
Bootstrapping Your Startup: Do You Really Need Early Investment? - ndemoor
http://blog.woorank.com/2014/01/bootstrapping-woorank/
======
tomblomfield
There are lots of startups that simply couldn't exist without early investment
- anything with high upfront costs combined with economies of scale. I founded
a payments processor 3 years ago - this is a good example of such a business.

It's possible we could have bootstrapped, but it would have been a very
different kind of business.

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wellboy
I've been thinking about this a lot, too. Is there any startup that inevitably
needs early investment? Except for biotech or massive big data startups of
course.

Because if your product does something new, you can ALWAYS get PR.

What I've seen is that with funding, founders don't focus on the essentials
anymore. They are not as careful with whom to hire, they don' think as much
about what marketing channels to spend money on. However, without funding, you
are basically forced to focus on the very core of your startup, every decision
needs to be very thoughtful and you will need to understand every process in
your startup in-depth.

A friend of mine once said, funding should never be a lifeline, - it should be
motivated by a fast expansion opportunity.

~~~
lhnz
>> Is there any startup that inevitably needs early investment?

Yes.

In the UK, if you try to make a company which helps people travel overseas and
arranges somewhere for them to stay then you are caught by all sorts of travel
regulation. You'll need a £40K bond as well as all sorts of upfront costs just
to get started.

So pre-traction you've had to spend huge amounts of money to enter the game.

Large regulatory costs are one of the ways big companies keep new entrants
out.

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ohwp
The book _" The Incredible Secret Money Machine" (ISBN 0672215624)_ is my
resource for bootstrapping advice. And I have to agree with Don Lancaster: try
to bootstrap without early investment.

The case of Everpix is a great example. With an early investment it's very
hard to keep track of your startup's feasibility. And your startup is tied to
the original plan (your promise to investors). So it's very hard to make
changes when you discover the startup plan isn't working.

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simonswords82
We bootstrapped our app www.staffsquared.com.

While there are limits on what we can do using profits from our main business
and income from the app as it grows, I love the fact that we got the app off
of the ground organically. I think spolsky said that when you bootstrap you
can only grow the business in line with revenue - which is of course true and
a difficult trick to pull off.

I think more importantly, the process of bootstrapping forces you to go about
recruitment, sales, marketing, development etc etc in a way that is more
innovative (as opposed to just throwing money at problems to make them go
away). While you won't want to scale a company using these money saving
techniques, they are still excellent tools and skills that can be applied to a
business at any stage and put the founding team in to a mindset of
sustainability.

~~~
ryanSrich
I saw that staffsquared was built by Atlas, which looks to be a client
services agency.

