit cards available is a very, very useful thing as a self-funded entrepreneur. Particularly when you're mostly cash flow positive, they're an instant discount on many goods and services, and they allow you to cover week-to-week or month-to-month variability in cash flow without business or social consequence. Also, while I would strongly advise against running up $X0k in debt prior to launch, if you've got a decently operating business they're a reasonably cheap and very available form of credit. I've spiked my cards to, hmm, probably $80k or so at points over the years. That implies an interest expense of roughly $1,000 per month (assuming you revolve it). Interest is like any other business expense: $1,000 is cheap at the price if it buys you $2,000 of increased opportunities.

warrenmar 13y ago

You can download The Bootstrapper Bible by Seth Godin for free. It's "Free for 2 weeks only through December 30th!" http://www.sethgodin.com/sg/docs/bootstrap.pdf‎ http://www.sethgodin.com/sg/docs/bootstrap.pdf‎ If you haven't gotten into an incubator, you should think about bootstrapping as long as you can until you find your product market fit. If you burn investor's money before you find a fire that can grow, you will be forced to quit.

AndrewKemendo 13y ago

The general sentiment of bootstrap, get traction, get paying customers etc... is generally accepted by the vast majority of serious entrepreneurs, but I think the idea that moving forward you will be able to get to an MVP with no budget will become very difficult. This is largely because the projected technologies of the future will require much more up-front capability to even prove useful to a potential user than ever. Doing anything useful or reliable with machine learning, computer vision, data processing, image processing, robotics, genetics or nanotechnology takes years of practice engineering and studying. Those are the frontiers 10 years from now and to think you could bootstrap a competitor to SIRI or QR reader etc... without already having a significant background in it is in my mind far fetched. I would love to see this proven wrong with the creation of an API/framework/toolset that allows people with <5yrs in engineering to create such products.

cabinguy 13y ago
I hear what you're saying but you do not need to compete with SpaceX or Apple to make tens of millions of dollars. If you're bootstrapping, you should keep it simple and pick a smaller target.

mikekij 13y ago

I can list a hundred tech companies that wouldn't have been successful / acquired had they not raised money. You couldn't really bootstrap Twitter. Or most medical device companies. I have a friend bootstrapping a company right now. He is growing organically, and is cash flow positive. He'll likely be acquired in 4 years for about $20M. That's awesome. But if he would have raised just $3M, he could have built his product in 18 months instead of 5 years. In the end, he'll have the satisfaction of having bootstrapped. But from a purely financial perspective, I think he would have been better off raising money and exiting (or being even more profitable) faster.

sgeisenh 13y ago
I think, within a certain threshold, it is definitely more financially responsible to bootstrap. Though, I agree with your point about Twitter, etc: if you're a seasoned developer/entrepreneur with a large scale idea that requires serious capital to get off the ground, you can't bootstrap. But for something that is effective at a small scale and can be built from the ground up, the timeline only shifts a small amount (so long as you pursue all marketing avenues available). I'm assuming that your friend evaluated the risks of fundraising and made a reasoned choice. I don't think it is fair to reason about his venture in hindsight.
ibrad 13y ago
A hundred tech companies are still an exception. Yes building an amazon type of business requires more than your savings, but it is not what most businesses are doing. Joel Spolsky made a very interesting post about it[1]. A lot of companies, that are clearly not going to be Amazon sized one day, are looking for investors just so they can make another bufferapp type of deal. We always list Twitter, Facebook, Google, and those hundreds you are refering to, but those are a handful compare to everything that is out there. [1]: http://www.joelonsoftware.com/articles/fog0000000056.html http://www.joelonsoftware.com/articles/fog0000000056.html

ryandrake 13y ago

This advice seems really awesome if you already have a pile of money in the bank to spend on bootstrapping your business (and living while you try). For everyone else, the ability to actually raise capital is vitally important. I'd love to start my own company. I'd do it tomorrow if I could. What's stopping me is that my family likes to eat and my bank likes to receive their mortgage payments each month, and without a "real" source of income those things don't happen.

pan69 13y ago
I'm not sure what the advice in the article actually is other than, don't spend money you don't have. I can't really find anything tangible in the article...

alok-g 13y ago

Whatever business idea you are working on, and assuming it has the potential to become a money-making business one day, the decision to raise money or bootstrap should depend on what minimizes your overall risks and maximizes chances of success. If bootstrapping, and if bandwidth-limited, you would be growing slowly while the competition / market could be moving at a faster pace, thus increasing your risks. If this is the case, it may be better to raise money and hire people to increase your pace. If you raise money, it should be to solve some real and key problem you have that is solvable with money. That problem may be skill / bandwidth, advertising, patenting, whatever. As far as the problem is real (which means solving the problem will reduce your risks considerably) and it is solvable with money, it is better to raise money than to bootstrap. If you are wrong somewhere in your assessment on what your risks are, where money can and cannot help, how fast the market will end up moving, etc., you are likely to make a suboptimal choice for yourself.

mkal_tsr 13y ago

I'm bootstrapping now and growing organically (as well as keeping the site invite-only to handle scaling slower) and it's been an interesting ride. I know if I could bring on a business/marketing person I could take it to a VC and really start hammering away at it, but I've also gotten past MVP-stage on my own and the service is profitable and steadily growing (aside from fully covering my living expenses) and I have no loans out for the company / debt-free. I keep getting a stage later than I thought I would on my own, so I dunno ... I'm a software person not looking to run a business but work on my own products/services. There's definitely an ego portion involved I think, but definitely less so than my worry about raising VC debt and losing control of "my baby". At some point I will have to say "this is where someone else more experienced takes over" and I think that day is quickly coming ... so long as I can work on the technical side / features, I think I'm ok with that ... I could not see myself being a CEO because it's just not that interesting to me.

jds375 13y ago

Many out-of-college entrepreneurs want that sweet VC money because of the status associated with it, even if it may not be necessary.... Now it is often the case that one should take/want that money, but to think that VC money is what it's all about is a bit too much and far too common.