If you’re bootstrapping today and plan on getting funded eventually or at a more basic level, bootstrap a scalable startup, this story is for you.
In one of his Quora answers, Jason Lemkin notes that investors are skeptical to invest in service first startups, those that start as a service company the way Mailchimp and Basecamp started, because it’s hard to get entrepreneurs’ full commitment on a product that may start to generate only a few thousand dollars a year when they are presented with $250K gigs.
If you’ve been there, you’ll relate and if you haven’t yet, it will make a lot of sense:
- You’re financially strapped so you start by focusing entirely on finding alternative ways to raise funds for your startup.
- You sell consulting services, freelance or turn your upcoming product into a service.
- You raise more than what you needed, you get very comfortable, so you keep doing what brings in money and not what you aimed to raise the money for: build a startup.
I got comfortable.
Imagine generating twice as much revenue from one week as you do in 14 months and thousands of hours into your startup venture. Any rational person would choose Option 1.
I often use the stock market as an analogy to entrepreneurship: ups and downs over the short term but trends upwards over the long term. The difference between the two is that in entrepreneurship, when it hits big, it hits really big and that is what we call overnight success.
By choosing option 1, we automatically forfeit the chances of building a scalable solution with growth potential, also known as the main reason why we’re bootstrapping in the first place.
So, first things first, don’t get too comfortable. Not just because there’s a bigger fish to catch but also because what you are or will be doing to build a growth startup is automatically increasing your value as an upcoming expert in your industry which means that, at any time, you can start or go back to consulting and the demand will be there. In fact, it’ll be higher with a bigger compensation depending on what you do with your startup. Soon after Brad Feld sold his first startup, he was making more money from consulting than he thought he’d ever make.
Here are my mistakes and lessons learned from going back and forth between raising funds and building startups.
If we were to put a red flag somewhere in the last sentence, where would it be?
When you’re starting, you’re full of ideas. Actually, you’re always full of ideas but as you grow as an entrepreneur, you learn to prioritize.
When lack of resources was all I cared to solve, solving it built a new set of problems: I wanted to pursue too many ventures at a time.
This has been by far been the biggest mistake I made, in fact, still making it today although at a much lesser extent.
When you’re a solo founder pursuing multiple startup ventures at a time, the outcome in the best-case scenario becomes doing OK in all. “OK” gets you nowhere in such a competitive startup environment no matter what industry you’re in. You’re better off focusing on creating one successful startup than do kind of OK at many.
I lacked FOCUS
When you distribute your resources between different ventures and get OK results at all, what happens next is inevitable. You start wondering: I spent the last two years pouring blood, sweat, tears and money on these ventures with practically no results when I could have invested the same time to grow a consulting company that’s already got traction.
And this will happen to you regardless of what you do to bootstrap your startup like keeping a full-time job or freelancing. That’s exactly what Jason was talking about.
What I needed was focus: building many startups at a time isn’t a diversification strategy. Focus on one venture and commit to it. Just one.
Bootstrapping is about raising funds without referring to investors or banks. The funds could come from savings, an existing job, consulting, freelancing and many other sources. The best funding source is the customer. This is when your customers are willing to fund you by pre-paying for your product. If you can bootstrap this way, you’re killing two birds with one stone and if like most entrepreneurs, pre-sales are not enough,
Know when to stop raising funds from alternative sources
This goes back to the first point above: getting comfortable.
When I projected that I needed say $5,000 to fund the next version of my startup and make the amount from what has been the main source of funds for me, consulting, I didn’t stop. I’ve taken other gigs and that killed my progress on my venture.
During a project, I would spend on average over 50 hours meeting with the client and 50 more with the team plus over 100 doing the job. You get paid good money for doing it but that kills your energy and time. Over time, I learned to stop.
Who likes uncertainty? if you’re presented with an opportunity that will help you accomplish a few personal and business goals, you’re going to feel comfortable with the process especially after building some experience in the field. If you want to build a startup, keep in mind that this is one of the drawbacks of bootstrapping. You have to know when to stop raising money if you have enough to build value over the next 18, 12 or even 6 months.
If you needed $20,000 and you’ve raised the amount by consulting or freelancing, stop what you were doing to raise the funds and focus on building the venture. I can tell you it doesn’t feel good to look back at your week and realize that you’ve spent 10 hours in meetings, 40 hours consulting or freelancing and 10 hours making marginal progress with your startup.
Waste as little time and money as you can
The truth is, you’re going to waste resources whether you like it or not.
