The benefits of bootstrapping startups
We have founded companies with capital and others we have bootstrapped, the journey is tangents apart, each with their own unique advantages and disadvantages.
“An individual is said to be bootstrapping when he or she attempts to found and build a company from personal finances or from the operating revenues of the new company.”
Looking back over the past years I hand over heart believe bootstrapping a business is the only way to really value the business growth and ensure that you structure an operation which is profitable from the get go. Bootstrapping a business can be seen as a kid hunting for candy on halloween and a capital fuelled business as a kid entering a candy store and being able to pick and choose anything his/her heart desires.
The Venture Capital/Angel Investor scene in Malta is relatively fresh, with the concept of burning cash for the sake of growth being a hard concept to sell to investors or banks. This notion pushes one to build startups that from the get go must be in a break even position, especially from a cash flow perspective. Bootstrapping a business is a tedious mission, it’s akin to being at war on a daily basis, but the stamina you build cannot be surpassed by well funded founders that sit on Venture Capital cushions.
There is no right or wrong, it’s just like when sailing competitively, everyone has access to the same weather forecast, yet some decide to take a route closer to shore whilst others a course further out to sea. Sometimes the calmer waters near the shore allow one to sail faster whilst other tie the fresh breeze when offshore is a major advantage.
Using the right tech
We have been in startups were the bootstrap mentality was thrown out of the window and debt was accumulated from the get go. The situation applied tremendous pressure to the operating team to deliver on targets and when we failed to meet revenue targets the cash burn immediately increased, adding more pressure in a vicious cycle.
The bootstrap approach can yield high growth nonetheless when the right digital infrastructure and channels are used. With a solid technology infrastructure and go to market strategy one is able to convert every euro of marketing budget into revenue and scale up or down the business as deemed fit.
The marketing spend is only as good as the technology upon which the company is built, it being a service, delivery or cleaning company the tedious monotonous tasks should from the get go be replaced by autonomous solutions such as Pipe Drive. The diagram below depicts the correlation in one of our bootstrapped startups between the percentage of online requests received vs. the number of requests converted to quotations.
Making the transition
Although the initial days are great to bootstrap, every business reaches a stage in its lifecycle where growth can no longer be achieved organically. With ANCHOVY. we grew the business to over €1 million in service based revenue within five years, whilst in parallel flirting with international growth by setting up remote offices with lean resources deployed in the target countries. Although this structure resulted in market penetration and clients, it failed in allowing us to deliver accelerated growth as the international scale depended fully on human resources based out of Malta.
Such accelerated growth, we came to understand is primarily achievable through M&As’ by utilising Venture or Debt capital. Through a strategic acquisition, one is able to buy into revenue, synergies operations and have an established operation on the ground.
As a recap, our philosophy is that one should bootstrap a startup and utilise capital to accelerate the growth beyond one’s shores and markets.