It’s your superpower – avoid Kryptonite!

I’m clearly a fan of bootstrapping but why am I so passionate about other founders taking this route?

Firstly it’s your idea- it’s your superpower. You’ve either left your job or decided not to be an employee, chosen this route, and taken the risk. The hardest part of starting a business is just that-the step of actually starting it. You’ve taken those first few steps and put yourself out there. The mental commitment, the financial risk, the effort that is required, all of this is huge, so if you’re going to do all that, you deserve to own it.  Why hand any of it over to investors? By bootstrapping you make sure it stays all yours.

Bootstrapping also means you retain control. You are in charge of your destiny. You answer to no one. The product, the brand, the strategy, every single decision is yours. If you wake up in the morning and want to do something different such as enter a new market, launch a new product or develop a cool feature then away you go. There are no investors that you need to discuss it with first. Being your own boss, being in control of your business, being on point and making all the calls is amazingly fulfilling.

As well as control, the process of bootstrapping means that you can’t waste time building a product that’s looking for a solution. As I discussed in my previous blog ( Startup Myths to Ignore! | LinkedIn) the very process of bootstrapping forces you to put food on the table as you build your product. It might take several iterations before you eventually arrive at the product you can scale but product market fit is built into the process. The only way to bootstrap is to find and build a painkiller.

Bootstrapping also teaches financial discipline. Every single cent counts. You are forced by the process to make the small trickle of cash you generate last as long as possible and be put to the best possible use for your fledgling business.  It’s all your money. Whether it’s the runway money you saved, or the first money you have generated, it’s yours and that means, by definition, you will be much more careful with it. This cost discipline from the start stands you in good stead later as you grow, and cashflow and driving the P&L becomes important.

Building a renewable product is critical for bootstrapping as this provides the cash base that allows you to grow. As a bootstrapper you focus on doing this by providing best in class customer service to your initial customers.  This constant customer interaction and dialogue means that your product evolves so that your customers renew. This necessary focus on renewable business as opposed to winning new logos means that you are building a sustainable well founded business.

Finally, by building the business from the ground up with your own two hands, you understand every part of it. You will undoubtedly learn a lot of new skills and develop a better understanding of areas you have never worked in before.  Not enough to be an expert but enough to get these parts up and running while you generate the funds to bring in people dedicated to them.  This is gold later, as when there is a problem with your business, there’s no part of it that you don’t understand and where you can’t at least contribute to solving any problems with your advice and thoughts.

So you retain control and ownership, you build a sustainable renewable business, you learn fiscal discipline and you understand every part of what you have built, what are the downsides?

Elon Musk calls it staring into the abyss. You are always only one poor decision away from going to the wall. This is enormously stressful.  The mental toll that bootstrapping can take on you must not be underestimated, dismissed or ignored. When you have challenges or hit a cashflow wall there’s no friendly investor with deep pockets waiting to tip more funds in or provide some advice or guidance. Being in charge is amazing because it’s all your own calls but it’s also terrifying as the buck stops with you. There’s no one to turn to when the going gets tough. It’s exhilarating when its working but there is nowhere more lonely, more demoralising and more confronting when it’s not.  

What about taking investment then?

Despite what you hear very few startups even get seed or series A investment- less than 1 in 5. The argument often is that investment gives you time to get up and running. All that time you spend talking to investors can be better spent talking to prospects and building solutions. All the time you’re chasing investors, creating pitch deck after pitch deck, you’re burning through your capital, capital that could be funding you as you identify pain points that your prospective customers need fixing.  Finding that and building a workable solution is a better use of time and funds. Even if you are one of the 20% and you do get some investment what happens next?

Usually investors bet on a 1 in 20 return.  That means once you have secured investment you are now 1 in their portfolio of 20. Despite all the promises made to you while you were pitching them how much practical advice and help will you really get? Many investors, unfortunately, are not ex-founders and no amount of MBAS from business schools teach you how to actually build a business. Even if they are ex founders and  have good advice, you have to consider whose interest are they are advising you in. They have invested and now they want a return which means you are now on the clock, not your clock, theirs.  They have to generate an exit and return funds with profit to their investors within a certain time frame, so the advice you get is geared to doing exactly that – not necessarily to building the sustainable business you might want.

If you accept all this and manage to get investors on board what then? Most founders are so excited to get investment, after the exhaustion of the endless rounds of pitching, that they frequently agree to terms that are borderline draconian.

I read with horror the other day of two founders who built their business to a successful 120 million exit but they didn’t get anything themselves as they had given so much away to investors in numerous funding rounds and they had not understood the preference sheet and how it worked. Imagine that! All that hard work and success for no financial return at all.

Even if you don’t hand over all of your business, you’re still handing over a significant share to be on someone else’s timeline and under someone else’s control. It’s your superpower! No superhero hands over their superpower 😊 Not only that but you’re handing it over when it has the least amount of market value.  It’s literally the worst possible deal for you.

Bootstrapping means you can avoid all this. Yes, it can be stressful but if you’re one of the freewheeling rebel founders that dares to think differently, then by bootstrapping you retain control and you keep ownership. All your runway capital goes to helping you start your business and win your first clients, the process itself guides you to product market fit and you get to build a sustainable renewable business that you can lead and choose how to grow.  Finally, if you do exit, then you and your team get the reward for all your hard work. So avoid VCs  and investors with their Kryptonite funds – it’s your superpower- don’t give it up.