

How long can you survive on bootstrapping? - rcmorin

Hi everyone. I'm looking for some advice from fellow startup founders/alums about taking the leap from releasing your prototype into the wild to scaling your userbase and product. I'm a single founder of a Boston-based mobile app startup – the product is released, we continue to iterate and build further enhancements, our userbase is excited and giving constructive feedback, etc. We've reached the point where we are receiving interest from companies to buy the app or discuss licensing deals, but interest from local angels is basically non-existent at this point. I quote from one VC: "idea is a feature, not a company".<p>Here's the problem: I'm completely broke. For this startup, I chose the bootstrapping route. I plunged most of my savings and used credit cards to work with an offshore team and received investment from friends and family to make it past the prototype stage. My development team is willing to take an equity stake to improve the product, but server costs are expensive. Our userbase increased 20x when I dropped the app to free 1 week ago. I cannot afford to pump in $30-40 a day to pay for server costs.<p>The acquisition talks are positive (it would be a very small exit), but I'd really like to work on building out a company here. Is there any option other than an angel round to make it to the next stage? Would licensing the app to other companies be a detriment in future financing rounds, if we ever make it to that point?
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tptacek
I don't understand how your company works. Your product is free. You've
maximally leveraged yourself personally. You have no recourse in negotiations.
Your BATNA may be bankruptcy. Your question is, "how long can you survive on
bootstrapping". But you haven't booted yet.

Figure out something your team can do that will make money. Then think about
the long term.

If you can strike a licensing deal with your technology, you should do it. You
can't hurt your valuation any more by creating cash flow than you can by
driving your company to the brink.

You can talk to companies that have expressed interest, and set up a
contracting arrangement to build things for them. There are tons of mobile dev
consultancies. Do that for awhile.

~~~
paulsingh
+1 for "Figure out something your team can do that will make money. Then think
about the long term."

I'm in the same boat at the moment, we've raised some seed money and are
somewhat in the same boat. In our case, we spent 2-3 weeks of June talking to
~2K of our users _on the phone_ to get some real feedback on how they use the
product, what sucks and what else they want to see. At the end of it, we had a
pretty solid list of bugfixes and enhancements... but, better yet, we noticed
that there were 2-3 specific features that people actually offered to pay for.
So, as a final sanity check, I emailed a small sample of those users with a
credit card authorization form and asked them to fax it in... I got most of
them back (and then shredded them since I don't actually have a way to process
them just yet). :)

If your userbase is actively giving you feedback, maybe it's worth spending a
little bit of time having in depth conversations to see whether any paid
features might emerge?

~~~
rcmorin
Thanks paul. I think the most immediate answer is: improve the product and
keep pumping out features. In the short-term our costs are really under
control. I apologize if my initial thread sounded like I was shouting "fire"
in a crowded theater. With the recession and downturn in the economic climate,
startup logic (understandably) has shifted from the web 2.0/YCombinator
preaching of: build, find users, get acquired or profit. The difficulty is
that competitors in our space operate on this “free” model and are backed by
substantial angel or VC money. In fact, the only widely visible startups that
seem to still be operating under this logic were founded and funded pre-
recession. What is going on here?

I’m somewhat confused by all the conflicting recommendations I get on early-
stage startups. Again, cash is king and we have some ideas for monetization
(which, of course requires more $).

In today's economic climate, can startups afford, literally, to avoid
realizing a business model after you've scaled? I realize that YC has
increased the number of seed investments, but has the angel community also
increased the pace at which they invest in these fledgling ideas at the >$100k
investment stage? I'm in Boston, so my perception is a little bit warped. Can
someone offer their thoughts?

~~~
paulsingh
No apologies necessary, you're asking a good question that I also have been
thinking about for some time now. Feel free to email me if you'd like to talk
about this in-depth or just need to bounce a few ideas off of someone. :)

I don't have a whole lot of insight into what's going on in the minds of the
investment community but, IMHO, I think we all tend to think that there's more
investing going on out there than is actually true.

~~~
jacquesm
If my own experience is any guide to answer your last suggestion there is
almost no investing going on other than a few proven horses. Risky stuff is
way down.

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cmos
Actually, you should have named this 'how long can I survive on
bootstrapping'. It seems as though your answer is 'not much longer' at your
current trajectory.

So you need to change something.

