Is Bootstrapping Cool Enough?

I woke up to the news of yet another start up being funded. Eessssh!!!! How am I going to survive this day! My hubby dear looks at me with some sympathy – “Don’t worry dear, you would be next”. “Hey, Do you realize that am not even pitching for it”.

Colleagues in the office look up to me expectantly – “We should do something in technology, that’s where the money is”. HELLO!!!! I don’t know the T of technology and should I just drop everything and join the bandwagon.

You go to a social do – a networking event for all entrepreneurs, and instead of being asked about your business, the question is asked – “How many rounds of funding have you got?’ How am I going to explain my business of pure consulting and my social venture which aims to bring equal opportunities for all? There is no place for such “good old” businesses anymore. This has become the new metric of success. It doesn’t matter whether the business is profitable or not but if you are not funded, you are just not “COOL” enough.

Being an entrepreneur is difficult enough and now this peer pressure is just too much. When one quits the corporate world to strike on her own, one assumes that she would leave this rat race behind.

Please don’t get me wrong – I am very happy that VCs & angel investors & the likes of them are supporting new ideas and business. But as an erstwhile banker, I have seen this euphoria of money chasing startups many a times (remember the 90’s dot com bubble). I would like to caution all those wannabe entrepreneurs who dream of getting funded as soon as they launch their business.

While the scale of the venture demands money, but we need to be cautious before we chase the funding just for the sake of it.

The cost of this money is just too high for entrepreneurs and they should wait for the appropriate time to chase this craze.

We started our entrepreneurial journey 4 years ago with zero cash in the bank, no office space and no employees. Today we have offices in 4 locations, 15 full time employees and self-sustainable profitable businesses. Here are the reasons why I think self funding (also known as bootstrapping) is the best thing a young startup can do.

• Growth of business vs Fund raising – I have seen many founders chasing VCs and staying awake late nights preparing pitches for fund raising. While we get to hear of the success stories, we don’t get to hear of many unsuccessful attempts. As a simple ROI on time, I would think the time could have been best utilized growing your business and focusing on your margins.

Raising capital is always an option, but please remember that every day spent on fundraising means falling further behind your growth targets.

• Focus on Revenues – There is nothing like fear of going broke which will help you focus on generating revenues and paying your bills. There was a time in the second year, when we struggled to pay the salaries and bills, and had to inject our own personal savings. One would agree that one is more focused on getting one’s own money back vis a vis playing with someone else’s money. As an entrepreneur, you have a great idea but no revenue model, then I would suggest to ditch reading all techcrunch publications, and focus on making money.

• Being your own Boss – Trust me, when I say that there is nothing like being your own boss. You are not just giving up equity in exchange of cash; you are giving up your flexibility. You get into a relationship, which is a little lopsided where balance of power is concerned. It involves at least reporting the progress to the investors (in fact, sometimes it is also helpful as it keeps you on your toes) and also many a times working according to their whims and fancy. Hence, it is very important to chose your partner and investor with extreme caution who have similar vision like yours and complement your skills. I would consider it as important a decision as choosing you life partner.

• Steady Growth vs. Exponential Growth – