In our case, it was Bootstrap AND die, as we were choked for resources and scope at a pivotal time. My business partner was so obsessed with the idea of bootstrapping, keeping all our equity, and making something for ourselves and not someone else—that we certainly starved from lack of growth. Our development suffered as we moved to also doing sales and marketing (with too few resources); our product suffered as we spent more time doing customer service; and most of all, our lives suffered as we had no time for anything, not even the company we had built.
We surely made other mistakes, but being absolute zealots about bootstrapping was definitely one of them. Be careful of that, even with this advice.
1: VC interests and founders interests aren't entirely aligned. The VCs want a large return on their investment, fast. What your business needs to do to achieve this isn't necessarily what is best for you as a founder.
2: Don't take VC money unless you're absolutely sure about how you're going to use it to grow your business.
3: The odds that it'll work out in your favor otherwise are incredibly slim.
I could be wrong but shouldn't this almost always be to pay your employees?
Warning: opinions ahead, proceed with caution...
I think it's easy to equate your employee headcount with growth, but I think this often leads to companies growing their headcount too fast without the preparation necessary to handle that employee growth. I consider this unhealthy growth.
Contrast this with growing your revenue and profit, which I consider healthy growth. If you take funding because you know how you can channel that funding into further revenue and profit, then you've found an excellent reason to take funding. Anything else and you're doing yourself and everyone involved with your business a disservice.
Yes, if you take funding you will likely grow your employee count, but hopefully you'll do so in a precise fashion, with a plan on how those new employees help improve the bottom line of the business.
And implied by that is that you only take money when you're at the stage that scaling your sales/marketing makes sense, which is usually after product/market fit.
(All of this doesn't mean that most money doesn't go to salaries - most money does go to salaries.)
I lost about $300k (opportunity cost) bootstrapping a startup over almost 3 years. I burned up about $100k of savings (finance jobs before that) and was, at the end of it, about $15k in debt and, psychologically, in a really bad place. (It's actually pretty amazing that I didn't fall harder or sooner, living in NYC on about $3k per month.) Can't recommend that. Oh, and because I was the first to leave (because I literally ran out of money) and eat blame, the CEO refused to let me open-source the work I'd done, out of spite. Two years of what was then cutting-edge Clojure code (that was one awesome thing about the experience, being an early-adopter in Clojure) gone. (Most of it would be out-of-date now; the language has made impressive strides.)
Oh, and that Valhalla where after failing at a bootstrapped startup, you get hired as a Staff SWE at Google or an EIR at a venture firm? Doesn't fucking exist. Most startups leave your career in worse shape than you'd be in had you gotten a decent big-company job. (Emphasis on decent. Yes, bad big-company jobs waste your life and career and reputation, but so do bad startups and those are quite common.)
The second startup where I worked was VC-funded and paid a low but acceptable (savings-neutral) salary. I was there for 3 months. Hired as VP/Eng but disallowed to use the title (first warning sign) until 6-month point. Asked to sign bogus performance reviews against early joiners with "too much" equity. Refused to do it. Got fired. No severance (I was an idiot and failed to take pictures of the documents I was asked to sign; had I, I'd probably be a half a million richer). Credit card debt. CEO spent months trying to destroy my reputation. (Combining that with my accurate but politically unwise public commentary about experiences at Google, I had some interesting job interviews.) Ultimately that CEO failed (like at everything in life, except for pulling family connections to raise money for bad ideas) to ruin me and I'm fine now, but I've been through hell.
Observation: in the bootstrapped world, you risk savings. This is not be taken lightly. It's not "just money". The temptation to quit too late might land you in credit card debt or fuck up your family life or something else. Really dangerous. I like the idea of bootstrapping, but I can't advise it unless you're rich enough to be a genuine angel investor (because that's what you are). Getting to that point, savings-wise, usually requires climbing a corporate ladder anyway; at that point, the bootstrapped startup is just a victory lap.
In the VC-funded world, on the other hand, you risk reputation. (Whether savings or reputation is worse to lose depends on one's personal circumstances; there's no globally valid comparison there.) The VCs have set up a tight-knit and utterly feudal reputation economy that exists in spite of its many violations of law, at least in spirit if not in letter (the note-sharing and co-funding culture is fundamentally collusive). VCs won't go after your house or your car, but if you cross them, they'll destroy your career and reputation. Morally speaking, that's even worse.