I’ve wasted a lot of time and money because I guessed wrong most of the time and that was due to three reasons:
- I valued mentors but didn’t have any. I played tennis professionally so I knew exactly how important mentors/coaches were to any field. I had mentors but not the RIGHT ones. Asking business professors and business university alumni what to do when you have to explain the difference between startups and small businesses at the beginning of every conversation is a waste of time.
I focused on the wrong things because I didn’t take the time to build relationships with mentors who’ve been in my shoes and who could have helped me better predict the future and focus on what matters. This meant that I needed to fail more often to learn and that is not smart when someone else can help you avoid taking wrong directions that may be obvious to them but unclear to you.
Ever since I made attracting quality mentors a top priority, I found two ways to get them on board:
- The easiest and fastest way is by purchasing one of their products like a book, course, bootcamp or workshop. When you do that, not only will they listen and help because you bought a product they worked hard to create but also because they want to improve this product and will want to listen to your experience and later seek your recommendations.
That is by far the quickest way to get experts to give you quality time.
- The second way to attract quality mentors is by building a relationship with them and this takes time. Starting with as little as a Twitter follow, like, then a few comments, then an introductory email, then a follow up with some valuable and relevant input, then more comments on posts they wrote or things they shared, then applying some of the strategies they recommend and getting back to them with results and proof, and finally comes the ask.
Whichever way you choose, get surrounded by people who’ve done it and have a roadmap that they can guide you through. Two months spent getting the right mentor is worth at least two years in time and money wasted on otherwise useless tasks.
- I created the wrong routine. One of the obvious consequences of guessing the next steps before consulting with a mentor is dangerous. You’re probably thinking dangerous is exaggerated but it’s not. Here’s why.
There’s a difference between wasting a day or two on a useless task and wasting months just because you built a routine and got comfortable with it. I wasted hundreds of hours doing things that don’t add any direct or indirect value to my startup just because I got used to it.
Optimizing time is important and even more important for bootstrapped founders. The least you can do is take your time to learn from others’ experiences by reading. If you’re not sure what to do, don’t guess. Either ask or read.
- I didn’t experiment enough. One of the things I learned to master is flexibility. I can change directions and strategies very quickly. If I find something that works, I’ll put everything else aside and focus entirely on it. This is a quality but has negative consequences.
Not taking quality time to experiment with the next move like adding a feature, creating a campaign, focusing on content marketing, or hiring an assistant has cost me a lot of resources. Today, before making any move, I need to meet two criteria:
The signal. This is the event or indicator that caused my thinking of making the decision. It could be most customers requesting the same feature or customers are converting mainly from content marketing.
The proof. This is when I test the signal by experimenting. For instance, adding a tab for the new features to see how many click and take a minute to complete a form, writing a piece of content with focus on testing conversion, etc.
Signal + proof = proceed.
Furthermore, I’ve started to evaluate my decisions from a consistency stand point. Is it going to be a hit and run kind of change or am I really going to commit to it for many months to come? This reasoning stopped me from creating many products and starting new initiatives just because my answer to the questions was No. Don’t start anything you’re not going to finish. It’ll cost you time, energy and disappointment when you spend countless hours and look back to find no results.
The whole list of mistakes to avoid can be downloaded here. You’ll find 10 that you can prevent and how.
Before I let you go for today, let me talk about the biggest mistake I made in growth stages.
Building and running a startup will feel like it’s cheap until you get traction.
The two outsourced freelancers won’t cut it anymore
Remember the finding by CB Insights that shows how the cost of building a startup went from $5 million in the year 2000 to less than $5,000 today? Well soon after getting traction for my product, I found that my operating expenses doubled overnight. Whether it was hosting, upgrades in a few tools I use and more significantly, hiring other members, I say more than doubled the cost of running the startup.
The problem is that this happens very quickly and the ten or twenty thousand that you’ve raised from other sources of funding like consulting isn’t enough anymore. So, guess what you end up doing? Spend less time focusing on the startup and more time consulting, freelancing or at full/part time job.
To be proactive, you can do one of the following 2 or preferably both:
- The moment you start is the day you start building relationships with potential investors. This way, by the time you get traction or hit product/market fit, you can get funded quicker.
- Continue to raise funds through your chosen source(s) (consulting, freelancing, etc.) by assigning the work to a person or team. You’ll make the difference between what the client pays you and what you pay your team member(s). This will still require some of your time but it won’t be as much as if you were to do the job yourself.
Do you relate to what I experienced and/or what other mistakes do you recommend bootstrapped founders avoid?
Leave us a comment below right now.