
Throw out that five-year plan, build something now, and don't take any money - terpua
http://www.37signals.com/svn/posts/1142-advice-for-entrepreneurs-throw-out-that-five-year-plan-build-something-now-and-dont-take-any-money
======
ezmobius
While this all may be a good plan it is not the only way to go. My startup,
engineyard.com is only two years old. But we built something people wanted and
started selling it to them in September of 2006 with only $120k seed money
raised from friends and family. We were profitable by January 2007 and had 50%
growth month over month for most of 2007.

We could have just left it at that but we had plans to become an open source
company as well as a hosting company. Developing new software projects like
Rubinius, Merb and Vertebra take time and money to pay top notch engineers. So
we decided to take a gamble on going big and we took some VC money. The thing
is, we already had a profitable business and the VC's came to us, we never
sought them out.

So we were able to accelerate our strategy by taking the VC money and we got
excellent terms since we already had a profitable business. And we took money
from Benchmark that was less then other VC's were offering us because
Benchmark's contacts and knowledge has been a _huge_ strategic advantage for
us.

We have been able to grow our 3 person startup to over 80 employees worldwide,
and through our VC's contacts were able to secure a series B from Amazon, NEA
and Benchmark.

We would never have been able to accelerate our growth and ideas as fast as we
have if we never took money. By taking money we have cemented our place in the
Ruby landscape as the 800 pound gorilla ;)

So yes maybe it is the safe play to not take money and try to sell a product
that people want and thats great! But sometimes it really is worth taking big
risks with big money working toward big goals.

This is not an either or scenario and both ways of doing things are equally
viable

~~~
comatose_kid
120K seed money is still quite a lot - I wonder if this is typical for a F&F
round.

How did you determine what your funding goal was?

ps - thanks for the post - 'from the trenches' insights like these are really
valuable.

pps - members of your founding team also created the BASIC Stamp? Neat!

~~~
ezmobius
Well we were starting a new clustered, virtualized hosting environment so we
had hard cash needs to get our first set of servers and equipment and data
center space. So it's a little different then starting a software company
without the same hard costs.

We basically built something like ec2 but with more advanced features like
load balancing and clustered, posix compliant filesystems. And we shipped
before ec2 came out or was even known about publicly. This kind of system
costs $$ to do right so the 120k went mostly to hardware and data center costs
to bootstrap us to the point where we could take customers.

We started planning in february of 2006 and shipped in september 2006 and it's
been a wild ride since then.

ps - sure, no problem. Let me know if anyone has any other questions.

pps - yeah one of our founders started Parallax who made the BASIC stamp.

~~~
richcollins
How did the founders pay their personal bills before the company was
profitable?

~~~
ezmobius
We leached off of quality humans inc, which was a rails consulting shop some
of our founders ran and also used savings and personal credit to get through
the first 6 months or so after we all quit our day jobs ;) But lots of the
planning stages, from Feb06 to August06 happened while I still had a full time
day job somewhere else.

------
pg
"Taking money from someone else kills more start-ups than anything else does."

Overfunding does kill some startups, but it's an exaggeration to call it the
number 1 cause of death. What kills the most startups is building lame
products.

~~~
cperciva
_Overfunding does kill some startups, but it's an exaggeration to call it the
number 1 cause of death. What kills the most startups is building lame
products._

I think their point is that those factors are related. If someone gives you a
huge pile of cash, there's a temptation to answer any criticism with "you
think it's lame now, but just wait -- once we're done you'll love it".

If you don't have a lot of money, you can't use that excuse -- you have to
build something which people want from the start.

~~~
tptacek
VC will also often refuse to allow you to build simple products, or products
that already exist in the market, or to go to market with a product that does
not have a hockey stick projection behind it.

~~~
webwright
in a settting like 37s is talking about, funding probably means seed/angel
funding. How much control/influence do you think these types of investors
have? They have a minority stake, rarely have a board seat, etc.

It's easy/popular to blame bad products on investors, but usually that's
pretty unfair. I think (at the seed stage) it's usually due to the founders.

I think better advice might be "don't take so much money that you have to give
up early control."

It seems to me that a well-run angel funded startup will get to market quicker
and have a slightly bigger (and potentially quicker) exit if the founders play
their cards right. So you trade a small minority stake for getting "there"
(wherever there is) months or years sooner as well as having a slightly better
shot at a win due to investor influence.

This all assumes a goal of eventual liquidity, of course.

