Reflections on “Connecting Companies with Capital”
by Nitzan Shaer
Bootstrapping and venture funding are not an either/or proposition. Rather, bootstrapping can be a time in a company’s life cycle when certain activities, if executed on correctly, can set the company on the right track, increasing its chances of success, in a big way.
Bootstrapping and when to move beyond it was the topic of a panel, which I had the opportunity to be on, during Brew Boston. Connecting Companies with Capital, sponsored by IBM and Accounting Management Solutions, was held at the IBM Innovation Center in Waltham, moderated by Dan Davis of Accounting Management Solutions, and included panelists Nick Goggans of Lytiks and Shahid Azim of Lantos Technologies and myself.
Before revealing some of the secrets to successful bootstrapping, I wanted to share my personal view of bootstrapping in today’s economic, entrepreneurial and innovative environment.
Bootstrapping is one phase of the funding continuum
Noam Wasserman, a luminary on entrepreneurship and a Harvard Business School Professor, famously concluded entrepreneurs can be rich (via VC funding and a bigger exit) or kings (running their businesses as they see fit). But rarely can be both. That said, if you look at bootstrapping as a phase along a funding continuum, you can be king – having control of the idea creation and validation – and then later be “rich” by applying capital to grow fast.
Viewing bootstrapping as one step in a process, as opposed to the “destination” of securing funding, means there is a time for bootstrapping for nearly any company. I say nearly, because there are clearly exceptions, such as capital-intensive companies (e.g. life sciences companies), where bootstrapping is rarely possible.
So, if you are bootstrapping or thinking of it, here are some tips to success.
Bootstrapping Secret to Success #1: Validation
A common, and significant mistake among start-ups of all sizes and funding, is to share, announce and launch too soon. To go “prime time” before being ready; often because they feel the pressure to get to market as fast as possible.
Bootstrappers, on the other hand, have the “luxury” of spending time on iteration and validation. Whereas the funded company may have external and internal factors driving the need to create buzz too quickly, the bootstrapper has the time to fully bake the concept, product or service.
There are three elements that need to be validated:
1) Validating the need: is there a burning need in the market?
2) Validating the product offering: does your product address that need?
3) Validating the team: do you have the right team to build that product?
The validation process allows you to check and re-check assumptions, and, most importantly, validate the market, product and team before applying major capital. As we discussed on a FutureM panel, product validation is an iterative process, and one that – in today’s environment – can encompass many approaches to gaining feedback prior to formally launching an offering. Think Lean Start-Up and Minimal Viable Product.
To mitigate a shortage of cash flow, bootstrappers are wise to identify consulting and services revenue streams to support product development and validation, while avoiding the temptation of cash that takes them off track.
Bootstrapping Secret to Success #2: Know when to Fold ‘Em, Walk Away or Run
Bootstrappers risk not identifying when to walk away. If revenue is dripping in and the ‘big win’ is just around the corner, it’s easy to succumb to inertia. The entrepreneur’s biggest danger is always waiting for the “next quarter,” when everything will be great.
The smart bootstrapper has an external sounding board. It could be a small advisory board, a “kitchen cabinet,” or a confidant. It’s someone who can objectively say, “the time for iterations and validations is done.” The time has come to go big, or fold.
Bootstrappers are not entrepreneurs who have not received funding; they are entrepreneurs who – for many reasons – are not ready to accept external money. The bootstrapper who understands this is the one who is well-positioned to receive that external funding once they have accomplished specific milestones.