In today’s world and thriving startup ecosystem, we are consistently hearing news of startup companies securing large rounds of funding from Venture Capital firms. To some (especially to those in Silicon Valley), acquiring a large round of seed funding is a measure of success, but recent surveys from the Kauffman Foundation indicate that this is not the case. Their results, published in the Journal of Developmental Entrepreneurship, indicate that lower levels of startup capital do not significantly alter a company’s chance of survival.
Although raising capital is more visible, the reality is that less than 1% of companies have raised capital from VCs. A vast majority of companies are actually bootstrapped. The process of self-funding your company requires focus, resourcefulness, and patience; in a VC-backed startup these critical components of your company’s success are too often overlooked for rapid growth and market penetration.
Bootstrapping your company is the ultimate measure of your business model. It will force you to scrutinize every investment, expense, and strategy, but it will teach you important components of building a successful business that are often lost in VC-backed organizations. Here are two critical success factors that bootstrapping will teach you:
You will value your customers
You may think that every company values their customers. The truth is that definitions of value can be drastically different. In the early years of a self-funded company, every single customer feels like family to you. They represent the privilege of keeping your doors open for another day and you never take that for granted. Customers are valued in companies with more funding, but in a different way.
Before I started my own company, I was working at a software startup that was venture-backed. At the end of the year we were pushing hard to meet our revenue goals and the tension in the office was palpable – pipeline reviews every morning to discuss what was going on with projected sales. I had a potential deal that was supposed to close before year end but the customer had stopped responding to me. Our sales management pushed me multiple times a day to engage the customer; their requests became more and more frantic. After days of harassment the customer, who I liked and had spent months building a relationship with, told me he had a lot better things to do than to put up with my incessant calls and emails.
When your focus is rapid expansion, customers can become a means to an end. When your customers represent your livelihood, you treat them with a different sense of gratitude. Customers feel the difference and so do your team members.
You will learn to Invest Wisely and Grow Organically
Great self-funded businesses learn how to make calculated investments. When you have limited runway, you dissect every expense – whether it be staff, technology, office space, or marketing – and you are forced to make smaller investments that create incremental, not rapid, growth. Although the pace of your growth may be slower than that of a venture-backed organization, growing organically can help you remain true to your core values and allow you to focus on building a sustainable, profitable business.
Leading Edge Design Group started in 2007. We didn’t make the INC5000 List until 2013. In the first few years, we couldn’t afford to attend large tradeshows so we focused on smaller, regional events that were targeted toward specific markets like healthcare and education. We focused on building a loyal customer base in these smaller niches and then used that to expand into other areas. Our pace of growth was slower, but we learned a ton from our customers and were able to apply those lessons to a larger audience.
Being an entrepreneur is not for everyone and bootstrapping your company is not for every entrepreneur. The process of building and growing a self-funded company requires a unique kind of patience. However, the lessons learned from your early years in self-funding your organization – the value you place on customers, the methodical approach to growth – will become part of your company’s culture and help you build a foundation for a profitable business that can survive in the long-term. In an era of highly visible rounds of funding, bootstrapping is a privilege and its own badge of honor.