I've been hearing of startups taking on client work as a means to fund
products. Is that essentially what you guys did? I think It's a noble way to
bootstrap but am curious of the implications that stem from splitting your
time between client and product.

~~~
simonswords82
Atlas is my consultancy business and spawned Staff Squared as a way of
scratching our own itch (I needed an app to help me better manage my team). We
hunkered down for 6 weeks and got something horrible but workable out of the
door 2 years ago...

As for implications:

\- Splitting development time between the product and the clients has been
hard but gets easier as our clients get used to it. We book in sprints of work
on Staff Squared in our schedules way in advance. I line up two solid weeks
for the entire team every quarter and this time is sacred. No amount of
customer complaints get us to move this time. The amount of time I block out
increases with the growth of the app. There's a constant backlog of minor
tweaks, so if any of the team find themselves at a loose end they always
revert to the Staff Squared backlog (We use a trello/harvest combo for
managing this).

\- Managing sales - our office manager has stepped in to help the onboarding
and sales but ultimately as CEO of Atlas I've done the lion share of this
work. This has meant a lot of overtime on my part but tbh I enjoy the work.
Given that our aim is to transition in to a product company that does a bit of
consultancy on the side (as opposed to a service company with a couple of
products) this is short term pain I'm more than happy to experience.

\- Staff development - One of our programmers wasn't performing incredibly
well in her position as a programmer. She's always had an artistic flair that
a lot of programmers aren't blessed with, and so I decided to take a punt and
move her on to Staff Squared full time to help me with marketing and UX. She's
transformed beyond recognition and now my right hand woman when it comes to
making changes to the Staff Squared app UI.

\- Using the products as a sales tool. I hoped this would happen...we're not
usually able to show/tell potential customers what we've worked on before to
any level of detail as it'll breach confidentiality. Not so with our products
(we also have www.fundipedia.com). If a potential client wants to see what
we're capable of we ask them to sign up to Staff Squared and kick the tyres as
it were. This has actually resulted in more Staff Squared customers too.
Double whammy!

\- We've had to drop any customers not willing to pay our full day rate (some
were offered discounts back in the day which we haven't been able to
readdress). With those customers gone, and Staff Squared out there as an
example of what we're capable of, newer, bigger and better customers have
arrived for Atlas and we're now fully booked for pretty much all of 2014. I
have no doubt this huge upturn in customer work is as a direct result of our
pushing our own products forward.

\- The development team are happier than they've ever been. They get to work
on an app they're incredibly passionate about (inbetween client work) and see
the direct results of their actions in the form of more paying customers. It's
a great tool to incentivise a team of people who are already very well looked
after individually.

I hope that helps, if you have any specific questions I'd be happy to answer
them.

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bayesianhorse
One big reason early startups take on investors is to let the entrepreneurs
spread the risks. When bright coders (or other high-salaried individuals)
forego a high salary in favor of founding a startup they are raising their
investment in the business month by month.

Smart investing means balancing your portfolio. Very soon, the kind of
oportunity cost these founders invest in their venture dwarfs the rest of the
portfolio. Any bank account is a safer investment than most if not all
startups.

More capital raised initially means more salary and less risk to the founders.
The founders can pass on the ketracel white ... uh... money to their troops.
If some capital deal does not decrease your risk, then just don't do it.

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jwblackwell
Whilst I think the need for speed is often overestimated, it's definitely
important in some industries. If you need to move quickly and get a decent
product to market first, cash is essential.

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alien3d
Before i need some investment,but finding investment quite hard,most wanted
stable company and resources.So i'm no choice working normal freelance job
rather focussing to be next software in the market.Don't focus getting much
customer but focus getting 1 to 10 customer then go big for investment.. 20k
if somebody said bellow is so not much and can finish a few month operation..

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troels
I suppose it depends on who you are. If you have a family and a mortgage, the
answer may be yes.

~~~
cookiecaper
Many investors are not very kind to founders with families and mortgages. YC
itself is a horrible deal for anyone that's not a college dropout. Move out to
SF for 3 months, leaving wife, kids, and property behind to fend for
themselves, shack up in a tiny apartment with a co-founder, and get paid
nothing _for $20k and 5-7% of your company_? That's alright man, pg can keep
focusing on his college dropouts (of both sexes!).

Even more traditional investment arrangements put a great deal of focus on
"equity compensation", i.e., only paying founders and employees the bare
minimum for survival and "making up" the lacked payment with equity. Not a
very realistic deal for an engineer with a family and mortgage who makes
120k-150k in the job market to take a startup gig for 60k (multiply numbers
based on local cost of living).

The startup community is missing out on a lot of extremely useful experience
and maturity with these cheapskate shenanigans. Of course, the investors are
happy to lack this, because exploitation of naivety in founders is one of
their primary mechanisms to maximize profit.

I've sought funding a few times myself and always backed out because I was
getting offered a sucker's deal. Yes, it's _much_ slower and _much_ harder to
bootstrap, but unless you're desperate, taking investment is not worth it,
because investors are going to rake you over the coals. And that's the long
and short of it.

~~~
argonaut
I'm not sure if you don't know what you're talking about or if you're just
exaggerating for the sake of argument.

1\. Most YC founders are not college dropouts. Quite a few are in every batch
of YC, but nowhere near 20%.

2\. YC isn't in SF. And most YC companies don't stay in SF during YC. Lots of
companies stay in Mountain View, Palo Alto, Menlo Park, etc where you can rent
out a 4-6 bedroom with your co-founder(s). Housing is even cheaper in other
areas like Sunnyvale, Santa Clara, and San Jose, where you can potentially
have a house to yourself.

3\. _If you expect to get paid for starting a startup, then obviously starting
a startup is not for you._ By definition there's nobody there to pay you
except yourself. By definition you are exchanging equity for salary.

4\. YC gives you $100k: $20k directly and $80k in convertible notes (well,
SAFEs now) at the best possible terms (you'd never see elsewhere). The
additional value of YC is that as long as you build a product with some users,
you have an extremely high chance (not guaranteed) of raising 1M+ at a 5M+
valuation. Other companies that don't raise can go on to raise more
convertible notes. In fact, going through YC is one way of guaranteeing that
you don't end up being offered a sucker's deal.