Maybe the truth is that this startup crank being peddled is, to paraphrase George Carlin, Bad for Ya. Or maybe I'm just a dinosaur at the ripe old age of 30. I don't think so. I've seen a lot, I understand technology at a deep level, and I think the startup game is extremely dangerous and the risks are often intentionally hidden. At a Series D startup, you'll get some pathetic 0.02% slice because "the business is de-risked". It's true that a startup will never have a true "layoff" (for image reasons, it must appear to be expanding) unless in dire straits, but phony "performance" firings (no severance, and feces all over the target's reputation) to hide layoffs are extremely common. Not fucking de-risked at all.
People are waking up to the evil of the VC-funded world and its disgusting good-ole-boy network, and the way forward is going to involve bootstrapping. I just don't want people to think it's a panacea. Like gambling, bootstrapping will not fuck up your life if you can contain your impulses... but if you keep burning savings because "this month is going to be the month I hit" then you can wreck your life even harder than a VC can. Frankly, I'd rather get a bad reputation in VC-istan (there are other options) than end up $50k in credit card debt.
The key thing though as you mentioned is you either gotta have a lot of personal cushion, or you gotta be willing to relocate to a fairly cheap area to temporarily lower your burn...like Nashville ;).
This is why some say: if you are going to fail, fail early.
Bootstrapping is great if you can see a light at the end of the tunnel, if the anticipated losses are easy for you to swallow.
> I think the startup game is extremely dangerous and the risks are often intentionally hidden
In the end, as a founder, you'll have find a way to run the company to profitability, or shut it down quickly (before burning millions). The repercussions are severe whether you fail at bootstrapping or in a VC-funded situation, don't let it be that way. It's not gambling, it's the founders' job to ensure things work out well.
I'm bootstrapping my startup in NYC. I've spent over a year focused on iterating from intimate feedback of a slowly growing test group. The core product feels ready for a larger public push, but since it's a social network of sorts, I'm planning to play the long game with it. I'll organically grow the userbase on nights and weekends while returning to a day job. This strategy won't work with all kinds of startups, and once I start this I may find that my assumptions are way off and it won't work for my startup either.
Then, I'll adapt (seek angel funding?).
A takeaway might be that if you are bootstrapped (or doing any kind of startup), you might want to do it at a cheaper location. I know, this doesn't apply for every company/team, but in general, a good thing to keep in mind.
What company? I feel at this point, public shaming via stating a sequence of events isn't morally wrong and it might keep one of us from taking a bath on collaborating with one of his future companies.
Nothing I could say about Google could ever really hurt it, but if I name this company, I destroy it. While it shouldn't exist, that means that about 100 innocent people lose their jobs (and suffer the same kinds of unexpected financial difficulty that made my life hell for a while) and the executives mark it as a mild annoyance. Shit floats, no matter what ya do. Then, there are 100 people who hate me for causing them to lose their jobs, and I don't really gain anything. This CEO is rich/powerful enough that even if I could prove everything I said (which would take a lot of time and energy) it wouldn't mess up his life. Anyway, there are a lot of shitty startups that don't deserve to live, but taking down all of them would be a massive waste of time. I'm not sure that taking down one is worth doing either. I have no moral problem with the idea, I just see it as potentially producing more bad than good.
I'll say this much here: it's New York based and in the ed-tech space. I only worked there for 3 months and it has a pretty horrible reputation among people in the know-- one interviewer I had said he'd never hire anyone who worked there, but made an exception for me because of my unusual story-- so I've taken it off my resume, but if you end up considering such a company for a job, feel free to email me and I'll confirm or deny whether we're talking about the same company.
On the employee angle, here's a blog post I wrote a year and a half ago: http://michaelochurch.wordpress.com/2012/07/08/dont-waste-yo...
What I would say is to avoid falling prey to the exceptionalism, the "yes, we pay poorly but we're changing the world" nonsense. If they value you, they'll pay you. If they say they absolutely can't afford more than 0.05% for an engineer, either they're lying or they did a terrible job of negotiating with investors (and the founders no longer call the shots). Don't make excuses for shitty people and companies; just leave them.
