Gah, I get really annoyed by the "money means that you have to hire lots of people and spend money like a fucking idiot" mentality (popularized by 37Signals). Having money and careful money management are not incompatible (while we're at it, working more than 30 hours a week doesn't mean you spend your time inefficiently, either).
When we raised our Series A, we didn't spontaneously start having long meetings and we didn't start hiring VPs. And we haven't had to appease our investors ONCE (but we have gotten some exceptional-- and optional-- advice from them).
I'd also encourage the author to have a better marketing strategy than "Twitter and blogs". I can't count the number of entrepreneurs (YC companies and others) who realized that this strategy does not work and then started learning about SEO, adwords, and (gasp) sales and marketing. There are plenty of shiny exceptions to this rule, but they are so remarkable exactly because it's so damn rare.
It's one thing for you to say you've never had to appease investors "once". It's another for you to imply that this is an irrelevant concern. I have several counter-anecdotes. I imagine I won't need them, though, and that you'll just concede that you have good investors --- for the time being --- and that bumbling or mendacious board members are indeed a real concern.
I'm in 100% agreement with you. Also, there's something to be said for a company that is totally autonomous and free from the pressures of an investor.
Though not a hard/fast rule and clearly a generalisation - Building a company with investors shifts the focus to helping maximise shareholder value. Building a company free from investors encourage the founders to think about the customers.
I've always believed if you focus on the customers and build solid products that add real value, the money bit will come naturally.
While I don't deny the benefits and advantages of having investors (money, networking, advice etc), there are many ways to "skin the cat" and build a business.
I'm not implying that (or at least, not on purpose). I'm railing against the implication that funded entrepreneurs are constantly appeasing (presumably moronic) investors.
Listen, the money isn't free. It comes with a few protections (for them) and obligations (to them). If you've got good leverage when you set up your terms and go with a good investor, I don't think it has to be that bad. I know plenty of people who like their investors. Many people who take money seek investment for their second effort (even if they're rich and don't need it).
Bumbling board members are a risk in the same way that (as the OP points out) a pile of money creates the danger that you'll hire too fast and build a meeting-heavy company. You need to be smart and disciplined. Desperate (or unlucky) entrepreneurs can end up with crappy investors and undisciplined entrepreneurs can end up with 12 VPs and day long meetings before they even have a product.
Clearly, anecdotes abound and there's no hard data... But I think the only one who was implying that there were any rules was the author.
Thanks for the follow up. I'll stress again, I'm not implying there are any hard/fast rules as you can see from the comments I've made here. If I have set the wrong impression, my apologies.
We all know here that being an entrepreneur is more like art than science. There is no one true way. Something which worked for someone in one instance may not work for you even if by rationale it makes sense and all the stars are aligned.
It's also the case that not wanting to kowtow to investors is a valid reason for bootstrapping. It's why we switched to bootstrapping a few weeks into talking to VC --- the VC pitches were fucking up our product plan.
The parent's point cannot be overstated. The amount of waste that edicts from "on high" present is huge in many startups. That great network your VCs are part of, that they can use to pull favors and "make things happen" also means that your company sometimes has to pay its dues.
Hi there, thanks for the feedback. I appreciate it.
I don't mean to suggest that money == spend like crazy. All I'm suggesting here is there is merit to "embracing constraints". When you don't have money, you can't spend it. When you do have money, you may spend it. There is a difference between the two statements.
This is especially important for people who think throwing more money at something is a solution. Some managers tend to think if a project is behind, simply throw more developers at it. We developers obviously know that isn't a viable solution in some cases. In fact, more people means more communication, training, procedural overheads etc which could actually slow down the rest of the team.
Being money constrained, helps us focus on what's truly important so we deliver the best bang for the buck. We're small so we can't afford to spend 2 weeks on a feature nobody needs. The lack of money here helps us see that.
Also thanks for the comment wrt marketing. I'm not marketing god by any means (and this blog post isn't about marketing anyway). I certainly do not know all the channels available to me to market my product. But that's part of the learning experience which is one part of why I'm doing this.
Not having to answer to investors saved a ton of hassle (and having all the equity and control at the end is really spiffy) but (to echo some of the other comments here) there are a few pitfalls:
- Don't be a tightwad. In my first year, I would avoid spending wherever possible and often made do with free tools rather than spend cash to buy a perfectly good commercial solution. I quickly learned that's almost always stupid: If you can make a problem disappear for good by buying the solution, reach into your wallet and pay the cash.
- You should be marketing before you've even started development. Marketing isn't just advertising -- it's the social component of design. Where you're 'making something people want', marketing identifies both the 'people' and the 'something' (that is, the market for your product). If you don't have those, you'll end up with a spiffy 'make' that nobody wants.
Erik Sink provides a great summary of the topic under his "Marketing for Geeks" articles (at http://www.ericsink.com/Marketing_for_Geeks.html ). I'd call it a 'must read' for any software entrepreneur.
