It is tough to have these two mentalities at the same time:
> Your employees adopt your bootstrapped mentality and they, too, are careful of where they spend your money and try to be as resourceful as they can with limited resources
and
> Could I go and raise a few million bucks in a seed/series A round today? As a second-time founder, yes — I’ve said no to several investors already and have a strong network.
The biggest expense in almost any startup is employee salaries, so raising money almost certainly means higher salaries for employees. So you are basically saying: "I'm rich and have connections, but it is better for the business if we all are very lean". While it is true that being lean is probably better for the business, it only works if the employees buy into it. Maybe you are giving employees tons of equity and that causes them to buy in, but otherwise the whole thing seems pretty hollow.
Other than equity, there are a number of choices there. One is working conditions: you have a lot more freedom to grant people unusual working conditions if you answer to nobody. Another is compensation. Not only could you grant more equity, you can also use contractors or part-timers more freely, or otherwise mess around in ways that VCs tend to frown on.
VCs are very optimized for "go big or go home." It's nice to not have that pressure early on, for the founders and the other employees.
It's interesting how different the feel is at different companies -- VC-backed vs private-equity-backed vs public. Bootstrapped is potentially a different feel, and a better match for some people.
Does it work out that way in practice? No clue. Never worked for one of these, though I've worked for VC-backed, private-backed and public.
I guess it depends on the type of company he wants to build. Does it work? Remote companies work for some, and don't for others. Not using contractors works for some, and doesn't for others. It all depends on your existing team/culture/product.
I really don't think that's what he's saying. When companies have a lot of capital at their disposal they tend to make more wasteful decisions. Dump money into poorly optimized Facebook ads or pay over-priced PR firms. We see this all the time.
There is a certain scrappiness that comes with being a bootstrapped startup. Your ad budget is $0 and you have to come up with creative ways to generate buzz. The struggles end up forming a foundation and culture for a much stronger company in the long run.
So he isn't raising capital so he can penny pinch his employees. He's not raising capital so his employees can be a part of a business that will be around in 3 years.
It's another example of "the properties of gasses": they expand to fill their containers. The more money you have, the more money you spend, even if you don't really need to.
When it comes to investor money, at some point you basically have to spend it. That's the expectation of investors: they gave you the money so that you would invest it to expand the business faster than it could organically grow. If you hold onto it and try to continue running a lean business, you'll run into issues.
I'd be curious to hear more about these issues, either from founders who've encountered them or VCs who've created them. I understand the idealogical variance at stake, but the key difference is not whether that money will be spent, but how quickly.
I think the ideal situation for a founder would be to grow the company organically, while having money in the bank available to overcome hurdles that can sidetrack a bootstrapped company.
There is a balance here that I believe maximizes a company's long-term sustainable success rate. Sure it requires discipline, but that's a foundational attribute for startup success of any kind.
Entrepreneurs who have a) a very strong track record or b) easy access to large sums of capital can do whatever they want.
For the rest, it's helpful to conserve resources while searching for a business model or product/market fit. Then, once you find fire, pour gasoline on it.
I think the other way around this is to simply have less employees. This is the path of many "lifestyle businesses" (VC speak for small business that happen to be tech-oriented).
> so raising money almost certainly means higher salaries for employees
> but otherwise the whole thing seems pretty hollow
uh, what? why? how did you come to this conclusion? you're wrong. not only are you wrong, you are also assuming he's being cheap to his employees. you just made up this fact in your mind, and assume it to be true. quite frankly, that's you projecting.
we're bootstrapped and we pay people higher salaries to incentivize them to work for a smaller, "unstable" company. if we raised money tomorrow nobody's salary would change. my salary as a founder probably wouldn't change. i'm pretty sure that anything beyond a nice dinner to cap the occasion, i.e. just paying ourselves more because some new money showed up, would be frowned upon pretty heavily by anyone investing money.
and i am aware of several name-brand funded companies that pay people less than market just for the privilege of having their company on a resume.
bootstrapping doesn't mean "be a cheapskate and pay everyone under market" it means "earning and using revenues to grow the company at the early stages and possibly beyond". you can bootstrap and pay people above market salaries, or pay yourself a wildly inflated salary if you are the owner.
you have a fundamental misunderstanding of how modern small businesses work, probably because you have never run one.
I thought bootstrapping meant only investing in your company with the company's revenue.
If you have $10MM you are self-funded, not bootstrapped (sure, an initial self funding is always necessary, but it is easy to differentiate 10k and is 10MM).
Can you really call a $7M personal investment "bootstrapping"? I've always associated that term with its more literal meaning, "pull yourself up by your bootstraps." Most people would happy retire on a small chunk of that.