~~~
fallentimes
Did Rescuetime take angel funding?

~~~
tptacek
YC.

~~~
fallentimes
I know; I mean in addition to YC.

------
goodgoblin
I know this might sound like just whining, but these type of self-help posts
from 37 signals kind of bother me. Step 1 isn't building something people
like, in their playbook step 1 is build an influential blog and consulting
service and leverage those to sell your newly built product. I'm not saying
its a bad plan, its a great plan, but its not the plan they are advocating
others adopt.

~~~
sethg
"Write a blog that people want to read and provide consulting services that
people want to pay for" is a special case of "build something people want",
right?

~~~
goodgoblin
I guess it is - though the amplifying aspect of said blog and consulting
contacts have kind of been undersold. The term 'special case' is fitting - I
think that 37signals is in many respects a special case, though they offer
advice as if they are not. One of their amplifiers I forgot to mention is
'Step 2 - build the hottest open source web framework on the planet earth.'

------
dmix
37Signals makes some very general statements without clarifying who should
actually listen to them. I've responded below.

<http://dmix.ca/2008/07/a-rebels-answer-to-vc-or-bootstrap/>

------
iamdave
I want to point out this: the costs of startups has dropped considerably,
while investors are being tighter with their money. It's sort of a catch22,
but I have to throw this "advice" out with the rest because there isn't a
single reason for WHY I should actually follow it.

Bootstrapping isn't easy, the definition of the name simply implies it, and
these kinds of posts are sort of reminding me why, even in the beginning I
kind of doubt 37s. Getting Real appears to me a bunch of quotes with "I agree"
type paragraphs after it. Can ANYONE here tell me why I shouldn't take money
if it's given to me and focus on growing my ideas instead of doing it and
taking the results afterwards with a proverbial "grain of salt"?

------
wheels
Does anyone remember the time when 37signals main product wasn't an ideology?
That was neat.

------
Mistone
feels to general to take seriously - having a little cash in the bank is not a
bad thing, lusting over a vc round before building something is also a bad
scenario in most cases. Instead of right vs. wrong in the boostrap vs. funding
argument, I would much rather find about about how to determine the right
amount you need and some useful advice in finding investors that will help
beyond writing a check. otherwise its just more useless one size fits all
advice that i ignore.

------
vaksel
That may have worked before, but with web 2.0, you have millions of startups
that need the money to afford the hosting costs.

~~~
lsc
Wait, what?

ec2, (I consider them my biggest competitor, they probably don't know I exist,
and, well, my product is somewhat different) has lowered the cost of hosting
dramatically. and there are places that are even cheaper than that (such as my
company) - unless you are doing something like video sharing, hosting costs
are simply not a huge deal anymore compared to programmer time. At what I bill
out for as a contractor, for every hour of my time, you can run a amazon ec2
small node for a month and have enough left over for a cheap lunch.

At most (USian, at least) startups, pizza for the meetings should cost more
than the hosting fees.

Even if you are running an application where hosting is a big cost, there are
plenty of people (such as myself) who have hosting resources they'd be happy
to trade for some small slice of equity. Actually, yeah. let's make that a
standing offer. if you have a startup and need SysAdmin/hosting stuff and are
willing to trade a silver of equity for that, let me know.

------
smoody
this comes from a company that took money. granted it was from mr. bezos, but
still.

~~~
pchristensen
They've said multiple times that the main reason was to get access to Bezos.
They didn't need his money, they wanted the man.

~~~
anewaccountname
Then why did he have to pay them money? I'm sure he would have taken a stake
for free.

~~~
pchristensen
That would have unfortunately valued his stake at $0.

