Chasing and charming investors to raise capital is part and parcel of owning a startup these days, unless you are planning to bootstrap your business and use your own cash and any early income you generate to get it up and running.
If that is the case then you’re in good company – the likes of Mailchimp, Envato and Braintree all bootstrapped their way to success – but as a self-funded entrepreneur, you are also one of a rare breed who takes the risks associated with such a venture in their stride.
There are pros and cons, for example, it is a slower route to profitability, but you get to keep the equity. Without external investor influences, you decide on the direction of the business, but you do it alone, without valuable angel and VC network connections that could boost your visibility in new markets.
Some bootstrappers argue that with their business finances entirely under their own control, they can focus on strengthening ties with customers and bringing revenue in. Others enjoy the relative freedom of developing their products without the pressure of having to get it right first time.
Whether out of choice or necessity, as these three businesses have shown, bootstrapping can definitely be a route to success.
Data analytics provider MammothDB, last year’s Tech Trailblazers winner in Big Data, was bootstrapped from the revenues of a small outsourcing company established by MammothDB’s founders after successfully exiting their previous business to VMWare.
CMO Boyan Benev says: “Bootstrapping in IT during the last decade has been a bit of a faux pas; virtually everyone you meet wants to grow big, fast, preferably on someone else’s dime. MammothDB’s story is markedly different in most every aspect.”
Based in Sofia, Bulgaria, the company’s core product is a complex analytics database capable of processing huge volumes of complex data in fractions of the time and cost of current competitive solutions.
“Building such cutting-edge technology capable of operating at enterprise scale takes significant investment,” explains Benev. “Bootstrapping the company allowed us full control over the initial direction of the product. The flipside was that it took more than two years before an alpha version was ready to sell.”
For many product developers, MVP (minimum viable product) is the way to go, distilling the essence of their offering into a simple, low-development cost, prototype that they can take to the market to gauge demand before committing large amounts of resource only to discover there is no demand.
However, there are few such shortcuts for developers of enterprise software. Beven says: “A lesson learned here is that bootstrapping complex products is tough because money tends to drip in over time, extending the development cycle. The benefit of the slower tempo is that you have more time to understand your product, its value to your customers, and even whether your customers are the target group you thought they were.”
In early 2015, three years after the start of MammothDB’s development, the founders took venture capital funding, and since then, have seen revenues more than double. “Bootstrapping that initial, tough growth gave us a very solid foundation to build on, and forced us to be lean, not wasteful, value-oriented and focused on the task of building a sustainable company,” he adds.
Without injections of capital at the outset, some companies use their early revenue to fund next stage growth. Exclusive matchmaking agency The Vida Consultancy, named European Dating Agency of the Year 2016, was founded five years ago by Rachel MacLynn with just £5,000.
“That was all needed to buy a MacBook Air, set up a simple website, pay a lawyer to produce my client contracts, design and buy business cards etc.,” she says.
For the first six months MacLynn focused on building a database of exceptional single men and women in London, attending a lot of events and drinks parties and following up with relevant people by meeting them for coffee or sometimes lunch. Then she discovered the power of networking.
“It worked out that for roughly every 50 single people I met, one would want to become a full paid client and the rest would go into my ‘passive’ database of singles,” she says. “I require all my clients to pay their fee in full and upfront, so I only needed a handful of clients to sign up in the first year to cover my costs. I didn’t spend anything on marketing, advertising or PR until my second year of business, because I was bringing in enough business through networking and referrals.”
Today the company has 5,000 members worldwide.
For Paula Hutchings, bootstrapping her new business, Marketing Vision Consultancy, was a necessity since she had resigned from her job whilst on maternity leave and didn’t have an income.
“There was also a personal satisfaction element of wanting to build a successful business up from complete scratch,” she says.
Her only financial outlay was for her business cards and a company logo. The rest she funded by trading skills. She says: “I skills-traded my marketing services for a website, and offered some free consultancy work in exchange for testimonials in the early days. Once I built up the testimonials, I gained paying clients and I really started to grow.”
Five years on Hutchings is working with a range of clients, including e-commerces, retail brands and independents, and her turnover combined with childcare cost savings, has made her financially secure, and established a strong foundation for future business growth.