Is bootstrapping killing innovation or firing it?

[Justin Bellinger]

I've had a lot of discussions recently with friends who have chosen to bootstrap their businesses.

For many of us, there is no choice in this, either we can't convince angels or VC's to back us, for a whole multitude of reasons, or we've been there, and don't fancy it again until the premoney valuation makes it worthwhile ;).

Doing so adds a whole host of complications, the most obvious being lack of available cash during the bootstrapping phase.

I'm interested to know how many of you consider this a killer of innovation or a driver of it?

Discuss.

[Farhan Thawar]

No, bootstrapping should ensure that you don't work on a non-dumb idea. You're forced to work on the right thing

[Paul Walsh]

I agree with Farhan. Bootstrapping goes together with revenue driven and customers will keep you grounded, but that doesn't mean you can't do something novel. You just get validation quicker ;-)

Here's another thing. In a VC backed company the CEO and CFO make a lot of pitches over an extended period. They are away from the office and the hub-bub of development a lot. Many pitchbooks deliberately conflate multiple, inter-locking issues down into something simple. As someone once told me - don't pitch a complex drawing, pitch a cartoon. Sometimes, that cartoon gets carried back into the business along the lines - we have to work on this, it's what we pitched.

[Justin Bellinger]

A common theme in bootstrapping, however, is, for instance, consulting work, which brings in immediate revenue, to help fund other things. My experience so far is that *this* can remove focus away from the final goal - whatever that might be - because the drive for revenue (the consulting) can drive focus away from what you started out to do?

I'm not saying bootstrapping is wrong (and, as I pointed out in my original question, in many cases it is essentially the only way to get going), but my overall point it that, at times, it can kill innovation, or at least the innovation everyone started out to deliver.

Farhan Thawar said:

No, bootstrapping should ensure that you don't work on a non-dumb idea. You're forced to work on the right thing

[James Avery (@averyj)]

I think most if not all software (web or desktop) businesses should be bootstrapped since the startup costs are so incredibly low and it forces you to focus on a sustainable business model and not build another free service that hopes to get bought out. (I am somewhat biased as I am bootstrapping my business)

In other areas like bio-tech or manufacturing I can see where the lack of funds would be a major issue.

[James Avery (@averyj)]

Justin,
I agree that consulting can be very distracting, ideally people do as much work as possibly while consulting but also save up money in the company so they can devote full-time attention to the product. Or you have one/two people consulting to pay for the person focused full-time on the product.

[Paul Walsh]

Yes consulting can slow down focus but it does not have to. You can build a roadmap of features that you want to include in a product and then basically direct your sales to find customers who want those features and are willing to fund. You have to be flexible - idea priority #5 can leapfrog idea priority #1 if that is the order you sell them in, but you should draw the line at idea priority #20 or whatever - that's not strategic enough.

Keeping the IPR is far less of an issue these days. People understand TCO arguments. At worst, offer a limited time exclusivity.

I do think that bootstrapped companies grow slower as measured in things like headcount. That's not necessarily a bad thing. I have heard one speaker (David Connell, at a Cambridge conference) speak on this and he put a 30% max pa growth estimate in soft-start companies. He advised to only work on applications where there is lead R&D, which is similar to my point above. He also said that collaborative R&D projects were especially rubbish for executing product development - resonates with my experiences.

Justin Bellinger said:

A common theme in bootstrapping, however, is, for instance, consulting work, which brings in immediate revenue, to help fund other things. My experience so far is that *this* can remove focus away from the final goal - whatever that might be - because the drive for revenue (the consulting) can drive focus away from what you started out to do?

I'm not saying bootstrapping is wrong (and, as I pointed out in my original question, in many cases it is essentially the only way to get going), but my overall point it that, at times, it can kill innovation, or at least the innovation everyone started out to deliver.

Farhan Thawar said:

No, bootstrapping should ensure that you don't work on a non-dumb idea. You're forced to work on the right thing

[Steve Jones]

If you read Founders at Work (Jessica Livingston), one of the key things that many of the successful founders mention is that they were driven by the work, and having money got in the way. Most of them recommended not having too much money when you start.

