

Bootstrapping a (profitable) Internet company - sayemm
http://venturebeat.com/2012/09/16/7-tips-for-bootstrapping-a-profitable-internet-company/

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onetwothreefour
Hehe.

"If there is a single rule in business, it’s that revenue has to be greater
than expenses. This fiscally conservative approach worked well for New
Hampshire, which, even during one of the worst financial crises in history,
was able to maintain a balanced budget and create jobs."

I didn't realize being profitable (revenue - expenses > 0) was now "fiscally
conservative". :D

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ChuckMcM
Well it contrasts with the 'network effect' meme which is revenue scales with
the square of traction, and expenses scale linearly with infrastructure. In
that theory of business you start out cash flow negative and grow through the
cash flow positive point, and then become exponentially more profitable moving
forward.

~~~
scoot
That's hardly a meme. Most businesses require initial capital expenditure on
"infrastructure" - even your local window cleaner requires a ladder, bucket,
soap, cloth and squeegee, and maybe a bike and a set of overalls.

~~~
ChuckMcM
You are correct, and many businesses fund that initial bootstrap cost with a
conventional unsecured loan, in the US we call them 'Small Business Loans' and
they are generally backed by the Small Business Administration (SBA). And for
the businesses that are successful, after buying their equipment, initial
inventory, what have you. Are then in a state of debt with respect to a number
of parties. If their revenue from operations the first full month they are
operating exceed the payment on against their debts and covers their other
costs with a even a $1 extra they are 'operationally cash flow positive' from
their first month.

Contrast that with a business which has revenue and customers from the day
they start operating but they don't cover their expenses and so are either
going deeper into debt on month two, or in the case of a venture backed
company burning through their equity capital. Often times these businesses
will have a number of customers or number of transactions which would cover
their operational expense but they haven't gotten there yet. But the meme part
is that the more people use their service, the more people are exposed to
their service and potentially use it, (that being the network effect), and the
business is set up such that their initial infrastructure investment creates
enough infrastructure to be operationally profitable if only they had enough
users. So they try to cross that line before going broke.

A number of startups are based on becoming profitable later, rather than out
of the gate.

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jwumanji
Great points all across for bootstrapping. Unfortunately it is uncommon as
many startup entrepreneurs look to seek funding before reaching profitability.

