Let’s admit it: the barrage of success stories in the media about startups raising bucket-loads of money seems to be whittling down. The news of the unicorns and their multi-billion dollar valuations has given way to the news of companies writing down the value of their investments, and startups struggling to raise money or having to raise at lower valuations compared to their previous rounds. I am hearing phrases such as “tough-times” and “struggle” more frequently than before in my recent conversations with fellow entrepreneurs. Some more optimistic people call it a “phase” that will roll over. Whether they are proven right or wrong, there is a distinct possibility that a lot of entrepreneurs like me will remain in the bootstrapped phase longer than initially planned.
But is that really such a bad thing? Bootstrapping has been part of the history of nearly every successful company.
Many of the successful companies that we see today – Dell, Facebook, Apple, Coca Cola, Hewlett-Packard, Microsoft, Oracle, eBay, Cisco, SAP, to name a few, had their humble beginnings as a bootstrapped enterprise.
So what are the advantages of bootstrapping?
To a neutral observer, the key benefits of bootstrapping include absence of investor meetings, higher control and lower performance pressure. But ask the same question to someone who has built a successful bootstrapped company, and I doubt any of these would figure in the top three reasons to bootstrap.
Here are a few advantages that I can gather from my own experience:
- Iterate fast: You are bound to make mistakes, being bootstrapped just helps you accept the facts much faster
- Horizontal understanding/skill development: Your core team manages everything: from supplies to partnerships, from hiring to operations, from strategy to marketing…literally everything. Your startup becomes a hands-on course on ‘Building a Business - 101’
- Focus on unit economics (the investors' favourite, of late): You need to reach profitability, and survival instincts will force you to maximise your operating margins, experiment with growth hacks and increase your repeat use case.
Over the last year of running Medyog, we have gone through the typical struggles of a startup. We have been extremely hands-on in understanding the problems of the entire ecosystem (having travelled with over 40 phlebotomists to interact with more than 30 percent of our 5,000+ users). We have pivoted from an aggregator to a brand, and from March this year, have turned cash flow-positive.
The experience of running a bootstrapped enterprise has been so enriching that I recommend as a compulsory step for every first-time entrepreneur to experience it, especially because 'freshies are dumb!'
During my first year in my college, I would often hear seniors (sometimes behind closed doors, but mostly openly) proclaiming, “Freshies are dumb”. Having cleared one of the toughest exams there is, I would always strongly disagree with them. But two years later, we (as seniors) were the ones making the same honest judgment about the then freshers batch.
The point being that no matter the background, there is always a lot to learn. This is particularly true when it comes to running your company; there are so many variables that you end up making a lot of assumptions and taking a lot of 'gut calls'. Of the first 100 decisions that you will take as an entrepreneur, 90 will turn out to be unfavourable. But I wouldn’t call them wrong decisions; the goal here is to absorb all the experiences, be constructively critical of one’s decisions, and go down to the first principles to examine every success and failure.
For instance, advertising on Facebook didn't work for us in the first few months. Why?
We were getting a lot of clicks but only a few conversions. Why?
Were we targeting the right audience? Based on our assessment, yes. Then why was there a problem?
Was pricing an issue? No, our structure allowed us to be very cost-effective for the end user. Then, why?
Quality concerns? No, we partnered with the highest certified laboratories and used the highest quality equipment. Then, why?
Low brand awareness? Probably.
Now, the next step is to further question your assumptions and identify with certainty the issue at hand, and once you have figured out the core issue, solve it!
Getting down to first principles will help you understand your market much better, and while there is no assurance that your future decisions will always be correct (and, frankly, that's the beauty of entrepreneurship, is it not?), it will increase the probability of your gut call being the right one.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory)