Bootstrapping vs. Raising Money

I had a fabulous time at MicroConf last week. It’s a great conference with about 150 attendees for the “Starter Edition” -- lots of online course creators, info product folks, SaaS people, and others. It was my first time, but I’d heard great things from past attendees.

Days before the conference started, I was asked (and felt honored) to lead two workshops on bootstrapping vs. raising money. Having started and sold 3 successful bootstrapped businesses, and am now running 1 venture capital backed business (Coach), this is a topic I know a thing or two about.

For the workshops, I didn’t prepare anything, I just jumped right in talking about my experience as well as the pros and cons of bootstrapping vs. raising money in 2017.

Having started and sold 3 successful bootstrapped businesses, you'd think I was more “pro” bootstrapping vs raising money, but times have changed. I was known as "the bootstrapper" for years and have written numerous articles about it, spoken on panels, and more, but 2017 presents a whole new set of challenges.

Let’s start with what’s “good” about raising money

MicroConf is a conference of mostly bootstrappers, so you really need to be convincing when you start talking about the reasons why raising money is a good thing.

Here’s how I broke it down in my workshop:

More resources, faster

As a startup in 2017, having limited resources can in and of itself sink your entire ship.

When I first started building Coach, I invested $30k of my own money to get a prototype working and acquire our first half dozen customers, but I (and the contract developer who I was working with) were spread too thin.

It wasn’t enough at the end of 2015 to have a working prototype and a handful of customers to somehow take over the market. We needed more people (not a ton, but 2-3) to really see our vision through and to build something we were proud of.

Without raising money, 1 of 2 situations would have fallen upon us:

  1. I would have had to dig deeper into my own pockets to continue to pay the contractor as well as hire others. Hello, debt.
  2. I would have continued to scrape by with a product that was conceptually on point, but didn’t have the bells and whistles that customers expect nowadays.

Competition is everywhere

Direct competitors are one thing, but I don’t worry about them. What I worry about is the demand on every one of your potential customer’s attention and time. There are so many people, products, and startups that are vying for their attention, that it’s harder than ever to rise above the noise.

Even if you target a super niche market and do just enough that’s needed to get their attention, you still have less time to figure out if that market actually wants what you’re building, and even less time to iterate if things don’t go well.

If this is the case, you may find yourself starting all over with little revenue (if any), a 1-2 person team that might be consulting on the side to pay bills, and no marketing spend.

Long story short, it’s just not 2000's anymore.

The quality bar has never been higher

These days, to even get noticed, you need to be 100% on point with design, product, copy and marketing.

But as a bootstrapper, you (by definition) have little-to-no money other than what you personally put into the business. (And, no, I don’t count raising $50k from friends and family as bootstrapping. You’ve raised. But that’s for another blog post.)

With no money, how do you expect to have great design, engineering, copy, marketing, content marketing, customer service, operations, and everything else that comes along with running a successful startup.

Something has to give.

What tends to give are what you really need to be focusing on most at the start of your business: customer development, customer outreach, marketing, copy, and design.

These are all things that, in 2017, can’t be overlooked as “I’ll get to them eventually”.

Having great accountability

As a bootstrapped startup, the only accountability you have is to yourself and to your co-founder if you have one. Other than that, your accountability is to your savings, checking, and credit cards.

But as an early stage startup, accountability is so important.

Having your investors in the back of your mind can give you an extra boost of productivity and support that you often need during the difficult times. If you’ve raised money, you feel more positive pressure to not give up.

Nobody likes letting others down, so that little extra pressure can be just the push you need to stay on track and succeed.

What's “good” about bootstrapping

While I shared my reasons for why I think it may be better to raise money in 2017 (if you have access to great investors and good terms, that is), bootstrapping certainly has a lot of advantages.

You get to keep more of your company (or do you?)

The very act of raising money means that you’re giving up a percentage of your company. How much and at what terms, is up to the deal you strike with your investors, but you can’t take money without giving away equity.

Now as a bootstrapped business, you’re still giving away equity, but instead of for money, you’re giving it away for time, to your co-founders and others you may work with.

You might even end up giving up more of your business to incentivize people to come work with you for no money, but the upside here is that these people are working directly on your product and business, whereas your investors are more looking on and giving advice on the sidelines.

You can also getaway with giving up zero-to-little equity if you finance the business out of your own pocket or through other means, such as consulting.

Nobody can tell you what to do

As a bootstrapper, you have nobody above you on the cap table (note: investors sit above you in their liquidation preference), so it’s your way or the highway.

You can literally drive your startup in any direction you please, and nobody can tell you otherwise.

Sometimes this is beneficial as you may feel more freedom to explore new ideas and new product features, but you do lose the “accountability” that I mentioned above.

Still, it’s all yours, and you can do what you want with it.

More respect from other entrepreneurs

Not sure if this is a reason in and of itself to bootstrap, but you should know that bootstrapping does come with one de facto benefit: your entrepreneurial friends who have raised money will respect the hell out of what you’re doing.

“Do you know Danny Wen of Harvest? They’re bootstrapped. 😍”

When bootstrapping TypeFrag, Carbonmade, and Uncover, I definitely got my share of pats on the back for never having raised a dime. These days, as a greying 33-year-old, I don’t care about the respect of my peers as much, but it’s not something you shy away from.

Should you raise money or bootstrap?

The answer to whether or not you should bootstrap or raise money is actually a pretty easy one in my mind: are you able to raise money at good terms from great investors? Do it! If not, then bootstrap.

It’s really that simple.

Startups are unbelievably difficult, time-consuming, and resource-dependent, so giving yourself every advantage possible is important. Having money and spending it wisely is a serious advantage that should be jumped on if you are fortunate enough to be able to.

Alternatively, you can also take the approach I did when building Coach, and that’s to start bootstrapping ($30k over ~6 months) and then raise money when you feel more confident about what you’re building, and who you’re building it for.

Please share your fundraising and bootstrapping stories below in the comments. Anything I missed on either side?

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