It sounds like you couldn't afford to release a free version, with all the
costs involved. So don't. Stop releasing the free version. Think of a price
you would be comfortable charging for it.

Now double that price. Chances are you undervalued what people might be
willing to pay for your application. You have a growing user base, but most
unfortunately if it grows too much you'll just be out of business that much
sooner.

Sure, it wouldn't hurt to keep talking about acquisition. The beauty of that
is in most cases these talks take forever, so you have plenty of time, and can
always back out or tell them you'd like a few more months. The downside to
this is they might just wait until you run out of money, and then whatever
small amount they were offering you will become surprisingly smaller. When
they have a meeting about whether to acquire your product or not one of their
strategies is going to be 'let's wait and see what happens in the next couple
months'. It's only to their advantage.

And at least give us the link so we can let you know if we would pay for it!
Your company is failing, this is not the time to be discreet.

~~~
rcmorin
Thanks for your well thought out comments, cmos. And I apologize for not
including the link in the original posting!

[http://itunes.apple.com/WebObjects/MZStore.woa/wa/viewSoftwa...](http://itunes.apple.com/WebObjects/MZStore.woa/wa/viewSoftware?id=313428257&mt=8)

~~~
tptacek
Can somebody who can actually click on iTunes links where they are tell me
what this thing is?

If you've built a successful iPhone application, you're a marketable
contracting operation. Stop talking about getting funding.

~~~
jasonkester
It appears to be a chat application.

Which naturally raises the question: "Doesn't the iPhone already have a
perfectly usable chat application built in?"

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jhancock
You may realize this by now, but you should never "fund" your startup with
credit cards. Get that debt out of the way as soon as possible and never do it
again. I've been bootstrapping companies for 20++ years and always used what
was in my pocket already and/or found investors.

~~~
rcmorin
Of course, thanks jhancock. In the end, the total initial capital (pocket
money, friends/family round, and credit) was comparable to the amount invested
using the YC seed formula of $5000 + $5000n.

------
lsc
first, if your server costs compete in any way with your own living expenses,
get them down. Most people massively overpay for servers. what kind of server
do you have that is costing you $30-$40 a day? for that kind of scratch you
can get a full rack, two circuits and a nice big chunk of bandwidth. that's
operating cost for 16 of my dual quad-core opterons with 32GiB ram.

but then $1200 a month isn't much, really. that's what, two, three days of
contracting at bay area SysAdmin rates?

Get a dayjob. Yeah, it sucks. But if you bootstrap, that's what you've got to
do. I do consulting 3 days a week, and you know what? if prgmr.com revenue
stopped tomorrow, I'd go back up to 5 days a week, and I'd have no problem
paying for my server space for as long as I cared to do so. (and I have done
this... prgmr.com is doing ridiculously well at the moment, but if you look at
my history, well, I've been doing this since 2005, and have made my expensive
mistakes. All paid for by contracting income. It can be painful, I mean, in
2006, I got a little optimistic and locked myself into a year-long contract
for almost two orders of magnitude more bandwidth than I ended up needing. a
$15K mistake or so. But eh, it looks like we might have that much revenue this
month alone, so I was right to stick with it.)

It sounds like your business is one with low capital requirements, and low
monthly overhead. That is the best kind of business to bootstrap, I think; you
just need to build your life so that you are OK with supporting the business
until someone notices you and the business takes off.

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andrewljohnson
How many requests per day does your server handle? 30-40 dollars per day seems
pretty high... I know Hacker News doesn't spend that much serving 10s of
thousands of people per day.

And after looking at your app, it doesn't seem like you have nearly enough
reviews to justify that high of a cost. I'm no server expert, but it seem like
you should be able to cut costs on the back-end.

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jdrock
I would strongly consider the licensing or acquisition. Couple reasons for
this:

1\. Compelling products tend to have willing buyers. If you saw a 20x increase
in your user base when it became free, it sounds like people really like the
product, but don't see it as a must-have (it's not addressing a serious pain
for them). On the flip side, it looks like it could be a great nice-to-have
for an existing device/product.

2\. You'll be much better-positioned for future endeavors if you're able to
realize a positive exit. Past success can give you a lot of credibility. If
you can get positive returns, it'll be much easier to raise money for your
next venture.

