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Starting a Business? Before You Seek VC Money, Here’s Why Bootstrapping May Be the Better Choice. | Entrepreneur

by Brand Post
August 9, 2024
in Business
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Starting a Business? Before You Seek VC Money, Here’s Why Bootstrapping May Be the Better Choice. | Entrepreneur
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Opinions expressed by Entrepreneur contributors are their own.

Back in 2006, Harvard Business School professor Noam Wasserman published a paper called “Rich Versus King: The Entrepreneur’s Dilemma.” The dilemma in question was whether, as a founder, you’d prefer to make money or maintain control — the implication being you could not have both.

Wasserman’s reasoning was that if you prefer to get rich, you’re going to need investors, at which point losing control becomes inevitable. If you prefer to be king, you’ll have to fund your venture on your own, meaning your potential for massive growth is null and void.

“Entrepreneurs face a choice, at every step, between making money and managing their ventures,” Wasserman writes. “Those who don’t figure out which is more important to them often end up neither wealthy nor powerful.”

With all due respect to Wasserman, this simply isn’t true. For evidence, one needs to look no further than Spanx’s Sara Blakely, GitHub’s Tom Preston-Werner, Chris Wanstrath and PJ Hyett, or Tough Mudder’s Will Dean and Guy Livingstone, all of whom are bootstrapped founders who launched their companies to profitability with no outside investment.

As a fellow bootstrapped founder myself, I believe there’s a lot of wrong information and inaccurate assumptions about what bootstrapping not only is, but the potential for what it can be.

Related: 3 Essential Skills I Learned By Growing My Business From the Ground Up

Why bootstrapping is still a best-kept secret

Let’s start with the basics: Bootstrapping refers to launching and running a company without outside investments, using whatever capital the founder has on his or her own, and whatever subsequent revenue the company generates.

The opposite of bootstrapping is raising capital through angel investors or VC. These operations tend to get a lot of press for a few reasons: For one, eye-popping funding rounds are seen as newsworthy events, and there’s a powerful public perception that the company that receives large amounts of capital is poised to become a smash success (even though this is far from always the case). Additionally, bootstrapped founders are often more consumed with funneling their resources into building and developing their products than doing PR or media outreach.

The tech company Zoho, for example, became the first bootstrapped SaaS to surpass 100 million users. In responding to a Reddit post on why bootstrapped companies like Zoho don’t get much air time, one commenter replied that the answer was simple: The path is just not as sexy.

“[Bootstrappers] are not on startup meetups, they are not pitching to VCs and they don’t want their money. You focus on your product and your clients, not on your visibility on [the] startup scene,” the commenter wrote.

Related: After Bootstrapping My Tech Company for 25 Years, Here’s What I’ve Realized About Funding

VC-backed growth vs. bootstrapped growth

One of the biggest misconceptions around bootstrapped startups is that they’re the same as small businesses, with the goal of staying small. That’s usually not the case — it certainly wasn’t the case for me. I grew Jotform from a side hustle I did alongside a full-time job to the enterprise it is today, with more than 25 million users globally and over 660 employees across five continents.

Bootstrapped startups are actually every bit as ambitious as the ones that take investments. While their growth may be slower and more incremental than if they received a massive infusion of VC cash, they both share the same objective: Become a large, successful company.

VC-backed startups are often pressured to grow quickly. This can — and does — work, especially if you’re okay with ceding the CEO role to someone with experience in managing that type of expansion. But if your goal is to stay on and grow along with your company, such rapid change can be very challenging.

With bootstrapping, your growth should be steady and continuous. I often think of it in the context of my two eldest kids, now 6 years old and 8 years old, when they began learning to play basketball. When they started training two years ago, they didn’t know how to dribble the ball and their shots didn’t land anywhere near the basket. But over time, they got better and better.

Related: What I Wish I Knew Before Bootstrapping My Startup

I haven’t been taking my kids to practice the last few years because I want them to become professional basketball players (though no complaints if that happens). I take them because learning to play has made them stronger, built their confidence and taught them discipline. But the fact is, getting better has taken time. The effect would not have been the same if they’d spent all day shooting hoops from dusk ’til dawn for a month straight — it’s the consistency that has built them up.

The same goes for bootstrapping. You can’t make a product successful overnight by spending millions of dollars to hire hundreds of employees and buy tons of ads. It takes time to build a good product, and it takes time to learn to be a good CEO. If you plan to be both rich and the king, in Wasserman’s parlance, bootstrapping is the way to go.

There are still a lot of misconceptions about bootstrapping, largely because bootstrapped companies don’t get as much press as those that go the VC route. But through consistent growth, they can — and do — reach the same great heights, often in a more sustainable, long-term way.



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Tags: BootstrappingBusinessBusiness ModelBusiness ModelsBuying / Investing in BusinessChoiceentrepreneurEntrepreneursGrowing a BusinessHeresInvestmentsMoneyMoney & FinanceSeekStartingStarting a BusinessVCVC FundingVenture Capital

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