It’s not easy to bootstrap your startup. But for those who are able, the short and long-term benefits can be plentiful.
Five founders from the Seattle startup community participated in a panel discussion Monday at Seattle Startup Week, sharing insight and advice for other entrepreneurs interested in building companies from the ground up without taking on substantial initial outside investment.
One of the region’s more recent examples of bootstrapped success is BitTitan and its founder Geeman Yip, who raised $15 million in June after operating the cloud technology company for nine years on its own funds.
Yip on Monday admitted that he is “biased toward bootstrappers” and noted that it’s not the right path for every startup. But he said one real benefit from building a company without outside investment is that it forces founders to be “good financial engineers.”
“When it comes down to figuring out how your money works for you — whether it’s paying interest or making revenue — it’s very important, because every dollar counts,” Yip told the crowd at Impact Hub in downtown Seattle.
Yip certainly went down unconventional paths to help support his business over the past several years. For example, after BitTitan generated a substantial amount of cash, he invested in real estate just after the 2008 downturn, buying up townhouses and corporate housing buildings.
Yip thought he could make a 20 percent return, and sure enough, that’s what happened years later. But it was about more than just a good investment; BitTitan ended up utilizing that real estate for employees to use.
It all goes back to “how you engineer a financial situation,” Yip said, adding that bootstrapping helps founders build solid financial habits.
“You don’t take anything for granted,” he said. “You really look at everything as your own money, because it is your own money. You’re constantly thinking, can I spend this dollar in a different way?”
Here are some of the other takeaways from the panel discussion, which included Socedo CEO Aseem Badshah, Ripl CEO Paul Ingalls, 9Mile Labs co-founder Sanjay Puri, Poppy CEO Avni Patel Thompson, and WiBotic CEO Ben Waters.
Focus on revenue
Badshah bootstrapped Socedo, a Seattle-based online marketing startup, for three years before landing a $1.5 million round in January. Socedo’s technology was actually born inside a Los Angeles-based agency; Badshah and his co-founders spun out the startup in 2012 and moved the company to Seattle.
One piece of advice from Badshah, and something he wished Socedo did earlier, is to focus on generating revenue. It’s how you figure out whether or not your product or service is actually valuable, he said. It also buys your company freedom.
“From there, every financial instrument you look at is an instrument to take you to the next level, not to just survive,” Badshah noted.
Scarcity helps you be smart
Puri, who spent the past 3-and-a-half-years running the 9Mile Labs accelerator — which is now pivoting — said a lot of startups that raise big initial financing rounds spend money on sometimes-unnecessary perks. It can also lead to over-hiring, forcing CEOs to come up with “random projects” that can suck up valuable time and energy.
“Being able to monitor where every single penny is going, and whether you’re spending it strategically, is an extremely important skill to have,” Puri said.
Puri added that not every business or startup can bootstrap.
“Use a combination of mentors and use the concept of growth — let that be the North Star that helps you figure out if you should bootstrap,” Puri said. “If you do go down the bootstrapping route, just remember as an entrepreneur, you are too optimistic. Everything is going to take twice the amount of time and money. Be realistic.”
Focus on customers and growth
Thompson started Poppy, an on-demand childcare service, with just $180 in her bank account leftover after her first unsuccessful startup. She gave herself four weeks to get 100 paying customers.
“I didn’t have a lot of time,” she said. “If customers wanted it, they would pay for it.”
The lack of a financial safety net forced Thompson to really hone in on what her customers wanted.
“It gets you focused on being so close to the customer, and building a product that actually delivers value,” she said.
That led to initial growth — and showing that growth helped Thompson eventually land investment from angel investors.
“I just wanted to grow 10 percent per week — it doesn’t sound like a lot, but it really does add up,” she said. “In 12 to 15 weeks, I had enough to go back to my angel connections in the city and say that I’m on to something.”
When it comes to figuring out if you should survive on your own cash or reach out to investors, Ingalls said it’s important to understand how much risk goes with each option. That means talking with your co-founder, your colleagues, and perhaps most importantly, your family.
“When you start a company, make sure you understand why you’re starting it and what your goals are,” he said. “There are a lot of ways to raise money, and your goals — whether you are trying to help your family be comfortable or trying to go for a big tech IPO — can determine various funding vehicles you take. The risk-reward routes of various funding mechanisms are very different.”