After raising $125M at my last company, I'm going around talking about how I am bootstrapping this one, no doubt to raise attention and create interest and demand for the business -- it must, after all, be hot.
Bootstrapping is specifically about pursuing revenue instead of investment. So no, I think many tech companies definitely don't bootstrap until they get investor money. The common model is investor money first, revenue later.
On the East coast, I've heard of many small businesses that self-funded (savings and/or spouse) to get started, and never took any funding. Never heard of even one incident of a small business that was invested in. Obviously it's a different world in Silicon Valley, but if we look at the nation or globe, what is more common?
Sorry if I was unclear. When I said "the common model" I was referring to the context of the previous sentence (and also this article and this site), tech startups. I agree that most normal businesses are self-funded.
That was part of his point, right? That bootstrapping and taking funding are not mutually exclusive - you can (and often should) seek customers before funding, and then if you ever want to accelerate your growth, you can always take funding later.
He doesn't mention the amount of money he invested. If it's $5m, what does it matter if it came from investors or from him? He's just investing in his own company.
If the initial investment was $10k, then yes, it is impressive. I have an inkling that it's nowhere near that low, though.
Interesting choice of header image. I kept wondering when the author was going to talk about Soundcloud, but it never happened—turns out it's just a random photo of a startup office. (Looks like Soundcloud's old Berlin office? Not sure.)
Are offices of other startups equally "well-spaced"? Seriously, you can't cramp more people on less space or it begins to look like a Chinese sweatshop. I tried to google other startup's offices but I found only pictures of shiny conference rooms. Are they usually similar to this?
When I worked at Bigcommerce that's about the size and space we had too, so subconsciously Mitch has probably just picked a stock image that meshes with his idea of what works.
Is this just an advertisement for PeopleSpark? Or while they're busy launching, the founder decided to sit back and spend his day writing click-bait articles for HN?
Not to mention how silly it is to say he's "bootstrapping" when he's sitting on millions of dollars. In most cases you'd be an idiot to not boot strap in that case.
I think the "studio" model can work, but not in the way that it's usually thought of. You can just throw ideas at the wall and see what sticks. You need at least one person who is passionate about the opportunity and is going to do whatever it takes to will that thing into life.
I have a client that uses Woocommerce, and to be honest it has a huge support requirement, because WordPress and all the plugins updates/security problems.
Can anyone recommend any competing services to Bigcommerce which I should review?
It seems like every time a serial entrepreneur or founder writes something about starting a business there's a surprisingly high number of people that think "How dare they fund their company with cash!"
Bootstraping is using your own personal assets to pull up your business yes?
What mitchell is saying makes little sense. he is already vastly wealthy and isn't under the gun to pay rent and bills. Aside from that this is a great article for a very wealthy second time founder to read.
I think it's a great article for first-time founders as well. It is extremely fashionable right now to raise a shit-ton of money early on. Too many novices think that's basically the only way companies happen.
I agree that bootstrapping is easier for people with capital. But hopefully nobody is starting a company without at least some money in the bank. That means that everybody starting out should be asking, "Is there some way we can get to revenue with what we have?" Mentoring at events, I've seen companies get revenue literally in the first weekend of their existence, so it's not impossible even on very modest budgets.
Even if the answer is "no", I think that strongly considering it helps people build better businesses. There's a terrible tendency for people to delay contact with the market until they're "ready", but nobody is ever ready for that, not the first time.
Off the top of my head, I think plenty of service businesses start out this way. E.g., consulting companies, legal firms, cleaning companies, hair salons, etc. Sometimes they start accidentally: a person does a friend's tax return or a little legal work on the side from their day job. Eventually they build up enough of a reputation and a client base that they say, "Now let's make it official."
I think the same trick can be pulled off with food. A good SF example is the Creme Brulee Cart:
It started out with one tiny handmade cart, grew up to a food truck, and eventually added a physical store.
For startups that are service businesses, the Concierge MVP is a great example of ways to go after early revenue. For example, consider a friend's startup:
Well, they bootstrapped to 7M for the first one. I suspect he knows what he's talking about. The title is a little weird. He seems to imply that he didn't bootstrap the previous one.
> Your employees adopt your bootstrapped mentality and they, too, are careful of where they spend your money and try to be as resourceful as they can with limited resources
and
> Could I go and raise a few million bucks in a seed/series A round today? As a second-time founder, yes — I’ve said no to several investors already and have a strong network.
The biggest expense in almost any startup is employee salaries, so raising money almost certainly means higher salaries for employees. So you are basically saying: "I'm rich and have connections, but it is better for the business if we all are very lean". While it is true that being lean is probably better for the business, it only works if the employees buy into it. Maybe you are giving employees tons of equity and that causes them to buy in, but otherwise the whole thing seems pretty hollow.