Bootstrap your startup: chase customers not investors, revenue not rounds

In recent years, the term tech entrepreneur has been glamorised to the status of celebrity, creating a cohort of Silicon Valley wannabees. There is real dignity and romance to entrepreneurship, but there is now a mantra that if you don’t have pretense of an ambition for Eating The World, raising millions and becoming a unicorn, then you’re not a real tech startup.

I have a nagging sense that the zeal for being disruptive and x10 growth isn’t the only air a startup can breathe, but they are crowding out other motives. Part of the problem seems to be that the millennium kids aren’t content to merely put a dent in their own universe, rather they have to put a dent in the universe.

In this atmosphere, the term startup has turned into an obsession with unicorns, a whole generation of entrepreneurs enthralled by the prospect of being transformed into a mythical creature. This fairytale ideal is being reinforced at every turn and an inappropriate yearning for the Mecca of Silicon Valley.

This saccharine rhetoric around entrepreneurship today hides an extraordinarily rapid switch in the balance of power between startup founders and investors that marks the early frontier days of a tech startup. The mindset has shifted. Investors have won.

Why have they won? Well, the gung-ho sentiment of ‘raise money, raise money, if you don’t you’re not a genuine entrepreneur’ has killed off the simple do-it-for-yourself bootstrapping ambition. I find this sentiment a vacuous rationalisation of the grim economic realities – most startups don’t raise money. In fact, most don’t need it.

There are still entrepreneurs wily enough to stay outside of the system and play the game on their own terms, but for the most part, the collapse of the balance of power is not a good thing as it is stifling the real driver of entrepreneurship: entrepreneurs should chase customers, not investors; they should chase revenue not rounds.

They have a vision, but they end up on a different path that effectively makes them mercenaries for hire. They are prospecting for gold in someone else’s Klondike, rather than being self-driven mavericks shooting for their own moon themselves. It’s a path that promises jackpots, but actually creates an agenda simply linked to financial return for someone else, not innovation, creativity or product-market fit.

Startup funding, when applied with wisdom, can work for entrepreneurs. Applied naively, it is a back-seat driving mechanism with which investors can micromanage. By codifying the entrepreneurial insight with investors, it allows investors far greater visibility into operational realities, steering and controlling velocity by their control authority via board seats.

Bootstrapping has been discarded for other people’s money, which changes everything.  In accepting venture funding as the de facto model for growth, entrepreneurs have handed control to investors with an episodic narrative that encourages a short-term focus and rush to exit, and not a long-term building and learning journey.

It’s hard to carry on a conversation with most startup founders these days without hearing the word ‘round’ – their eyeballs fixating on money. Once you take the money, it’s a debt owed, with all the nagging reciprocity that comes with it. Don’t just accept this definition of ‘success is the next round’ because everyone else is cheering that. The chorus of the masses is loud, and that’s seductively alluring. But let’s take a step back.

The real question is why did you launch your startup?  I don’t believe most people are solely motivated by fawning over the latest hockey stick phenomenon. Bedazzled maybe, but I invite you to dig deeper and explore your original motivation.

In the US, Shark Tank and at home, Dragons’ Den celebrate entrepreneurship as reality TV, looking for folks to build the perennial Next Big Thing and scoring a heart-warming Techcrunch story. The winner is pumped to deliver that 10x return, well aware the aim is to clear a somewhat extraordinarily high fence.

Curiously, the hand-wringing camp usually wins.  Lest you feel inclined to be snarky about this plot, consider this: What the entrepreneur is gambling for is not the space trip and big fortune, but merely survival. There are very few winners. It also involves a massive amount of self-delusion. This narrative works as patronising sarcasm precisely because the standardised term sheet marks the promise of Emperor’s New Gold.

Many startups go for raising money just because it’s available. But most of them shouldn’t. The reasons for wanting the money – because it will make growth and hiring easier – are not enough. To be sure, there is no single right or wrong answer for everyone, but don’t take money just because it’s there.

That funding will be the most expensive cash you ever buy. But beyond that, cash is addictive. If you let investor funding become the driver for your business early on, it’s very difficult to wean yourself off of it as you grow. Many people who think they need that outcome in order to live the startup life that they want are quite simply wrong.

