Thursday, June 16, 2011

How to Bootstrap

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In my 10+ years of running Internet companies, I've never raised a single dime, yet I've still gone on to sell three profitable companies and am currently on my fourth, Carbonmade. Bootstrapping is something I'm very familiar with, so I've gathered together some thoughts that should provide you a step-by-step process of going from idea to product to profitability. I have nothing against raising money — angel or venture capital — it's just not the process I'm most familiar with. How to bootstrap goes hand-in-hand with how to run a lean startup, so expect some crossover below.

Idea Generating
Idea generating is only slightly different when you're bootstrapping than when you're looking to raise money. The only important difference is: if you're planning to bootstrap your idea must have built-in revenue generating functionality from the get go. Building Twitter is off the table. You can't wait to hit scale before turning on the revenue features. That's why ideas around Software as a Service (SaaS) are so effective for bootstrapped companies, because you only need one customer to reach revenue — and, with inexpensive hosting costs, probably only a dozen or two to reach profitability.

Bootstrapped companies can't afford to wait around to reach a network effect. You need to start generating dollars as early as possible so that you can quit your day job or put a stop to the draining of your bank account as soon as possible. Bootstrapping startups don't have the luxury to wait around. So when generating an idea for your startup, toss out everything that doesn't involve charging a fee for at least some of your clients. Leave the ad revenue and crazy business model revenue streams to the startups with venture funding. That's just not your game to play.


Team Building
You can either come up with the idea first or the team first. I think it's fine to do it in either order, but it's probably best to come up with the idea before the team. Then you can build a team around the idea. When bootstrapping, you need to find a team that's willing to work for nothing and spend their off hours with you, so finding these types of people can take some searching. You're far more limited in your choices.

Read more: Spencer Fry