Read any tech publication, raising a round appears to be the only way to grow a business. But think again (and not because of stock market uncertainty or the length of time it takes to close a round).
Yes, there are good reasons why some startups should put working day-to-day on growing their business aside and spend the time instead looking for outside investment, including: gaining the financial and other operational resources they need to move forward; to increase their financial stability, focus (plus peace of mind) in the short-term if they've been growing on revenue, founders' savings and credit cards; and to quickly accelerate their growth in order to capture a massive market. Heck, getting a solid investor is likely to give entrepreneurs a huge ego boost too and not surprisingly, it takes a lot of ego to start a company.
However, seeking out an investor is not always the right approach to funding a startup (especially at the earliest stages of a venture). Unicorn startup Medallia was bootstrapped by its founders for 10 years before they sought venture capital investment. Other companies, like GoPro and online dating platform, Plenty of Fish, have also achieved enormous success by bootstrapping before rushing to Sand Hill Road with a pitchdeck. Bootstrapping means the founders hustled sales and used their own funds - and in the process, made their companies profitable - without external funding, reaping rewards beyond financial, that are, more often than not, exclusive to bootstrapped companies.
Entrepreneur, Agnieszka Wilk is a strong believer in bootstrapping. Agnieszka believes that finding the right team, sharing common goals--more than dreams of venture capital - results in the best chance of creating a successful company. She started planning Decorilla, an online interior design platform that helps clients create curated 3D and VR spaces, on a simple Word document. Sharing her vision from there, the Decorilla team fell into place. She met her technical co-founder through a friend who graduated from MIT. She clicked with an interior designer at a networking event in Manhattan who got excited about the idea and immediately joined the team.
With a very diverse skill set and strong common believe in not only the product, but also the type of company they are building, Agnieszka and her team have been able to quickly launch Decorilla - and bring it to profitability.
According to Agnieszka and the Decorilla team, here are five great reasons to stop focusing on fundraising and to aggressively bootstrap your startup:
1. It's easier to keep your culture and values
You can't buy culture or values, and when you have control of your company you can ensure that those things are built they want you want, to last. Bootstrappers attract other bootstrappers and that creates a culture of people who are passionate, patient, and love running businesses they are proud of. They have the freedom to experiment without accountability to anyone else.
GoPro, is a company well-known for being bootstrapped (at age 26, the founder, Nick Woodman, moved back in with his parents and sold bead and shell belts out of his VW van in California). GoPro grew slowly over 10 years, and as Woodman noted in an Inc.com interview on his "overnight" success:
"I think a challenge is obviously that you don't have all the resources that you would have if you went out and got an investment. Maybe you can't grow as quickly as you'd like to, but an advantage is that you only have yourself to answer to. You can style your business and your approach exactly the way you want to. You don't have the pressure of outside investors that you're beholden to who want to weigh in on how you're building your business. I think that's really important and beneficial to a business in its early stages."
2. You're forced to focus on cash flow
When bootstrapped entrepreneurs don't have a false security cushion of investors' money to fall back on, they need to prioritize making money themselves. Bootstrapping pressures entrepreneurs to perform; if they don't reach their sales targets, the company will not grow. Doesn't matter how many times you tell an entrepreneur to spend investor money as if it were their own, hard-earned cash, it rarely happen. Bootstrapped businesses are forced to count each dollar they bring in and put out, staying in complete control of their money and keeping their companies financially healthy.
According to a study by CB Insights, 29 percent of startups failed because they ran out of cash, and how to spend money was a frequent conundrum for the startups analyzed post-mortem.
3. You hold yourself accountable
Bootstrapping a startup has entrepreneurs focusing on metrics and milestones instead of focusing on getting sky-high valuations because they only have themselves to hold accountable. As Agnieszka notes, although having a high valuation doesn't sound like the worst thing for a startup (it is a bit of an ego boost after-all), it could seriously harm a company. A down round of funding after poor spending choices made with initial investment rounds will not turn out well for the entrepreneur.
4. You're in control for the long-run
Entrepreneurs who bootstrap their startups know their startups inside out, and know they are able to sustain themselves without outside financial help. This leads to confident decision-making (heck, they understand their company's best interests better than anyone) when it comes to seeking outside funding or other resources (expertise, introductions, skills or the next CEO) a company needs.
5. You increase your leverage for future fundraising
Bootstrapped businesses start small, and generate value at a manageable pace to become profitable. So, when a company does reach a tipping point that it makes sense to approach investors to get a financial push, the investment is pretty attractive. There's proof that the market need is there, the business model works and the founding team is the right team to take the opportunity forward.
Agnieszka points out the obvious (and perhaps greatest benefit of bootstrapping), when an entrepreneur is successful in a market on their own, it's easier to say no to outside investment. Launched in 2001, Medallia was in the enviable position of being pitched by select VCs (the startup closed a $35 million Series A in 2012) and had the more enviable ability to be choosy as to which firm to work with (according to Crunchbase, Sequoia is their outside funding source of choice). Yes, that's right--a startup can put themselves in the position to say no. All money is not the same. By bootstrapping, an entrepreneur can remain in control to select not only the right terms but also secure the right investors.