Now that venture funding is much more widespread and entrepreneurship more celebrated (and I would argue more sophisticated), I wonder how much this advice applies.
Wouldn't a smart competitor wait to see what's working from a bootstrapped pioneer then pass them by with tons of VC cash as rocket fuel?
I haven't read the article in full yet and only skimmed it. But a lot of the challenges I think still apply and what they seem to suggest is to start off bootstrapped, rush to getting operational, break even as quickly as possible and fail fast if you can't. Then grow from there yourself or by taking on investor money to accelerate it.
For problems that not inherently need a lot of up front investment, for me this approach always appeared to be much saner than scaling first, burning trough more and more money and only maybe somewhere down the line find an economics of scale business model that works.
Or am i misrepresenting what the article is saying?
Also, regarding the getting outpaced by someone with tons of VC rocket fuel if you don't want to take their money yourself. I think there will always be room for more "boutique" products that are appreciated by customers as well as the people making them for their focus on quality and reliability, instead of taking over the world. To be honest, as a customer I have largely abandoned typical start up products, because at least for my use cases and preferences they tend to just not be very good and trustworthy no matter how much cash they have on the bank.
I don’t know from personal experience, but my impression is that it’s hard to know which startups are going to be high-profile before they’ve found exponential growth —- and once the bootstrapped company has that, the would-be copycat would be playing catch-up to a no-longer-bootstrapped company. Plus, as many copycat services as there are, it looks like the hard-to-copy team specifics make a big difference on the outcome.
> once the bootstrapped company has that, the would-be copycat would be playing catch-up to a no-longer-bootstrapped company
This counts on the bootstrapped company tapping outside capital once they hit their stride.
If it refuses to do so, it would be trivial to copycat and flank them in markets they haven’t yet captured, thereby boxing them in and reversing the first mover advantage with a scale advantage. The only protections against this are IP and true, technological moats.
> they can be revenue funded and still hard to catch up to by just copying them
Capital financing can provide five to twenty years’ operational cash flows in a single go. It takes deep moats to outgrow someone copying you and simultaneously expanding into every market you would have taken the coming decade.
This is a standard scale playbook by the way. When your competitor can scale faster, but refuses to for political (control) or ideological reasons, it leaves a strategic opening.
Some growth hacks are hard to fund with bootstrap revenue. One example is Paypal's $20 signup bonus when they started out. The bonus tapered off to lower amounts over time, but it was still super expensive (~$70 million!).
> This counts on the bootstrapped company tapping outside capital once they hit their stride.
Isn't tapping into outside capital only at this point what makes the most sense, because you are in a much better negotiation position having already validated the product and making money?
At least if your a start up with exponential growth in mind. It can still be a very sustainable product and company without and the copycats can actually act as free advertisements for the "real" thing.
If you have a bootstrapped company successful enough for VC-funded entrants to copy, you're already set. Other than ego, why wouldn't you just keep on truckin' along, taking sweet disbursements from your profitable company or even selling it without having to split the pot with investors?
For example, I don't think the Basecamp guys spend a ton of time worrying about Atlassian.
I really disagree that it is trivial to copy a successful company. Possible, yes. VC funding doesn’t automatically make it simple and easy to create an effective competitor.
Good question and one that I'd like to hear other comments on.
My take is that bootstrapped companies today focus on niche markets. When you don't have to give up 40%+ of the company away by Series D - you can afford to live a great lifestyle tackling a market with smaller TAM than VCs and VC-backed startups look for.
There's also probably something to be said for the difficulty of:
1. Running an VC-backed company through explosive growth
2. Maturing the company past explosive growth to profitability / cash flow positive
Bootstrappers pursue measured growth with a focus on cash flow + profitability from day 1 so they don't necessarily need to suffer through those same difficulties. Though they fight other battles (i.e. growing in cash constrained environments).
> Wouldn't a smart competitor wait to see what's working from a bootstrapped pioneer then pass them by with tons of VC cash as rocket fuel?
This is presuming they can, which is not clear. If you’re bootstrapped you’ve either made a profitable business serving customers from less than a normal seed round or from less. Lots of venture backed startups never get that far. To be profitable you have to have already made something people want, you need to have an understanding of your customers that the VC funded rocket may never develop. Going somewhere really fast is useless if it’s the wrong place.
> Wouldn't a smart competitor wait to see what's working from a bootstrapped pioneer then pass them by with tons of VC cash as rocket fuel?
Sure, but 1) not all businesses are VC-worthy - there are a lot of things that only make sense if you bootstrap or raise little money, 2) even if you raise VC money from the start, others can come along, copy and use your learning experience to their advantage, for example Lyft/Uber, and the great number of their copycats all over the world in different geographical markets. There are companies that base their whole business in this model, like RocketInternet (they see who's growing fast then copy in a different market, then maybe even sell to the original company). Groupon even turned it around and used it to fuel their international growth by buying all their copycats and integrating them into their main organization.
Only if the bootstrapped pioneer isn't capable of getting VC and using it to scale themselves, beating the new entrant with their experience developing the product (especially, their knowledge of what doesn't work, allowing them to avoid expensive pitfalls).
I found it interesting on the bootstrapping topic and the: start fast with what you have and embrace uncertainty methodology. But sure, data is 30 years old.
There's more VC, but there's also more companies chasing VC (possibly more skewed towards the demand side than in 1989). In a seller's market, you can make more demands, hence the "cost" of taking VC has probably increased.
Dead comments can be resurrected by people vouching for them. If you think a comment from a banned account is something that should be shown, click on its timestamp and then click "vouch". I usually look at the user's other comments first, to see who I'm vouching for.
Wouldn't a smart competitor wait to see what's working from a bootstrapped pioneer then pass them by with tons of VC cash as rocket fuel?