Bootstrapping for Grown-Ups
Companies grow up -- especially ones that bootstrap their birth. And if bootstrappers are smart, then their white-knuckled thinking about resources grows up, too
You know them: company founders who learned to be frugal when they were young and poor and who can't break the habit even when they're middle-aged and swimming in cash. They have an aura -- of wisdom, of moderation, of skill. They easily turn a little into a lot. They know how to stretch resources to their normal breaking point and beyond. Why should they change just because they're flush? Vulnerability, after all, bred in them a useful creativity. So when they're no longer vulnerable, well, they pretend to be.
But is it really so great to struggle even after you've got survival under control? Is there a downside to living cheap, living short-term, living on the edge, when you don't have to?
A lot of company founders think so. For every one who talks about wanting to keep the bootstrap ethic alive, another says it's foolish to run a mature business as if every day could be its last. Don't get them wrong -- these are not wasteful, sloppy people. They just know when to say when.
The dictionary defines the verb bootstrap academically: "to promote or develop by individual initiative and effort with a minimum of outside assistance." Ask people who've done it, though, and they'll tell you what it really means: drawing out payables until the day the phone is to be disconnected; telling a potential client "Sure, we can do that," even if you've never done it before; signing up for 17 credit cards in your own private financing scheme. (See "Start-ups from Scratch," [Article link].)
It's exciting. It's romantic. It's the stuff of great company lore. But at a certain point, companies, like kids, have to grow up. The really interesting companies make the transition and leave some of the essential bootstrapping habits behind.
Look at ice-cream purveyors Ben & Jerry's. For years it's been company policy to pay no one -- not even cofounder and CEO Ben Cohen -- more than seven times the salary of the lowest-paid employee. But now that Ben & Jerry's is a $131-million publicly traded business, and Cohen wants to hire his replacement, such temperate habits no longer apply. To recruit an outsider, the company plans to offer a competitive salary.
With growth comes change. Strategies that worked at the outset no longer fit. It's not bad. It's just a fact.
Like Ben Cohen, the smart founders described on the following pages started their companies with little more than $1,000. They haven't clung with blind devotion to the mantle of frugality and self-reliance as their companies have matured. Their self-reliant and frugal strictures have evolved into clearer notions of their own best talents -- and a healthy respect for their expanding resources. (See "Then and Now," [Article link].)
Mark Cohn is characteristic. He cofounded the catalog company Damark in 1986 with $1,000, took it public six years later, and last year sold $364 million worth of goods -- and he remains the company's chief executive. For Cohn to think of himself as a bootstrapper at this stage in his company's life would be unseemly, a case of prolonged adolescence.
"A lot of people who start businesses really love the birth process, the challenge of getting off the ground, but that was never my deal," says Cohn. "I'm a guy who wanted to run a business. And the only way I was ever going to do that was to start one. For me, the challenge has been, What do I need to learn to lead this business into its next stage? What do I need to know? What don't I know? What haven't I thought about? Where can I get that information? The great joy in this job is not to create value, which we've done, or to be well compensated, which we are; the joy is in the ability to learn."
Joy in the ability to learn. At its best, that's what the process of bootstrapping teaches its students: to be thoughtful and creative. In the short term, that often means concocting stupid stunts -- the equivalent of what you pulled in high school -- and living day-to-day. For the long term, though, in the pursuit of an enduring company, that means being able to recognize when certain habits hinder your company's growth -- and having the wisdom to let those habits go.* * *