You’re selling your startup vision and business model to investors. Why not take all of that energy and hustle that requires to build yourself a better business, and have long-term impact? Instead of selling to investors, sell to customers. Think about ways to increase revenue – build your brand, increase your prices, upsell on added value, get new customers in the door. Make your startup its’ own financial backer.

Consider for a moment that a funding round wasn’t an option available to you. The alternative is bootstrapping. You may see slower growth and far more hard work on your part, yet for me, this is ultimately more rewarding.

But the common view is you need to turn to investors who will hand over funds. However, this rarely occurs, and you’ll likely waste your time, effort and money on pitch development in the process. Instead, bootstrapping affords far more opportunities:

  • You’ll stay passionate about your startup and discover key talents you didn’t know you had. Don’t be quick to hire when you can do the work yourself. Putting in more sweat instead of hiring others, especially in the early days, will help keep your costs down.
  • Later, bootstrapping is likely to attract the right talent. You’ll bring in people who can actually push you forward because you’ll have better insight into who you need.
  • You retain control today, and in the future. You don’t have to sell equity for investor compensation. It also ensures all of your cash generated from profit remains in your pocket, not investors.
  • Most importantly, without investor financing, you’ll grow a better company that’s less dependent on pleasing investors and more likely to develop the type of product or service your customers need.

Bootstrapping can be challenging and hard work, but it nearly always affords startup founders with a better end result. In a survey conducted by Quartz Media on why startups fail, it was evident that funded startups were more likely to run out of money than those bootstrapping, because they were more judicious and focused on the decisions better. There is clear evidence that external funding distracts founders.

Independence isn’t missed until it’s gone, in the sense that external money dictates your journey. The motive, for me, of doing my own thing means rejecting the definition of success proposed by the San Franciscan economic model of Get Big. All this may sound like I have a lack of aspiration. I like to call it modest, realistic, achievable.

It’s a designed experience and a deliberate pursuit that recognises beyond a certain level of financial success, the trappings of a blow-out success aren’t nearly as high up the Maslovian pyramid of priorities as people think.

Let investors keep their money under their mattress for someone else. When you take money from investors their business model becomes yours. Einstein said compound interest is the eight wonder of the world. Morality pitted against the compound leverage of capital is often outmatched, but there are people building profitable startups outside the sphere of the venture capital dominion that have little systemic need to tell their story.

The web is the greatest entrepreneurial platform ever invented. Lowest barriers of entry, greatest reach ever. Examine and interrogate your motivations, reject the money if you dare. Recognise that a startup doing something useful that dents your own universe is plenty. Curb your ambition. Live happily ever after.

Recognise your thirst for venture capital is vanity capital. Entrepreneurship is an emotion of ambition. Venture capital appeals to another emotion – greed. Stop chasing investors and start chasing customers. Avoid the time wasted for attracting investors, managing their expectations and getting through to the next round of funding.

I appreciate that some projects have high capital costs, but this focus can distract you from your far more important and ultimately the only source of funds that matters – your customers.

Every startup has a limited runway and investment can help extend that, external funding is a temporary fix to give sufficient time to test and perfect your business model. But there’s something refreshingly clear about having no external funding and no investors to keep happy, allowing you to focus 100% on your customers.

If you can satisfy them, and they pay for it, you’re in business. If they don’t, you’re not. It cuts to the chase a lot faster. When you are forced to rely on your customers it puts you in direct contact with them and you quickly find out exactly what they want and don’t want. It’s amazing how quickly you learn what is necessary and what’s not when your funds are so limited.

For me, the steady advance of this ‘round x’ philosophy is destroying the very concept of entrepreneurship, founders mistakenly believe that fundraising is a substitute for selling to actual customers. Let’s stop all this craziness. You need validation from customers willing to pay for your solution. Your key to economic independence isn’t reliance on outside investors, it’s the creation of a customer base that believes in you and your offering.

It can be done: Hewlett-Packard started with just $538 and a garage. That was a lot of money in 1936 when the company was founded, but that equates to about $7,500 in today’s currency.

Bootstrapping out of your own pocket is difficult, but for me, ultimately more fulfilling – you did it on your own terms and your own effort. It’s by no means impossible to give up a chunk of your personal life today for the sake of your future self.

Ultimately, bootstrapping is making an investment in yourself, by yourself, for yourself. In a startup, hope is the fuel of progress. Focus your entrepreneurial endeavours and progress based on your passion, your ideas and your ideals, not other people’s money.

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