πŸ’Ά The most overlooked question a startup should ask to start with...

There are a dozen key questions you should ask yourself as a startup founder. One of these that is essentially overlooked is simple: can you be bootstrapped?

The term bootstrapped indicates a business model that can start with modest capital and be rapidly fuelled through its own operating revenues without relying on outside investment. It means you might start slower in the first few years but keep most of your capital and control over the project.

Delusion of grandeur?

The biggest delusion entrepreneurs now have is that they were led to believe they have to raise money. Even worse, that success is measured in the startup world by the amount of money raised as soon as possible. This narrative has been pumped into the ecosystem for two reasons :

  1. A large part of any innovation ecosystem makes money with startups when they raise money. Business angels, banks, attorneys, many consultants, acceleration programs, and obviously VCs can only make money if you buy the necessity of raising capital from them or with them.
  2. Public partners, tech media, and politicians are using this one and only metric to benchmark the current regional innovation vitality. Thus, it seems utterly important, but it's not. No one measures a highway's safety and efficiency by its monthly toll revenue.

And given that a startup cannot be bootstrapped without some initial infusion of cash, many projects don't have to rely on external capital and go in the seed, series A, B, and C game. Raising money is not a bad thing either... It might be necessary because your future business depends on a long sequence of getting the market to adopt a new usage, reaching critical mass for a network effect-based platform, securing first deals with customers on public tenders or long-cycle decision-making, etc.

Alternatively, it's often just unnecessary.

Mostly, raising money is misguided

Many startups lack the minimum amount of aggressiveness and assertiveness to get in and make money as soon as possible. They would rather doodle around, play with different "MVPs" or pivot a few times just to be sure they know what they are doing. In this case, I truly believe you should have waited before launching your project. And, even worse, there are those that could get in sales mode within a few months but again, prefer to polish their offer, and take the time to add more unnecessary features before launch. Buying yourself the luxury of waiting for months or even a few years before getting in the market is not only dangerous, it's plain delusional. You're not a branch of GE or Google; you're a five-person team trying to outcompete these big guys. No amount of cash will help you do that, only sheer speed.

Fun fact? GoPro, the action camera company founded in 2002 by Nick Woodman, was essentially bootstrapped before its IPO and being publicly traded on the NASDAQ. Β 

Not to mention startups that dive heads-on in full R&D mode to refine a technology for three years before even thinking of having a website or talking to a customer. You're a startup, not a science research facility anymore. No one should give you a cent to do that – and yes, there a maybe a few limit cases that would justify this, but they are, at best, quite scarce.

Lastly, there's the discussion about dilution. In a nutshell, the sooner you raise, the faster you'll lose control of your project. The saying is, "the money you raise early on will be the most expensive money you ever take.” Do your homework and project yourself at 3-5 years to understand where you'll be.

To sum it up:

πŸ“–
Assess if you're getting into a market/business model that will have a long wind-up. If not, your job as a startup is to get in sales mode ASAP, control your burn rate not to get in toxic dilution mode too soon, and maybe check that your revenue progression will allow you to keep your capital.

Read more on this here:

The Basecamp Way
In the world of bootstrapping there is one company who’s story has turned to lore and, in many cases, doctrine. The company- Basecamp.
7 Companies Succeeded with Bootstrapping | Startup Booted
Top seven successful bootstrapped companies: Mailchimp, GoPro, Zoho, GitHub, Basecamp, SparkFun and Lynda.