Nick Goggans

Bootstrapping Pros Provide Hard Truths at WebInno27

September 15th, 2010 by Nick Goggans

CAMBRIDGE, MA – So you have an idea and you want to start a company? How do you do it? While much of the tech press tends to focus on announcements of Venture Capital funding, what is often less lauded and understood is the self-funded, tilting at windmills, bootstrapper. WebInno27 brought 3 of Boston’s finest together in one room to speak about the pros, cons, and the general facts surrounding the self-funded journey. Moderated by One-Forty’s own Laura Fitton (twitter: @pistachio), the panel included: Steve Conine, Co-Founder, CSN Stores; David Hauser (twitter: @dh), Co-Founder, Grasshopper; Todd Garland (twitter: @toddo), Founder, BuySellAds. As you may have expected the panel was candid with their experiences and beliefs in the merits of self-funding.

Getting Off the Ground
Basically, you need to be a little crazy. Crazy good. Not everyone can find the focus and passion that is required, the kind where you’ll get up at 4am to write customer service and sales correspondence until 7am before going to your day job as Todd Garland did when beginning BuySellAds (Garland, a former Hubspotter, acknowledged his apologies to former boss Dharmesh Shah who was in the audience).

Programming knowledge may be required. As we’ll see below, for a tech/software startup it is talent that is the most expensive cash overhead, especially early on. Programmers are expensive, hard to find, and further, if you have no understanding of programming, trying to figure out who’s valuable at what price is next to impossible. The biggest take-away from the panel, I think, is this, if you want to bootstrap a tech company, you better teach yourself how to program – the entire panel had done this to varying degrees. Now, this doesn’t mean you need to be able to write the full program, but I think it means that you need to be able to understand the basics of how programming language works, the logic involved, and just enough to build a very basic prototype.

Another way to put this: Get enough programming under your belt, so you can have a conversation with a programmer and understand – just basically – what C# or mySQL is, know what it looks like, etc. Further on your way to this knowledge, maybe you can play with it just enough to be able to build a prototype that you could show in sales to get that crucial first order (and possible cash for your programmer).  (Prototypes are also critical for angel investors, but I won’t go there now.)

The Telescopic / Microscopic Paradox
The bootstrapper has to have the full vision. Both Hauser and Conine talked about the need to take the long view. In their opinion, to be successful as a bootstrapper you should not  be thinking about exit or liquidity, but rather be dedicated to creating a company where you can work with people who share your enthusiasm to design solutions to market problems (or new spaces) that you’ve identified. And yes, it does need to be fun. Fun doesn’t mean you have a nintendo in the office. It means that there is a motivated and excited team of people who like working together.

The reason “fun” is important is what Garland mentioned (and I’ve heard and experienced before); the hardest part is the roller-coaster ride of emotions. As a football coach once said to me about football, “It’s got the highest highs and the lowest lows.” One second you see people enjoying your product and you’ve made a big sale and you think you’ve figured it out, while the next, an old client comes in reporting a major bug or maybe your computer hard drive crashed, effectively shutting down your server (with your clients applications on it). This is where a team helps. It’s the social support to stay level (not always positive), but steady and even, making sure you improve every day.

As Hauser said, you need to always beware of the cash position, but when it’s looking tough, “if you think about it for more than two seconds – you will fail.” While this got laughs in the room, I think this may have been one of the more important points. This returns us to the “crazy factor” – you need to be lucid enough to understand the seriousness of your position when something bad happens, but “crazy” enough to digest it, think of a solution, and move on it.

Bootstrapping Advantages
When we speak of advantages, we’re going to focus on “advantages to building the business” (as opposed to ownership controls, etc). The consensus of the panel seemed to be that it’s the focus this provides. Said Hauser, “A VC company doesn’t have to figure out how to make money,” point here being that the constraints that are placed on your cash flow when you don’t take VC money forges a focus on 1) getting your product out as soon as possible, and 2) figuring out how to build cash (as opposed to, say, building users and figuring out revenue later, as you could with VC cash).

Talent
One of the biggest decisions a young company makes is hiring talent. This is especially true of a bootstrapped software company where the first wrong programmer hire could be deadly. Further, this is generally your key early overhead (especially in Massachusetts with the tax and insurance laws). With these realities stated however, this is where you can also find an advantage against VC-funded companies that can go on a hiring spree.

It basically returns to the larger point, “Less is More”. You may have founders or programmers working in customer service (or receiving “it’s not working” emails). It may be better for key players to be intimate with such feedback rather than new hires in a back office creating custom company responses. Why? Because some of the critical pivot points come from these areas.

Yet, when pressed about where he could you see himself advising someone on taking VC money for talent, Hauser said, “If you’re a company that is going to go after enterprise sales and are making an investment in salespeople on deals that could take months that could be a situation.”

PR & Promotion
Another advantage of taking venture capital money is the press that comes with achieving funding. Further, this press can be exciting internally, as well as helping to influence potential customers. But the panel tended to dismiss this advantage. Again, Hauser (known for the wild chocolate covered grasshopper campaign) responded to this by saying that the bootstrapper can do it too, “You’ve got a great story. You’re a super cool company, you’re not VC funded, and you’re making money. That’s compelling. Make phone calls and build relationships with the press.”

Business Plans
Ok, you don’t need one. But again, I think all conversations on “business plans” must begin with the question, “What is a business plan?” The panel seemed to agree, so I’ll define  it as they did. All founders (and moderator Laura Fitton, founder of the fantastic Twitter application directory OneForty.com) agreed: it’s just a 1- or 2-page document with an excel appendix that is used to chart the course of the business. Its goals, I think, are two-fold: 1) getting everyone on the same page from sales to IT, and 2) a historical document that you check in on often and you may adjust. It’s like a captain’s log. You have the chart book, but you want to record your path and the changes in the journey and you want to keep your decisions recorded when you make strategic or tactical adjustments.

A business plan should be a well-worn map with frays and ink on the side, the kind of thing you keep in your pocket for reference. If you’re veering from it, that may be ok, but you need to know when you’re veering off.

Wrapping Up
A great discussion with some great minds and kudos to Web Innovators Group and David Beisel (twitter: @davidbeisel ) for bringing the bootstrappers to the forefront of this WebInno. There are plenty of tech bootstrappers in our Boston community we don’t know about and more events and information to help them make it is an important vacancy in the Boston tech community (though it is improving).

And one closing question
In the Q&A there was a great question and I offer it as a challenge to our community to discover or build it: “Where can I find a list of self-funded companies in Boston?”

This entry was posted on Wednesday, September 15th, 2010 at 1:53 pm and is filed under Innovation and Entrepreneurship. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.