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CyberFonic
When negotiating you need to be creative with alternatives. From what I
understand from your situation, you could consider doing a joint venture
rather than selling out or licensing. It appears that you have the skills in
creating a product that has "pulling power" but not much expertise in building
a business. My definition of "business" is one that makes money. It doesn't
take much skill to throw $40 / day at some hosting provider. As many of the
posters have commented you need to charge in order to have a business. You
probably need to shift your marketing when you start asking for money.

From a product / technical perspective, you also need to look at how many of
your "users" continue to use your app after a month or more and how much they
use it. That will give you an idea of how many tyre kickers you got and how
many switched on, passionate users you got.

Do do a joint venture, you decide on split of revenue, a buy-in value that
gets you off stressing about where your next Ramen meal is coming from. Heck,
I'd even put the word out to your user base and invite applications for a
venture partner. You can't get a better marketer than a passionate user with
sales, marketing and business expertise.

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marram
So we're bootstrapping, also in Boston, and also use GAE.

We've been able to manage to stay afloat by keeping day jobs. One of us works
full-time and the other part-time, while working on the startup all nights and
all weekends. Obviously, it takes a toll on you, and isn't very sustainable in
the long term. But we've also learned to delegate: we hired two excellent
interns, and we pay them in munchies and free lunches.

$30-$40 in CPU costs seems very high. I'm not sure if you have a technical
background, but there might be room for optimization, especially in datastore
entity structures and queries. Just the other day, we refactored the way we
were storing a certain entity to be able to compute a list of key_names and
then fetch them from memcache or the datastore in parallel rather than
seriallly. That resulted in a 16x performance boost (measured by response time
and CPU cycles). There are some other tricks, like "relational" index entities
to speed up datastore lookups so that you're not doing too much processing in
Python code.

I would be happy to chat more about our experience with GAE. mahmoud [at]
thesponty

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9oliYQjP
What is your current cash flow? That is all that matters. At a minimum your
cash flow needs to be enough to service your debt and living expenses. Then,
you can all work for equity and make a go of this.

Figure out what this number is, and then ask yourself how you can earn that
money. You may need to do a part time job in order to get that money. Yes,
your ability to focus on this company will be hindered. But imagine how much
of a bottleneck being absolutely broke and potentially bankrupt will be to the
progress of your company.

EDIT: You may as well call up your credit card issuers and ask them to drop
your interest rate. I've had about a 50/50 success with this approach. Both
times I was successful I went from an 18% interest rate on an account down to
12%.

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richesh
IMO, you need to do 2 things to be successful with this app:

1\. Integrate with major IM services, AIM, Jabber etc, and have your own "Say
Hi service" in there for LBS chat.

2\. Put something around the app, as in make it do more than just chat.
Explore making it a dating app, so that you can chat/"quick date"/"lunch date"
people around you that are signed up with your service. Companies like
match.com etc have just stopped innovating in this space and you may be able
to get traction.

I haven't done the research to see who else is doing this but it seems like
for your app these two things look like an obvious steps.

------
jacquesm
It looks like you need a business angel _NOT_ a VC, they are two completely
different things (and from your description above it doesn't look like the
distinction is clear).

Find someone that is already fairly wealthy from being in business for
themselves and pitch your idea to them, make it a partnership and not an
outright investment, that would help to get some interest going.

How much money are you looking for ?

30/40 per day for server costs seems to be outrageously high for any mobile
startup, why is it that expensive ?

~~~
rcmorin
Thanks for your reply, Jacques. This was helpful.

We released on GAE and we're also using Amazon SQS. At our peak load, we were
getting over 1.5-2k users streaming in during the initial price drop. CPU Time
was our biggest drain: we've combined instant messaging with a local and
global search option which eats up resources fairly quickly. I was very
surprised at GAE server costs given a userbase that is <10k at this point
(given the costs I had to put the breaks on growth very quickly).

The VC approach was for seed-stage capital (~100k) - I found a few
"programs"/funds targeting early stage companies. Basically, I'm looking for a
business angel that could assume a mentorship role and provide some "smart
capital" at this point to scale.

~~~
jacquesm
How hard would it be to port away from GAE and get your costs under control ?
The 'cloud' is a great place to be when you want to scale but it can also be
quite expensive.

So far for the projects that I'm involved in I have yet to find a single case
where I can make a case for a cloud solution vs hosting the stuff directly.
(but there are other reasons than financial ones to use a cloud).

Where are you located ?

