Many of us back the underdog, be it in the movies or sports, and possibly the business world, as well. Indeed, there are few better “rags-to riches” stories in business than those startups which rise to the top purely on the strength of their founders’ vision and mettle.
If those founders can’t raise the money they need from venture capitalists, many are still not going to be thwarted. Instead, they’ll bootstrap the cash and do that any way they can.
As compelling as that scenario sounds, however, bootstrapping is difficult. To thrive, most companies rely on cash they obtain from venture capitalists. However,fewer of these deals are being made these days: In 2017 deals declined for the third straight year, falling 4 percent from 2016 and dropping to their lowest annual total since 2012, according to PricewaterhouseCoopers and CB Insights’ 2017 MoneyTree report.
That’s why, when a self-made entrepreneur creates a self-made startup that turns into a million dollar business, the world sits up and takes notice. Even better, such success inspires the rest of us, teaching that as long as we have the right blend of risk tolerance, confidence, competitiveness and determination, we too can make it in the cutthroat business world – – without having to sacrifice our vision or our company’s equity to VCs.
Determined to bootstrap your own vision? Here are three situations involving entrepreneurs who bootstrapped their million dollar companies, and the advice they offer to those who want to follow suit.
“By the time I found out what VCs were, I was already making millions in profit.”
What’s really striking about Plenty of Fish is that it was a solo founder venture. Founder Markus Frind went it alone, from start to very profitable end, selling his dating site service for a whopping $575 million in 2015. Because he bootstrapped it himself, he got to take home the profits.
So, how did he manage to create a dating site that surged past so many others without funding from investors?
The online dating world is mega competitive, with 1,000 online dating sites opening each year. Working as a developer when he first came up with his online dating site idea in 2003, Frind was short on cash, short on a plan and short on knowledge. But he did manage to master ASP.NET, at the time a brand new programming language. After quickly teaching himself, he created his site, and within two weeks, people were signing up. This worked in Frind’s favor, since he didn’t have to go begging for development money.
In fact, looking for investment money can actually be dangerous: The more money a startup raises in its seed and Series A rounds, for example, the more likely it is to fail, according to top investors.
As time went on, Plenty of Fish by 2007 was outcompeting rival Match.com for traffic fourfold. And even then, Frind was employing just three people. A year later, his site was raking in $10 million a year, the New York Times reported.
Despite bootstrapping the company, despite his small staff, Frind said in an interview with Inc. in 2007, he’d moved his business from his bedroom to an office block, but most days, he didn’t even go to work until 10 a.m.. And, he claimed, he could “accomplish everything in the first hour.”
Said Frind: “The site pretty much runs itself.”
Of course, there was more, and less, to his success than that. He told Medium, for instance, that search engine traffic accounted for just 2 percent of all his site’s traffic. Instead, people were finding the site via word of mouth. So, Frind barely had to do any advertising. This was unusual, as companies one to five years old are frequently advised to dedicate approximately 12 percent to 20 percent of their gross revenue or projected revenue to their marketing budget.
Frind, obviously, had other factors going for him. So, if you can get your own business to run itself the way his did, you can spend your core time planning ways to scale. Or, as in Frind’s case, you can alternately pursue your hobbies — which he did — or sell the company. which he also did. “By the time I found out what VCs were, I was already making millions in profit, and I didn’t need to raise money because I wouldn’t know what to do with it,” Frind told The Journal.
The upshot was that with Plenty of Fish, Frind created a super-profitable company. As such, raising cash wasn’t needed.
And, what’s evident when you read about Frind and read his blog is that he’s a guy with seemingly blasé attitude when it comes to running a company and making money. Did he get lucky? Was he in the right place at the right time? Maybe. But he had the right idea, and he executed. And he won.
“As a group of serial entrepreneurs, we have a lot of experience in getting from A to B”
Unlike Plenty of Fish, FastSpring wasn’t the endeavor of one founder, but of four: Dan Engel, Ken White, Jason Foodman and Ryan Dewell. And, another difference was that all four of those guys had enjoyed success with previous startups. In fact, unlike someone like Frind, they were serial entrepreneurs who had the knowledge and confidence to bootstrap a company.
That company, FastSpring, an all-in-one merchandising, ecommerce and fulfillment solution that helps businesses sell online digital products, began in 2005. The only money behind the venture was $30,000 bootstrapped by its founders.
Money was never an issue for the founders. To them, bootstrapping the company was always going to be the way forward, as it made a lot of sense. “As a group of serial entrepreneurs, Engel told TechCrunch, “we have a lot of experience in getting from A to B — ‘B’ being getting to where we are as a company in terms of revenue, profit, head count and where we’ve scaled to, to date.”
Engel’s words reflect a scenario Harvard Business School has described, in which, “Entrepreneurs with a track record of success are much more likely to succeed than first-time entrepreneurs.” In the early days, FastSpring had no need for outside funding. Instead, the biggest hurdles the founders faced included coming up with a business name and not underestimating the work they had to do to compete with their rivals.
Even the fact that all four men lived in different states didn’t unsteady the ship. As Engel told Mixergy: “That’s how my co founders built their successful businesses in the past.” In short, they had had remote workers and distribution around the country before, and, “There’s lots of advantages to that” in cost savings, Engel pointed out.
Research backs up that point: In a study, Stanford professor, Nick Bloom estimated that every work-from-home employee on average saves his or her company $2,000.
The guys behind FastSpring were also prepared to put in the hours and take no salaries, instead living off earnings from past businesses and savings. They also spoke to potential consumers about their product, making the necessary tweaks to ensure their product was exactly what people wanted.
Today, it’s hard to call FastSpring a startup anymore; however, it took cash from outside investors for the first time in 2013 and now processes payment pages for almost 9,000 clients. It’s also grossed $45 million in revenue.
“We have stuck to our bootstrapping principle so that our cash reserves always continue to increase.”
Connor Gillivan is an entrepreneur and author who’s been so successful bootstrapping his own million dollar companies, he wrote a book on the subject. Free Up Your Business: 50 Secrets to Bootstrap Million Dollar Companies details how he built FreeeUp and Portlight from the ground up and how tough that was. As Gillivan acknowledged, bootstrapping was a tough battle: “Starting a company on your own, without outside investment, is an upward battle for at least the first year,” he wrote.
Portlight came first.. A drop-shipping company on Amazon, it grew to a team of 60 that partnered with more than 1,000 U.S. suppliers and sold more than $20 million in products in just four years.
FreeeUp, meanwhile, is a million dollar hiring platform that serves more than 2,500 businesses worldwide. According to Gillivan: “As FreeeUp scaled to over 1,000 customers, generating over $1 million in yearly revenue, we have stuck to our bootstrapping principle so that our cash reserves always continue to increase.”
The key takeaway from these three entrepreneurs/groups: Bootstrapping isn’t easy, but it isn’t supposed to be. It takes determination and a strong vision to separate the wheat from the chaff. If you’ve got that, you can do anything with your company. Or, you can take the other route and ask yourself whether or not 2018 is a good year to raise capital – – the decision is yours.