Great Reasons To Bootstrap And Two Success Stories

A few years back, I participated in a tech business competition, as a panelist, among venture capitalists. The purpose of the competition was to evaluate the businesses and pick the most viable/promising of the businesses, which would then win a cash prize. It was also an opportunity for the venture capitalists to evaluate the businesses and see if they could fund them. This was the first time I interacted closely with many tech start ups, and since then, I have observed a curious phenomena among many Kenyan tech start ups; raising funding seems to be a key success factor, even more so than revenues or profits.

As an entrepreneur and a fan of start up businesses, I find that this peculiar trend poisons the industry because instead of focusing on creating a successful, sustainable business, most tech entrepreneurs focus on creating a snazzy idea that will attract venture capital funding, whether it has long term sustainability or not. Tech businesses are unique in many ways, but they are similar to brick and mortar businesses; they need revenue, and profits to survive long term. Someone has to buy what you are selling.

I also feel that many tech entrepreneurs in Kenya do not want to be entrepreneurs, they want to be rich (and famous). That is why we have so many mobile solutions (mobile is huge in Africa), and no homegrown enterprise solutions, because the latter aren’t sexy at all. We don’t hear much about SAP’s founders, or any other enterprise solution for that matter, yet enterprises are an obvious cash cow for developers. The desire to be rich explains why the few tech entrepreneurs who win significant cash prizes focus on buying a Mercedes and appearing to be rich, instead of using the funds to grow the business. It also explains why most technology businesses in Kenya are housed in the most expensive office addresses in town, whether these businesses can afford it or not.

I love down to earth business stories, and the Buffer story is one of those. It reads like a typical Kenyan business story; the founder started Buffer while he was still employed, and didn’t quit until he had paying clients and was making $2,000 per month in profits. They recently hit 1 million users and they did eventually raise funds, but the most important thing was that they were profitable, and the funding was used to expand the product and the business. I am surprised the Buffer story doesn’t come up much in Kenyan tech circles. Read the summary of their 4 years here, their blog has a lot more on how to the company started and how it runs today.

Roomthinker shared this article about a tech entrepreneur who bootstrapped and his 10 reasons why you should bootstrap too. His top reasons for bootstrapping…

You are forced to focus on revenue

You don’t have a fat chunk of funding in the company bank account providing a year or more of runway. You only have a meager personal cash injection from your own savings, giving maybe 6 months of runway if you forgo luxuries such as eating.

There is nothing quite like the fear of going flat broke to give you a kick up the backside to start generating revenue. In the context of startups this means you throw away any idea that doesn’t make money from day 1. No “aiming for user growth first”. No “figuring out the revenue model later”. You are forced to build something valuable, something worth paying for right now. For 99.9% of businesses in the known world, that’s fundamentally how they function and that’s what you should be aiming for too.

If you are starting a startup and you have no concrete revenue model, you have been reading too much techcrunch. Figure out how to make some money.

You don’t waste time raising funding

Fundraising is a dangerous time suck for early stage startups. I’ve watched many startups get so consumed with meeting investors or preparing for interviews with accelerators that they lose focus on their product and customers. Every minute you spend talking to investors is a minute that you could be improving your product and delighting your customers. Realistically you’ll need 50 meetings to get interest from 5 investors, which will result in 1 term sheet. If you’re an early stage startup that has barely made its first dollar, I can’t think of a more epic waste of time.

You don’t answer to anyone

Giving up equity to an investor in exchange for cash is not a one-time transaction. A relationship is formed that will last as long as your company lasts. At the least, this will involve keeping investors in the loop about your progress and major business decisions. At the worst, this will involve more business overhead (meetings, futzing around in excel, getting sign off before you buy things), potential micromanagement or having to constantly justify your actions.

In other words it can be a lot like having a boss again. If you became an entrepreneur to be your own boss, raising large amounts of funding effectively puts an end to that.

You learn the value of money faster

When you don’t have a chunk of funding sitting in the bank account, you spend money more frugally. In general I think this is a positive trait to cultivate as an entrepreneur. The opposite is extremely detrimental; frivolous spending on fancy office space / furniture / toys etc. Not all funded startups are guilty of this of course, but funding does enable this behavior.

Read the rest of the post here . Thanks Roomthinker for sharing this article.