Huge early stage investment announcements seem to be a daily event. Tech startups with little to no traction / revenue are receiving unbelievable seed and VC investments with valuations that most in the industry can’t comprehend. But as Eric Ries highlights in his most recent article entitled “Winter is Coming“, these days of “summer” are going to come to an end. Entrepreneurs – consider yourselves warned! Investments in new tech startups are going to dry up, and “easy” seed funding isn’t going to be so easy to obtain. So how can new tech startups prepare to survive for the cold “winter” ahead? Here’s my advice…
Learn to bootstrap.
According to Wikipedia, the definition for bootstrapping is simply:
a self-sustaining process that proceeds without external help
The key here is “self-sustaining” – in order to weather the coming “winter”, tech startups need to learn how to become self-sustaining. Seems like an easy, and somewhat obvious, concept for a business but for many startups, it isn’t. Too many tech startups successfully secure seed funding in their early stages, immediately begin paying the founders and employees good salaries, ramp up operations and overhead expenses, and ultimately burn through their seed capital without ever launching (or shortly there after). These startups never learn to run lean nor become self-sustaining. This is one of my issues with investor-funded startups – with investors (not the founders) carrying much of the financial risk in the early days, startups often fail to achieve a self-sustaining process simply because with cash in the bank (the investors cash!), there is no immediate rush to do so.
I’ve always been a fan of bootstrapped startups, but Eric’s article resonated with me with respect to the valuable lessons entrepreneurs can learn from bootstrapping. Often founders view bootstrapping as a “last resort” or a strategy only for those startups whose ideas aren’t good enough to get funded. Not so. There are some amazing lessons that my team has learned, and so should others, by intentionally bootstrapping a startup. It will ultimately make you a better entrepreneur and, more importantly, help prepare you to weather the cold “winter” ahead.
Here are what I believe are the benefits and the most important lessons that entrepreneurs can learn from bootstrapping their startups:
When it’s Your Cash – You Care: When it is your cash you are spending on payroll and overhear, you care. Plain and simple. Achieving a self-sustaining business model isn’t a “nice to have” it is a “must have” – otherwise it’s your life savings you’re burning up. No better motivator for success.
You Get to Market Faster: Again, when its your cash on the line, there is no long deliberations about features you should add and no long, drawn out design cycles. Every day counts. Your team focuses on building the minimum viable product (MVP), and you start selling – fast! Added benefit – you are likely first to market as a result.
You Call the Shots: In bootstrapped startups, the founders call the shots – period. There is no, “we have to clear it with our investors first”. Decisions are fast, because they can be and need to be.
You Learn to Run Lean: Eric Ries’ Lean Startup concept is a fabulous one. For bootstrapped startups, its not a fad, it’s a way of life. Doing more with less is a skill that bootstrapped startups learn quickly, and ultimately is a one that allows them to grow organically through strong margins and great customer engagement.
You Become “Sexy” to Investors: There is nothing like playing hard to get. If you want to attract investors (for future growth of your startup or other spin-offs), there is nothing “sexier” than a successful bootstrapped startup that has proven it knows how to manage its time, team, and capital. Successfully bootstrapping provides you with the credibility that will have investors knocking at your door.