The hidden cost of bootstrapping
A few weeks ago I published this piece called Bootstrapper’s Paradox. (It’s also a podcast here).
It got a lot of attention. Folks like DHH (Basecamp), Des Traynor (Intercom), Natalie Nagele (Wildbit), and Rob Walling (Drip) all responded to it.
The crux of the piece is this: bootstrapping a business is hard, and everyone’s journey is different.
We’ve mythologized self-funded companies likes Basecamp. So many of us are trying to follow in their footsteps. But along the way, we’ve created some false beliefs:
- “Bootstrapping means you only fund your product from customer revenues.”
- “Now that we have cheap cloud computing and better tools, it’s easier than ever to bootstrap.”
- “Basecamp didn’t take outside money, so I shouldn’t either!”
The hidden cost of bootstrapping
Currently, Jon and I are self-funding Transistor.fm. The actual startup costs (servers, tools, etc.) aren’t that high. What is costly is our time. Des Traynor warned me about this:
“A founder is spending 60 months of their best years in their startup (instead of their career). That is a substantial upfront investment; it’s like a seed round, but instead of money, it’s your life.”
SaaS has this dichotomy: in the future, it has the potential to produce sustainable revenue for its founders. But in the present, they’re investing in something that isn’t giving them a return.
Don’t fool yourself: if you’re self-funding a business, you are the main investor! You’re risking your capital, hoping you’ll get a good return in the future.
Bootstrapping is not the meritocracy people think it is. Some people come to the table with more time, energy, and money than others.
It also looks vastly different depending on your stage of life.
Adii Pienar responded to my post with this comment:
“With my first startup, I didn’t have a family. My new startup was launched a couple of weeks before we welcomed our second-born boy into the world. Being financially responsible for my family has changed my perspective completely. I was able to self-fund the first couple of months, but I don’t have unlimited pockets. It was no fun seeing a decreasing bank account every month.”
On Reddit, someone asked Jason Fried: “Do you think it’s reasonable for someone with a full-time job and a family to start a small business on the side?”
“I’m the wrong person to give advice on this since I started my businesses when I was a single idiot.”
DHH responded to my post with more details about their early days:
“Basecamp started development in 2003 and launched in early 2004. It didn’t make enough money to pay four meager salaries until some time in mid 2005! I’m pretty sure that our MRR was only in the $20-30K range after those two years. You have to adjust for inflation a bit but is still a pretty slow ramp.”
If you’re older, have a mortgage, or have kids, you’re going to have to build your company a different way.
Paying the bills
All bootstrappers have to deal with the same tension: can I get this to scale, while paying my bills, without burning out?
This is why many founders end up raising venture capital. Adii himself went this route:
“If you are building software in 2018, I would highly recommend raising some capital at least. SaaS is hard regardless of your traction. The biggest benefit that I got from the seed round was that it reduced my anxiety greatly. You should not have to sacrifice everything about you, your family or your life in service of your ambition to build a business.”
I’m not opposed to funding, but before I take that path I want to be sure I’ve exhausted all my other avenues.
This has got me thinking about this DHH quote again:
“I wish there was a way for founders (who are on to something) to diversify their accounts just enough to go the distance.”
In the coming weeks, I’m going to be exploring different ways to bootstrap creatively. I’ll be trying different self-funding experiments, and reporting back on what happens.
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