This is bang on target for me as I've been a real "tightwad" lately. Instead of focusing on the outcomes, I've been counting the pennies. It's tough when you're leaking your own money and that's before you've even launched anything! I think it is just something I need to adjust to - that in order to make money, one must first spend it.
I've also realised that marketing early is so important. I've been getting more active on Twitter lately and though I have a decent blog (been on Digg front page and Lifehacker), I haven't given it the love it deserve all year. I wish I had ramped these two promotion avenues up 6 months ago. This way I'd have a ready audience on launch day.
I thought I'd echo your reply for the other budding entrepreneurs out there. Don't be afraid to spend money! Start creating your story and marketing your brand early!
There should be no such thing as a "launch day". You should start with one user before you wrote a line of code, then write a mockup and show it to the user. Keep adding code, features and users as you go.
Good point. I'd like to add though that while there are merits to launching early and often, you only get one shot at delivering the right first impression. This is especially true if you've lined up the "press" to talk about your app, only for it to receive "bad press" because it's not ready or crash under the heavy load.
I think it was Paul Buchheit who said "launch your product if it's better than anything else out there". To me, it means launch when it's ready but not before.
Congratulations, bootstrapping is both exciting and honorable.
But also remember, some of the best things about bootstrapping are also its biggest challenges. For instance, if you are paying employees in equity instead of salary realize that the long-term benefits of a successful startup may be precluded by more immediate revenue streams.
Additionally, we as bootstrappers tend to be less likely to ask for or buy help when it would truly help our business. We prefer to do things our way but many times we re-invent the wheel in the name of entrepreneurial spirit. Not a bad thing, but worth remembering.
Good luck to you! I've had a great time and learned a ton so far by bootstrapping.
I shall remember your advice - I'm sure I'll need them in the years to come! It's pretty exciting and scary at the same time. However, I think that's why so many of us (esp at HN) become Entrepreneurs. The lessons to learn and the fun to be had are truly intoxicating.
Keep the commments coming. Would love to hear from everyone here what your personal experiences have been like so far.
Having read your article and responses here, I feel like this discussion resembles (opengl vs directx) || (c/c++ vs java) || (python vs perl) kind flame wars. And no, there is not a single way for enterpreneurship imho. There are at least two major ways, bootstrapping or having funded. Both have pros and cons. If you are clever and well prepared, you can be successfull either way or unseccessfull whatever you do. There is no recipe, you choose your own way according to your own circumstances and work it out..
I agree with you totally and echo your sentiments. There is no one absolute right way. There is a bunch of relative right ways - some more appropriate than others. Given enough vigor, perseverance, sweat, tears, luck and timing, the right team can make most things work.
The thing which quantifies how "successful" they are is the equity they walk away with. It doesn't have to be 100% (because 100% of nothing is worthless), but you sure hope it isn't so diluted to no longer be worthwhile.
I subscribe to delaying external financing as long as possible to build up the business and maximise the mileage of the equity (ie trading 10% when you have nothing costs more than 10% when you have a healthy/profitable business).
Best of luck. Remember, when things get terrifying (and I assure you they will) --- you can always consult! Our consulting practice, which I love being a part of, now funds a full-time product team. I'm on hiatus from consulting for a bit with the Dir/Marketing role. There are ways to make it work, no matter what.
Thank you! You're totally right that if all things fail, we can simply go back to what we did before (ie contracting), slow the business down but at least continue trading.
I hope though it doesn't get "terrifying" ... (play scary music). Heh.
Remember that consulting is when you get paid by the hour, whereas software is where you get paid long after you have written the code. The former should never be the goal, only the means to reach the latter.
Contracting is when you get paid by the hour. Consulting means a lot of different things.
Running a company and building and grooming a team is more than just launching a product and hoping. Products come and go. Protect your company --- even if it means (gasp!) consulting for a bit --- and you'll get as many shots as you want at doing products. Pin your hopes to one longshot product, and you'll end up a wage slave.
We've setup our website, at http://mobiusly.com which briefly describes who we are, what we do, our company credo and commitment to the Company/Customer Pact.
You'd have to wait till Jan 2009 for our product launch. I'll try over the xmas break to prepare a blog entry describing it, but that might depend on how much beer I end up consuming.
When we raised our Series A, we didn't spontaneously start having long meetings and we didn't start hiring VPs. And we haven't had to appease our investors ONCE (but we have gotten some exceptional-- and optional-- advice from them).
I'd also encourage the author to have a better marketing strategy than "Twitter and blogs". I can't count the number of entrepreneurs (YC companies and others) who realized that this strategy does not work and then started learning about SEO, adwords, and (gasp) sales and marketing. There are plenty of shiny exceptions to this rule, but they are so remarkable exactly because it's so damn rare.