
Acquisition/Investment vs. Bootstrapping - sant0sk1
http://adam.blog.heroku.com/past/2008/8/15/acquisitioninvestment_vs_bootstrapping/
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zkinion
Starts out good but just chooses and explains a "middle-ground" and then goes
into "just be yourself, the situation will dictate the strategy to use".
That's how I feel, but its a little bit drawn out.

~~~
blakeweb
I disagree with the comments so far--I think he makes a solid point.

The bootstrap model requires you to be good at both innovation/experimentation
and sustained management/maintenance. He's says people have different
strengths, and therefore it pays to separate out the business lifecycle into
the creation stage, when the entrepreneur thrashes the company into something
valuable, and the growth/maintenance stage, where the goal is to take a
working company and make it better.

With the startup experience he's had, he's in a good place to share his
opinion that dividing people into those two camps via the funding/acquisition
model makes the entrepreneurs happier and the companies more successful.

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richcollins
> But convincing investors of the viability of your idea - enough to place a
> monetary wager on it - provides early confirmation that you're on a viable
> path

Is this really worth a big chunk of your company? Your users should provide
course corrective feedback, not investors. They don't have any better idea of
what will and won't work than you do.

~~~
babul
Specialist investors (e.g. technology angels or firms such as Sequoia Capital
et al) usually have a very good appreciation of what will or will not work.
They possess sophisticated, and often surprisingly accurate,
tools/models/instruments/processes to aid decision making. Hence, they are
able to evaluate your business and model in ways you often will not, and
provide a more rounded view even at the extremes of optimism or caution. Even
for more general investors, if you make a lot of investments, you get a feel
for things and eye for talent/business, and develop a good understanding of
the markets you play in.

Whether it is worth a (big) chunk of your company really depends on the value
investors provide. If they are able to give practical help (e.g. business
advice, access to markets, distribution) and/or leverage important and
influential networks/connections to aid you, and basically increase the bottom
line while leaving you largely in control, then the answer should be yes (the
early days of YouTube is an example that comes to mind, where they saw little
growth until the investors came on board(?)).

I would rather have 70% of $10M in 2 years than (possibly) 100% of $1M in 5
years.

~~~
richcollins
VC investment should be a strategic decision, not a confidence booster. If VCs
give you access to resources that you need to have a successful exit, then go
for it. However, if you are willing to give up control of your company for
outside validation, you have big problems.

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fallentimes
I'm so sick of these arguments. The answer is the same as it is to questions
like "what college should I attend?", "what's the best city to live in?" or
"who's the smartest person in the world?". It _depends_.

Although I do enjoy hearing someone's individual story or line of thinking,
bashing one method over the other is ridiculous.

From my understanding of the capital expenditures/computing power involved, a
Company like Heroku pretty much has to take investment of some sort (unless
the founders are rich) or risk providing users with sub par performance.
Companies like Wufoo not so much. There is no "better" method only a "better
fit" for the type of business you have and are trying to run.

~~~
dmix
I agree completely. Not every business is the same. That should be common
sense. But these bloggers (especially 37signals) like to take the extreme
side.

Some businesses are suitable for VC and some aren't. The founders approach to
capital is important, but from a pure business perspective the type of company
your building is more important.

Theres a workable path in both directions, don't get caught up in taking
sides. Follow your passion and idea and adapt. Don't take one-sided advice
before you jump in.

(sorry I downmodded you by mistake)

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pedalpete
though this article starts out well, I seem to be missing the connection to
the conclusion Adam (the author) draws.

He seems to be insinuating that the Pioneer mentality should bootstrap, while
Settlers should go for Investment/Acquisition.

Buy I really don't think these things are as seperate as Adam insinuates. What
about bootstrapping until you are ready for investment/acquisition? Isn't that
the more common path? Are these things really that different.

~~~
adamwiggins
Actually, the opposite. Pioneers are only interested in the early part of a
company's lifecycle, so the investment/acquisition path is ideal. Almost
everyone participating in YC is a pioneer, so most of us follow that route.

Settlers want to stay in for the long haul. Bootstrapping - the kind that
David advocates, where you focus on building a long-term, sustainable business
- is thus more suited to their temperment.

Which makes it badly suited to the pioneer temperment, which I discovered when
bootstrapping: I got bored after three or four years on the same venture. But
if you want the upside, you have to stick around, because it only pays out
over the long term.

Though perhaps settlers are probably better off either working within an
established organization, or buying an existing business to run. In which case
I can see why the point of the second half of my post might have come out a
little muddy.

~~~
davidw
> Having done three 37signals-style consulting-bootstrapped ventures,

I liked the article, especially the point you make about playing to people's
differing strengths, but I'm curious about the above remark. To "properly" do
three 37S style companies, I think you'd have to spend some significant time
on each one to see where it turns out. They didn't get big until years after
they started. You spent three or four years on three different projects?

Also, I'll second the recommendation for 'Crossing the Chasm', it's pretty
good.