You want to be efficient, and focused. A lack of money forces that, and if it doesn't, then perhaps you're not the person to bootstrap.

The other thing is that you have more flexibility and freedom to innovate without a VC or investor bothering you or asking for progress. I think this is why a lot of our very famous software people came out of universities, where they weren't driven by a business agenda.

[Justin Bellinger]

Some wonderfully valid points; as usual, you've all done me proud with your insights and thoughts. Thanks.

[David Locke]

What do you need cash for? Client's have cash, so get clients.

I cannot imagine how bootstrapping kills innovation. I wouldn't start a disruptive startup any other way. You might not be disruptive, I tend to forget that, but if you are not disruptive, then how are you innovative. Much of the software, particularly SaaS, coming to the market now is not innovative. It's just the same old stuff addressed to a new market.

VCs will not invest until you have an install base. Bootstrap to get that install base. Forget about investors. Forget about grants. Get clients. Never code on your own dime.

Stage gate that client's verical. You will need to get eight clients sequentially. When you stage gate each of them, ask yourself if their vertical has enough seats and enough dollars to justify entering the vertical as a stand alone business. If no, pass. No, don't take the job for Christmas money. Make every effort contribute to the realization of your technology/product/service, growing your organization, and growing your market. You have to do all three at the same time. VCs force you to do things in an imbalanced way. Consider not getting VC money to be a great thing. Learn to manage. Learn to run the business. When you have a winning business, VCs will be ready to hear you out, and you won't need them as much.

You business will die only if you let it die. It's not going to be the fault of a VC.

[Charles Neville]

David Locke said:

What do you need cash for? Client's have cash, so get clients.

It really depends on what your product is doesn't it? If your product is being sold to a vertical then this works, if it's a mass market product, and requires considerable development effort, then you need money to build your product, then sell it.

Would you bootstrap a games company? Wouldn't it be easier to start with funding?

[Ed Loessi]

Bootstrapping is a very good strategy up to a point and depending on what you really are trying to achieve:

Bootstrapping is good while determining that there is actually a problem that can be solved.

Bootstrapping is good for determining who is in and who is out in the founding team.

Bootstrapping is good for building a lean operating mentality.

Bootstrapping is not good when assaulting an emerging growth space where you have the chance to be in the top 3.

Bootstrapping is not good when needing to create a growth infrastructure; channel sales programs, technical partnerships or any other thing that requires time investment of 6 months to see results.

I guess what I am saying is bootstrapping is good but only up to the point that you determine there is actually a growth business at which point you need to be very clear about your goals e.g. great small business that is going to be locally successful and meaningful to you and a small group of people and customers or a serious growth business that can have a major impact on an existing or new market.

Thanks,

Ed Loessi
Faulkner Technologies
www.faulknertechnologies.com

[David Locke]

Charles Neville said:

David Locke said:

What do you need cash for? Client's have cash, so get clients.

It really depends on what your product is doesn't it? If your product is being sold to a vertical then this works, if it's a mass market product, and requires considerable development effort, then you need money to build your product, then sell it.

Would you bootstrap a games company? Wouldn't it be easier to start with funding?

Why would a VC give a game company any money at all? I'd find a way to code my game engine technology in various business contexts. Games are teaching mechanism. And, no, maybe that isn't what you wanted to do, but the recession and VC hesitancy is a reality. You could take your client money and code for someone elses game platform. Using clients is the alternative to claiming that VCs are killing innovation, or is it just your company. VCs are not killing innovation. They continue to invest.

How is your game innovative? Not, being a gamer, how is your game innovative to me?

When you sell a client, don't talk about your technology or product or intentions. Ask them what their problem is and solve it. That closes the deal. And, even if you are just earning money, instead of building product, that money is being earned to finance your game development, so clients are still the gateway in the face of a lack of VC funding.