All my friends are in paradise for spring break, I’m at home.
We’re doing a project for Dicks Drive-in!
Pull Yourself Up From Your Bootstraps
There is no doubt about it; America is the land of opportunity. Since our countries birth our entire society has revolved around the philosophy that if you can dream it, you can do it, and if you can build it, they will come. With heavy competition, a harsh economic climate, and increasing operational costs, traditional businesses are crumbling by the wayside. The most challenging problem facing entrepreneurs and small businesses today is raising money to reach the American dream. “It takes money to make money” is a common expression in economics, but how much money does it really take to succeed? It makes sense to bootstrap, or in other words, personally finance a small business rather than raising money through loans or investments because you can have more control over your company, a decreased risk of debt, and greater chances of being profitable.
I’ve been lucky to work almost entirely with entrepreneurs and small business owners throughout the last couple of years. Through my experiences I have gained priceless insight and learned countless lessons. Despite the diversity of the businesses I have worked with, all of the businesses held something in common, they seemed to always stress one key financial aspect; If you can help it, fund your business ideas yourself, and avoid debt at all costs.
The invention and more importantly, the wide spread adoption of the mainstream Internet changed everything in the 90s. One of the most influential aspects was the creation of the startup business model. In a startup, small groupsof motivated people work together to create and ship a product, most recently web based applications. Startups differ from small businesses, because they tend to focus on creating a product, and then selling it or moving on to something new within a very short amount of time. Small businesses often spend years setting up shop and focusing on building a solid source of revenue.
In 1997 the well known “dot com boom” and subsequent “dot com crash” was the direct result of investors handing money over to companies with ridiculous ideas for startups, in a market with, at the time, limited potential. A majority of the companies went big fast with the cash infusion and then swiftly crashed like a child after his first mountain dew, after the companies failed to get traction. This scenario is not strictly limited to startups, but most brick and mortar businesses seek loans and lines of credit from banks, while startups are often built to establish an idea or concept for a product that has yet to be proven. Unfortunately since banks will only loan money to proven and rock solid ideas, it adds extra complexity to getting a product off the ground.
After the dot com crash, the web slowly started to rebuild itself through new business concepts. Today, the Internet is such an integral part of the U.S. economy; sites that started in someone’s garage as a side project end up getting publicly traded on the stock market. Companies like this include Yahoo, Google, Facebook, LinkedIN, Youtube and more are added to that list every day. With people being constantly plugged into the Internet, it’s easy to see why the Internet is such an in demand market and not just a passing fad as some speculated at the end of the dot com crash.
Loans from banks carry a high risk, not only do they instantly plummet your business into debt, but they also must be repaid at a high rate with usually higher interest rates. Startup business owners thought, there has to be a way to get cash without going into debt. Along came angel investors. Angel investing used to be how filmmakers would raise the money needed to finance risky movie products in the early 30s, when banks could not see through the potential risks involved. It makes sense that the return of Angel investors has come along with the rise of another risky business venture. The main difference between angel investors and bank loans is a low risk cash transaction with no need to repay the investor. While this may sound like a safe alternative to dealing with bankers, these investors often ask for a percentage (usually 25%) ownership of your company.
I’ve worked for several dot com startups who have raised funding through independent angel investors, and have learned a lot of crucial lessons through my experiences. The best part of having investors is that you can focus on working instead of stressing over repaying evil bankers, who truly only care about money. On the other hand, the angel investors constantly hold the fact that your business is in their hands, over your head. It is not unusual for them to pull rank, leverage their ownership of the company and force radical changes for the “good” of the company. I’ve seen smart kids drop out of college to work on their dreams, and then simply get replaced and forced out of their company by so called “expert” CEOs.
For example, Steve Jobs, the co-founder of Apple was forced out of his company in the late 80s after the investors thought his ideas were too radical and risky for the future of the business. During the late 90s the company was doing so poorly due to mismanagement, that they bought his software startup “next” as an attempt to bring him back into Apple. Although Apple was saved and is now the most profitable company in the universe, this lack of dedicated leadership is often why most startups fail, by losing their way down the chosen path and having to shift categories into a market they are not prepared to enter. On the flip side, loan based companies have to constantly struggle to start making profit instead of using the time to really polish the product, this is also how they can fail. The solution to starting a financially stable business is definitely not an easy one, but neither is starting a company. I recommend bootstrapping, from the expression “pulling yourself up by your bootstraps”. To put it simply, bootstrapping is funding all of a businesses expenses yourself until you’re in a better position to accept funding or make enough profit to expand. This means assembling a team of dedicated experts who will work for significantly reduced salaries, or for free while moon lighting their day jobs. It means giving up that fancy loft space in Pioneer Square and start setting up in coffee shops and group workspace called Incubators and accelerators. It means creating a lean or lightweight business model that will allow for the potential to make profit. Not only will it allow you to truly be in charge of your own business, but also, allows you to execute an idea without the burden of debt or over controlling investors, this opens you up to the opportunity to be purchased by another company with a higher rate of success.
While each business is different and there is never a single path to success for everyone, by pursuing the bootstrap method you leave yourself open to thinking outside the box and free yourself from being chained to your desk by the bankers cracking the whip. Staying lean is the single most important thing a company of less than four people can do, constantly open to new opportunities and able to change business models and the freedom to experiment on the fly. Being creative in finding unique and original ways to raise profits, without being forced to beg for scraps from external sources that want to run your company for you. By taking it slow, working hard to create a sustainable company from the ground up, and by avoiding the use of business steroids you will have the added confidence and business knowledge to make it in the ever-evolving corporate America. It’s an age-old idea. Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.
My friend and I are printing these on canvas tomorrow!
Rooftop garden in Seattle
Meeting at Docusign Seattle!
Working at TechStars Seattle
Dale Chihuly blown glass sculptures.