This is a long-form post written for a course I'm currently taking on Innovation and Entrepreneurship. I'm writing about the processes involved in bootstrapping a startup, and the potential benefits it can hold for innovation, especially in a technology context. Feel free to share your own experiences in the comments, or any tools you've found that have helped you in your bootstrapped startup! Bootstrapping and the Entrepreneur
The current most hyped buzzwords in the entrepreneurial community - when it comes to the money involved in bringing a product to launch - are ‘venture capital’ and ‘crowdfunding’. Enticed by the seven-digit figures involved in the funding rounds of big-name startups like Groupon, Color, or Pandora, and the success stories of products born from successful Kickstarter campaigns such as the Pebble smartwatch, many entrepreneurs are overlooking a more self-contained, ambitious approach that its proponents would argue is a better fit for the processes of ideation and innovation so important to the DNA of a startup: bootstrapping. The process of bootstrapping refers to a self-sustaining business that supports itself without outside help or funding - and whilst it may at first seem counterintuitive to pursue one's business goals without seeking as much assistance as possible, the potential for advantages both tangible and personal make it a more than viable road to take in the right situation.
The strongest advantages of a bootstrapped startup are the creative freedom it affords, the heavy focus on product that it requires, and the benefits provided by a shorter runway. Once a startup takes money from venture investors, or creates a public crowdfunding campaign, there is a level of obligation owed to the source of the newfound cash. Investors will have their own expectations, advice, and recommendations which an entrepreneur must integrate in order to remain in the good faith of the investor. This accountability, whilst it can prove to be an important check and balance in an the decision making process of an established public corporation, can often serve to stifle the creativity and innovation involved in the critical early days of a business. The best entrepreneur is a headstrong breed: he is self-possessed, passionate, and decisive in the choices he makes - by bootstrapping a startup, the freedom and independence that are such integral qualities of a successful idea are protected.
Furthermore, with a limited budget available, a deeper focus on the product can emerge. By bootstrapping a startup, not only are the dollars limited, but they are also yours. It aligns your incentives to succeed with the success of the business: if the startup fails, you will be losing your own money. If it survives, and flourishes, you will do the same. The only way to achieve this is by fulfilling the need to build a better product for the customers - without the marketing budgets of a venture-funded company, the entrepreneur is forced to achieve this through focusing 100% on their product. No distractions. Pursuing alternative ideas, being able to start from scratch if the product doesn't work; both luxuries that can't be afforded to a bootstrapped startup. These factors heighten the potential for innovation - it creates an atmosphere where ideation is mandatory, and the ability to nail a product implementation that beats the competition is going to be more valuable than any marketing budget could possibly prove to be. Additionally, when the costs for developing a product are kept low by the absence of an R&D budget, this means that the potential for higher profit margins are maximised. Staying lean will keep the overhead low, and ensures that your exit multiple remains as high as you can get it.
With less funding on hand, this also means there is less time to launch the product. This “shorter runway” effect lends itself to many of the processes also integral to design-thinking and ideation: rapid prototyping and iterating not only keeps your testing costs low, it creates a more well-rounded product by identifying weak spots more quickly than a more traditional product development process would be able to. It’s true that venture capital investment, or the funding raised from a Kickstarter or IndieGoGo campaign can make your startup experience more comfortable, but this comfort more often than not just pads out the time frame available, adding weeks, months, or even years to your launch timeline and critically reducing your maneuverability and competitiveness in the market.
However in 2013, the prospect of bootstrapping your startup is nowhere close to as daunting as it was in earlier times, especially when it comes to technology-based products. The innovator's dream of being able to not just envision a product, but also to have the skills to build it and the platform to sell it, has become a reality. There are a wealth of tools available to help build distributed, high quality products that harness the modern technologies that consumers continue to enjoy. The factors that this comes down to are education, “support” services, and the emergence of distribution platforms and payment providers that allow an online entrepreneur to monetize their product. My own experience developing a mobile startup is evidence of this - I’ve carried through each and every one of the steps myself, if that gives any indication of how possible it is.
In order to bootstrap a startup, it is important to understand that you will be taking on more roles than you would have to with outside funding. This is an admittedly daunting prospect, but the abundance of online education makes it a significantly easier task than it would have been five years back. Online training holds a number of advantages to traditional education: you can learn exactly the skills you need to accomplish what your product requires, you can learn in your own time, on your own schedule, and it is often free. The intricacies of design, development, and even marketing concepts have been democratized and made available in a way that no other generation has been able to enjoy, you need only an internet connection and a search engine to start gaining the skills you need to create your product. iTunes U, YouTube, and Udacity are all perfect examples of these resources; I picked up a deep understanding of mobile design from a weekly series on YouTube called Android Design in Action, and learned Android application development from scratch using a plethora of free online tutorials and practicing with the freely available SDK.
Although as attractive as this availability of education may seem, it wasn’t all smooth sailing. There often isn’t enough time to pick up and perfect every skill set needed to launch a product. Fortunately, the startup world has solved this problem itself: a new field of support services has emerged, providing effectively plug-and-play functionality for entire product components such as back-end servers or database management for a low monthly cost. Parse (https://parse.com/
) and Kinvey are two examples of this I’m familiar with. Parse, a backend-as-a-service startup recently acquired by Facebook, in their own words “allows your team to focus on creating a great user experience and forget server maintenance and complex infrastructure”. I had a back-end up and running within a day, with an abundance of API documentation available to allow me to integrate it into any modern software platform I chose. These tools, and others like them, are perfect for the bootstrapped startup: they reduce effort, and allow you to scale your costs with your user base: eliminating the high cost server solutions that previously served as a significant barrier to entry for prospective innovators. Without the need to learn deeply technical skills, entrepreneurs can now continue to focus on the user experience to deliver a high-quality product with a professional level of polish on a shoestring budget (pun intended).
Finally, the revenue stream. In the previous decade of online startups, it was often difficult to monetize an idea, not only because of social factors such as a reluctance to conduct transactions over the internet, but also because the platforms for conducting these transactions were arcane and difficult to implement. Fortunately, for the bootstrapped entrepreneur, this is no longer the case, as both independent payment providers and entire commerce platforms such as the iTunes and Google Play application stores have emerged to handle the money themselves. Payment providers like Stripe (https://stripe.com/
) allow product creators to easily monetize their creations without having to gain payment accreditation, and seamlessly integrate payment forms into their own websites for their own products; levelling the playing field between big business and no-budget startups. Furthermore, app stores for every platform make it straightforwardly simple to monetize an application and distribute it to the masses. These stores not only act as a distribution platform, but also as a low-cost marketing platform to showcase your idea and product.
Every product and every startup exists in its own unique context: there is no catch-all funding solution for how to make an innovative dream happen. What may suit one project may be completely wrong for another, but it is the sign of a strong entrepreneur to be able to recognise the opportunities in each and choose the right course of action. Bootstrapping a startup affords a number of advantages, namely a higher level of creative freedom, focus on product, and the benefits of the shorter runway effect, and it is easier now than ever to forgo the pitching/funding round cycle and crowdfunding campaigns and pursue the DIY approach due to the abundance and accessibility of online education and support services available. Bootstrapping may indeed be stressful, but keep in mind that if you succeed, it can prove to be incredibly rewarding to know that you’ve done it on the strength of your own merits.