The same principles that apply in big companies apply in small ones. You'll have good bosses and bad. (Young startups tend to have more bad ones.) Focus on your career goals, and always watch your back a little bit. Don't sacrifice your career, reputation, network or anything else for a company, ever. It wouldn't do the same for you.
In that post you write:
> "The most credible appeal of working at a startup is the opportunity to learn a lot, and one can, it’s not a guarantee"
For me, it is quite clear what "a lot" might mean, but could you clear it up? For me, a startup is in the business of executing on market opportunities to create equity value far in excess of the value that can be attained by the same resources allocated elsewhere. For example: someone around here said that he couldn't fathom how Twitter could possibly employ 1000 engineers! That is way too many. But Twitter has a market value of around $31B. So in effect, the per-engineer market cap of Twitter is $31M. That would be an example of utilizing resources in a way to execute on an opportunity. How this is done would be what you "learn", by seeing it done in practice. Is this what you mean? Or did you mean something else.
When instead, you are among the first people to join a company, the opportunity is even more clear: if you see an opportunity by yourself, you can spend $50-$150/hour, whatever your personal salary equivalent, and personally code up a solution to it, owning 100% of the resulting value that you build. In other words, you can build a $1M company for $300K in personal labor, and would do so as a 1-person startup. If you lacked some skills, you would only contribute your part of that share, while someone contributed other parts.
This seems to me the essence of a startup. However, it seems you don't share this perspective in the least? You say in one part of your comment "not fucking de-risked at all." But 'de-risked' would mean that we no longer match the definition of a startup - as we are no longer utilizing resources to generate value far in excess of what the resources can generate elsewhere. In effect, we are utilizing the resources (in a "de-risked" context) as a commodity. So, it would be an example of NOT being a startup - like working at a cashier at a 2 year old business. Just because it's only 2 years old, doesn't make it a startup. It doesn't really matter if the business is 2 years old, 20, or 200 - there is no real difference if you are working as a cashier, and if the 2 year old business closes you would just work somewhere else. Cashiers are examples of labor used as a commodity (I say this as someone who has been one in high school), rather than stake-holders in executing on a market opportunity to build value in excess of the commodity value of the labor.
I would also like to ask about the following:
>I lost about $300k (opportunity cost) bootstrapping a startup over almost 3 years.
Do you simply mean, that these are the wages that you would have earned at the commodity value of your technical labor in the larger market?
Personally, the first time I read this sentence in your comment, I thought $300K was very low for 3 years - because I misread it. I thought you were saying that, because the startup chose not to take VC funding, the startup missed its chance to execute on a market opportunity, by being undercapitalized to do so: in other words, that the market opportunity the startup lost was worth (only) $300K. This would be the normal way to think about a startup's "opportunity cost" in continuing to bootstrap. If you were approaching it as a stakeholder in this process.
Please don't misunderstand me, I am trying to understand your perspective. As you reflect on my personal definition of a startup, would you agree that you do not really have an interest in using your labor in this way? For example, it sounds like you haven't tried to personally execute on market opportunities all by yourself without any cofounders: would you do so, if you happened to identify one? Why or why not?
I am simply trying to understand your perspective, please don't take this the wrong way. It sounds like, in contrast with most readers here, you are more interested in using your labor at its commodity price-value, rather than to execute on an opportunity in excess of its commodity-value. To use an analogy: if you were a construction contractor, you would prefer to dig foundations and help build houses for other people who are building them as new constructions for sale, while being paid at a fair market value for that construction work: but you would not build your own house to sell, for free, using the same labor. That is just outside of your interests. (This is the analogy, since clearly a real estate construction company wouldn't build a house if the commodity price of the construction costs exceeded what it will sell for when it's finished.)
Is this true? If not, please don't jump at me for misunderstanding you. I am trying my best. Perhaps it is possible though that you are just not interested in working with startups, irrespective of compensation. i.e. even if you were a millionaire from a startup, you would have preferred to have done work under more certain terms for the same financial result, rather than by participating in the business the startup is in. Is this true?
I don't mean to offend you in any way. I am just trying to understrand your perspective here. If you could elaborate on the above points it would help me to understand your perspective. I am open to your experiences.