Commentary

Raising money isn’t everything


Supreeth SelvarajWe all hear about Angels, VCs, IPOs and millions of dollars being pumped into startups, most of whom barely have a product ready. But what about companies that aren’t lucky enough to get that kind of money? According to Guy Kawasaki, the probability of an entrepreneur getting venture capital is less than that of getting struck by lightning while standing at the bottom of a swimming pool on a sunny day. Clearly raising money isn’t easy. And it could be for a variety of reasons such as – being a first time entrepreneur, not having the right team (in the eyes of an investor), the idea being so crazy that the investors have a hard time believing that it would be successful and so on.

But does that mean you have to give up? The short answer is – No. The long answer is – No, no, no,no, no,no… Microsoft, Oracle, Dell, Cisco, eBAY- what do all these companies have in common? They were all bootstrapped initially and raised money from VCs only after reaching revenues of millions of dollars. In fact when Dell raised venture capital, their revenues were $60 Million. Bootstrapping is starting a business without external help or capital. Such startups fund the development of their company through internal cash flow and the founders’ own money. Some recent examples of successfully bootstrapped companies include 37Signals, Github, Goldstar, Litmus and AppSumo.

Bootstrapping helps create stronger businesses and great companies. Here are some reasons for that:

  • They know how to keep expenses down while still managing to get work done.
  • They know how to manage money. And this is useful even if they decide to get investment in the future.
  • They develop products that have actual need since they can’t afford to not have revenues or users unlike startups sitting on a pile of investors’ money.
  • They listen to customers for their feedback because they have to learn everything from their customers and not investors.
  • They learn to sell better because if they don’t the business ceases to exist. Nothing drives an entrepreneur more than the fear of failure
  • They have complete control of the company. They don’t need to answer to investors. And most of the time the founders and investors tend to have conflicting goals and expectations.
  • Since the top management has more time on their hands due to not having to deal with existing investors or travel the country to raise funds, they are able to focus more on building a great product.
  • And fewer distractions mean goals can be met more easily.

Bootstrapping may not be for everyone, and it’s not easy either, but it’s something every entrepreneur should consider since it can be beneficial to the success of the company and also financially rewarding to the founders.

Supreeth Selvaraj is a graduate student in the School of Computer Science at Carnegie Mellon University. He hopes to start a company someday and wants to travel the world and have cheesecakes for breakfast, lunch and dinner!

Rob Kalin, Etsy

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  • Dseitam

    Great insight Babs. Knowing how to rub the head and the tail off of a nickel is especially crucial in thinly capitalized cities / regions.