You Might Find the Devil Starts to Have a Certain Appeal When You Hit That High Growth Part...
Excellent observations by Christopher St. John about bootstrapping vs. taking capital. I feel it, having bootstrapped three different ventures and having each sputter out at the moment when the potential for real revenue was emerging while the capital requirements overran that available. Here is the meat of the post behind an lj-cut. In Christopher’s original there is also a link to an excellent post at a VC blog for those so inclined.
The slow-growth route turned out to be risky for several reasons: The strategy required us to stay tiny, but that meant depending on just a few customers making up a major percentage of our business. We simply wouldn’t be big enough to acquire or support more and we wouldn’t have the cash to be hiring. To make the numbers work I had to assume that we got customers fast and kept them forever. Sales and support is shockingly expensive (at least it was to me at that point) If we lost customers we immediately went negative cash flow, which is a very ugly thing when there isn’t much left in the bank. And there’s that little matter of lag time between hiring salespeople and getting any benefit from them. Just a little bad luck and we were out of business.
Competition was another risk. We knew of several other groups doing similar products. There was much brainstorming on niche strategies (make the slice small enough and you get your own piece of pie), but there are limits. It’s hard to eliminate every last competitor without putting yourself in a unsurvivably small niche. You can do it for a while, but if you have any intention at all of growing you have to consider how long it takes to get your product to a larger market. The numbers had to assume we had a magically defensible series of larger and larger markets to play in as we (oh so slowly) grew.
Finally, there was focus. The slow-growth strategy meant an awful lot of “doing this to survive long enough to do this other thing we really want to do.” Not necessarily a business risk, but it’s a big motivation risk. It can take a very long time to bootstrap your way into a “real” business. Why even do a startup unless you’ve got a passionate belief in your product idea and want to see it on the market sooner rather than later? Watching the spreadsheet extend out year after year off to the right before we were “there” was sobering.
Of course, VCs are evil and must be avoided at all costs, but to anyone considering bootstrapping all the way up I recommend running the numbers both ways. You might find the devil starts to have a certain appeal when you hit that high growth part of the curve.