Many start-ups have grown without capital: from Mailchimp to GitHub. Nevertheless, bootstrapping is difficult. So here, with the help of two Birdhouse alumni Hive CPQ and Studaro, we give you our 5 tips for bootstrapping your startup yourself.
Raising capital seems like the holy grail for start-ups, but nothing is less true. You can also grow on your own and become a bootstrapped start-up. This may seem strange, especially if you look at how much attention is paid to capital rounds for start-ups. Nevertheless, there are plenty of examples of start-ups that grew on their own resources and achieved great success.
Mailchimp, the well-known newsletter service, for example, chose to grow based on revenue. Today they are the leader in their industry, bringing in $500 million in sales, without ever having raised any capital.
But it can also be less straightforward. GitHub, the popular platform for sharing code and managing open-source projects, bootstrapped during their first 4 years. Only then did they raise a capital round of a whopping $100 million in 2012. This year they were acquired by Microsoft for $7.5 billion.
#1. Do more with less
Growing as a start-up and not having to raise capital sounds interesting, of course. But it’s harder than it looks. You work with scarce resources and you will have to do more with less. A bootstrapped start-up has to turn over every penny they have. How best to do that?
- Do as much as you can yourself. So think carefully about when you hire outside help or make a large purchase, for example.
- Reduce your office expenses by working from home or from a co-working space. Accelerators and incubators are also useful in providing office space.
- Think aboutyour team. A small, agile team is probably the best choice for a bootstrapped startup. Or as Guy Kawasaki, one of Apple’s earliest employees, put it, “Bootstrappers understaff knowing that all hell might break loose.”
Another interesting way to do more with less is to freelance alongside your start-up. Frederik Taleman of Birdhouse start-up Hive CPQ did this for two years. With the money he earned in this way, he financed the development of his product. It’s not always easy, though. “Combining the two means that you sometimes don’t spend the necessary time on your start-up, which can significantly reduce your chances of success,” Frederik testifies.
#2. See if bootstrapping suits you
Not every start-up is suitable for bootstrapping. Some situations where bootstrapping is more difficult or even impossible:
- You have high investment costs, for example because you have to invest a lot in software development.
- You have to invest in intellectual property, something that often involves high costs.
- You have a high cash-burn rate, the rate at which you spend cash to sustain your business.
Another bootstrapped startup from The Birdhouse is Studaro. They have tailored their business model to bootstrapping. “We’re a low capital-intensive startup,” says Studaro’s Lorenzo Ego. “We connect high-potential students with student jobs in their field of expertise, so we mainly do matchmaking. As a bootstrapped start-up, you have to find out whether you need capital and whether you can move forward without large investments.”
#3. Think about capital
There are start-ups, like Mailchimp, that don’t raise capital on principle. But a lot of start-ups bootstrap especially at specific moments in their growth, in order to raise capital later.
So it’s a myth that bootstrapped startups never raise capital. For example, a period of bootstrapping is useful to find your product-market fit and thus ensure that your product is properly tuned to a market and a need from your users. This was also the case with Hive CPQ. They bootstrapped for two years to find their product-market fit and develop their product. Then they raised capital from two private investors.
#4. Know when to stop
You can choose to renounce capital permanently. For example, if you can grow based on your sales and you want to keep control of your start-up.
But such a pure course can also mean missing out on opportunities, because sometimes you really do need capital. “You can also bootstrap too much,” agrees Lorenzo of Studaro. “Sometimes you come across opportunities that you can’t exploit with your initial budget. Sooner or later, as a startup, you’re going to have to raise capital and we’re no exception.”
”Sooner or later as a start-up you will have to raise capital and we are no exception.”
According to Ash Maurya, the inventor of the Lean Business Model Canvas, the moment between finding your product-market fit and the moment when you want to scale is the best place to talk to investors. Or as he explains it, “After Product/Market Fit your objective is to SCALE. This is the only time when both you and investors arealigned on the same measure of progress – growth.”
#5. Maintain a bootstrap mentality
Bootstrapping takes you back to the essence and teaches you to do more with less. And that’s a mindset that is useful even when you do end up raising capital. After all, it’s easy to get blinded by that amount of money in your account, and by maintaining the bootstrap reflex you can counteract that.
“You often hear that’s a Flemish characteristic,” says Frederik of Hive CPQ. “Not wanting to raise too much capital, and being frugal with limited resources. And that’s rather my style, I like to grow organically and thus further expand our company. Although of course I don’t want to rule out a later capital round.”