~~~
cookiecaper
1\. OK, we can expand it to "recent college graduates". The point is, YC is
predominantly young adult males, aged in their early 20s, unlikely to have
major external responsibilities.

2\. As someone who's not from SV, everything in that area gets lumped into
"SF" for me. My apologies if this is considered obtuse.

3\. Isn't this kind of part of the point of seeking investment? Aren't you
saying, "I can't do this all on my own, I need some help with the finances,
and will cut you in if you'll hook me up"? Somehow I don't see that as the
same thing as "please pay me a pittance". As I stated in another reply, if the
founder could live on a pittance, the chances are he'd save up a little bit at
his cushy corporate job and enter conservation mode with that, rather than
seeking external funding.

4\. I haven't looked for a few years, but I was not aware that YC offered an
additional $100k in financial instruments. This is somewhat better, but I'm
not sure how those instruments work in this specific case so I can't make a
complete evaluation. As far as follow-on investments go, these all have their
own separate terms, yes? Unless YC is officially brokering all of these, how
can being a YC company prevent you from getting suckered by YC copycats?

~~~
argonaut
1\. Yes, that much is true. Though I will claim that is partly a result of the
applicant pool. My guess is that most applicants are young adult males.

3\. If you're an exec earning $300k at big corp, you are not going to get
$300k at a startup, because the startup obviously does not have the revenue or
cash of big corp. Ditto for an engineer earning $150k at a tech company. But
who said anything about a pittance? It's up to you to set your own salary. You
can still pay yourself $100k/year, if that's necessary. The larger point of
raising money is not just for paying yourself, but it's for hiring other
people.

4\. [http://ycombinator.com/ycvc.html](http://ycombinator.com/ycvc.html) I
made a correction to my post: the amount is now $80k, which is still good
considering the assumption is that the money only holds you over until you
raise money after Demo Day (say, 6 months). The link is a bit outdated because
YC uses SAFEs now. But the notes had no discount and no cap, which are the
best possible terms for notes, and that carries over to SAFEs. YC is brokering
these. They have their own separate terms, but the terms are available
publicly online and are the same for every YC company.

~~~
run4_too
I think you are missing cookiecapers main point by focusing on minutiae.

YC targets the young male college student demographic, partly because that
demographic shares the different components that you two are arguing about.
This isn't really relevant though.

If they were targeting suburban boomers that vote republican, it's silly to
point out that some of their investments are actually women that voted
democrat.

cookiecaper's point is that the effect of targeting a particular founder
profile means that there are a lot of other high potential founders that are
under served by the "Aquire Funding, Kill Yourself, Profit!" model. I would
tend to agree with that, particularly when you see that across the spectrum,
most businesses are started by people that are 40+ and have over 10 years of
experience in an industry.

YC was started particularly because the "college dropout" demographic was
under served. Now, at least when it comes to tech, they have become the norm
and the "career switcher" has all but been ignored.

I don't think YC needs to address this in any way, but as a tech community I
think we're missing an opportunity by not tapping in to what has traditionally
been the strongest segment of new entrepreneurs.

~~~
argonaut
Do you have any evidence YC _targets_ the young male demographic, today? AFAIK
YC doesn't _target_ any one demographic. They don't really do any outreach to
demographics. I believe their cohort demographic is a result of their
application demographic. Anecdotal evidence seems to agree with me.

~~~
run4_too
I don't want to speak for YC or their intentions, so perhaps _target_ is the
wrong word here, since I doubt they have model that looks to offer to the
needs of a particular subset of people and then "sell" to them. That would be
the traditional definition of a "target market"

However, what YC presents is a series of preferences and options that everyone
knows appeal much more to a certain personality and - in this case - stage of
life, than others. Jumping across a country to live in temporary stasis for
three months (or whatever) isn't something a 45 year old woman with two kids
and a career is _likely_ to do. It's something a lot of 20 something college
kids will consider though. Are they _targeting_ college kids with that stance?
Not particularly. Does their offering appeal to one demographic much more than
another? Most certainly.

Overall though it's irrelevant, as I said. YC can target or not target as they
choose.

The bigger point is that it's pretty hard for that 45 year old woman to gain
traction in the tech world right now, and there could be an opportunity cost
there that may be pretty large, considering how the demographics of
entrepreneurs spread out over other industries.

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jnardiello
One answer: No.

