To raise or to bootstrap? That is not the question.
A common question to think about when you're an early stage startup is what kind of path you want to take to grow. Let's flip the question around.
A common question to think about when you're an early stage startup is what kind of path you want to take to grow.
While fundraising has been, and still is the most talked about approach, there's a growing interest around bootstrapping and putting emphasis on reaching profitability.
I'm definitely thankful for the Basecamps, Mailchimps, Atlassians out there that have shown that it is possible to succeed without raising capital. But I'm also super happy that there's cash available for those who are unable to fund their attempts at creating something that people want.
Rule #0, #1, #2 and #3: don't run out of money
Building a business is hard. You're unlikely to get it right the first time, and a lot of companies did not start with what ended up being their success. Mailchimp and Basecamp where side-businesses, Slack was an internal tool, Intercom founders began with a bug tracking tool, Segment was an internal library.
The point is that you might be able to get the right idea overnight, but the chances are that it might take you a while to get to the Product-Market-Fit holy grail.
There are then a few questions that you need to ask yourself:
- How fast do I want to go?
- How do I make sure that I have enough cash to iterate through ideas?
How fast do I want to go?
Rather than going on a long paragraph here, here are some excellent articles on the topic:
- We've raised $10m :) by Mathilde Collin from Front
- Can you grow a startup on the side? by Justin Jackson from Transistor.fm.
- We spent $3.3M buying out investors: why and how we did it by Joel Gascoigne from Buffer.
I like these three posts because it shows you a set of bright people with different narratives. There's no right or wrong approach and rather than emulating a story you like you should probably spend some time thinking about what kind of life you want.
What changed a lot in the past 3-5 years is that I'm seeing more stories of slow growth celebrated as successes, which removes the stigma of wanting to take extra time or work fewer hours.
But don't forget the main rule.
Don't run out of money.
As I said in the intro, I believe that asking if you should bootstrap or raise is the wrong question.
It's cool to say "Just charge your customers!" but it might take you a bit of time to get to the point where you have a product that people want to pay for AND you have a good way to find these customers. (side note - you should totally charge people).
Some people are lucky as they can put some hours on the side and work on weekends, other people already have a business making some money while they're working on something bigger. Others will need to raise capital to be able to fund their efforts while they grow their customer base.
- If you can afford to lose a lot of money, then sure, you can bootstrap full-time.
- If you have some income, and you can find enough meaningful hours to work on something, then bootstrap part-time.
- If you can't take the financial risk, or if you don't have part-time work available then raising some capital is not a bad thing.
- If you want to go fast, then fundraising is probably your best option.
The bottom line is that the primary driver for you should be to make sure you have enough runway to meet your goals. That may also mean changing your goals if getting financial support is hard.
That's still unfair
When I look at things that way, there's something that pops up immediately. There are many people with great ideas, drive, and resilience that will never be able to take a chance at creating something.
If you live from paycheck to paycheck with people to support, then that's all you can do - you won't find time to iterate on stuff, you won't have enough resources to convince investors to back you (although it's great to see places like Backstage Capital changing the rules of the game).
So, if you end up being successful, then please look for a way to create opportunities for others: raise wages, teach people skills, give some of your time to advise others. Education is probably the soundest angel investment one can do.