19 September 2005


The Jenius is tired--very, very tired--of hearing people say that they could start a business if someone gave them $100,000. And The Jenius is even more tired of people who have received that amount of money--and more--and STILL can't get their businesses to fly.

The Jenius prefers building the business quickly and letting the market finance it. In other words, you select a high-value concept and get the market to buy into it. Although defined differently, the term for this approach is bootstrapping and no less a personage than Greg Gianforte, CEO of RightNow Technologies suggests you look at bootstrapping to get your business off the ground.

Bootstrapping: The Secret to Entrepreneurial Success

How do you launch a successful high-tech business? If you ask the typical MBA, they'll give the same answer. Write a comprehensive in-depth business plan, take it to investors to secure a healthy initial round of funding, recruit the heaviest heavyweights you can, and start the PR machine cranking.

But, of course, they'd be completely wrong.

If you look at all start-ups, less than one percent get VC funding. Most are launched with less than $20,000. And some – including Dell – were created with less that $1,000. I personally started my first software company - which was acquired for $10 million by McAfee in 1994 - with a couple of friends and about $5,000 in cash. And I started RightNow Technologies - which went public August 4, 2004 and as of this writing has a market cap of $350 million - at my desk in Bozeman, Montana without any external funding whatsoever until the company was well-established with 400 customers.

That's why the advice I'd give to anyone wanting to start a company today would be just the opposite of what they tell you in B-school. I'd tell you to "Bootstrap" it.

I define "Bootstrapping" as the act of starting a business with little or no external funding. Bootstrappers don't write lengthy business plans, chase deep-pocketed investors, or indulge in overly academic market research exercises. Instead, they focus all of their considerable energy, brainpower, determination and skills on creating a business that can actually succeed in the real world.

In fact, I can offer at least eight solid reasons why Bootstrapping will consistently deliver better results than the "fund-and-burn" model that has become entrenched in Silicon Valley and elsewhere:

1. Bootstrapping ensures that you build your business on a legitimate, real-world value proposition. When you're Bootstrapping, you're forced to deal with customers and to fulfill their needs from Day One. If you have a lot of external funding, on the other hand, you can be fooled into thinking you've already created an actual business just because you're paying salaries and rent. But you haven't. You only have a business when you have paying customers. Bootstrappers know this instinctively, and never lose that customer focus.

2. Bootstrappers initiate the critical sales learning process sooner, not later. Selling is the hardest job of all. You have to learn how to be absolutely great at selling your product or service, and then teach others how to be absolutely great at selling it too. If you have too much cash-on-hand, it will take away from the urgency of initiating this process—so you wind up delaying the day when you screw up your courage, pick up the phone, and ask for that First Order. Bootstrappers are forced to start selling immediately as a matter of survival, which means they become better at selling sooner than their venture-funded counterparts.

3. Bootstrappers don't waste money; they make it. If you have $100,000 or $1 million in funding, what do you do? Leave it in the bank? Of course not. You go out and spend it—or, to use the commonly accepted term, you "burn" it. This has actually become an accepted practice! Venture funding actually encourages the start-up to waste money long before a viable business has been established. In a Bootstrapping model, on the other hand, waste simply can't occur because there is nothing to waste.

4. Bootstrapping accelerates time-to-market and time-to-profitability.
If you go the Bootstrapping route, you can start your business immediately. Immediately! If you want to pursue external funding, on the other hand, you can't start your business until everyone else tells you it's OK. Venture capital firms might take up to a year or more to decide on whether to invest. They might want a 200-page business plan. Their funding requirements might force you to spend up to $50,000 in professional fees. Venture-funded entrepreneurs spend an inordinate amount of time trying to find sources of external funding—while Bootstrappers are already on the street looking for customers and closing deals.

5. Bootstrappers are less likely to make big, fatal financial mistakes. Because they don't have huge amounts of cash, Bootstrappers can't make the kinds of huge mistakes that often destroy venture-funded companies it. From a personal perspective, Bootstrappers are also at less risk—because they don't have to put up the family home as collateral or jeopardize a lifetime of savings. They can start with whatever funds they feel comfortable investing to get things rolling and then fund the growth of their business with their actual initial revenue.

6. Bootstrappers are forced into unconventional thinking. Necessity truly is the mother of invention. Without a big cushion of cash, Bootstrappers are constantly forced to solve problems creatively. This results in innovative, outside-the-box approaches to everything from product design and manufacturing to marketing and sales.

7. Bootstrappers have more freedom and flexibility. When you take external funding, you become a slave to your business plan and you have to constantly answer to third parties: banks, private investors, grant agencies, etc. This destroys your ability to respond and adapt to unanticipated business challenges, changing market conditions, and unexpected business opportunities. Bootstrappers, on the other hand, aren't hampered by these forces. They can change direction overnight if that's what circumstances call for. This adaptability significantly increases their likelihood of near- and long-term success.

8. Bootstrappers wind up owning much, if not all, of what they create. This is a huge consideration. When Bootstrappers succeed, they get to keep their winnings. Some can even pass them along to their children. In a VC-backed company, on the other hand, you have to have to achieve a tremendous amount of growth to profit personally—since you have to fulfill your investors' ROI expectations first. In fact, once you're addicted to external financing, you can see your shares totally diluted by subsequent rounds of funding. So you can wind up with a successful business and little personal financial gain to show for it.

From my personal experience, I could add a ninth reason to this list: Bootstrapping is good, clean fun. When you Bootstrap a company, you're far less likely to find yourself in situations where you have to make promises you can't keep or where the temptations that go along with large sums of unearned cash present themselves. Instead, your entire focus is on creating value. You market, sell and serve your customers every day as if the business depended on it—because it does. And that commitment to achieving success by delivering value is really at the heart of the American business dream.

Forget "the American dream." Think "global success." "Empowerment." "Financial freedom." "Transcendental change." Stop waiting for someone to shackle your future with a check: make your business dream, your path to success, a reality today.

The Jenius Has Spoken.

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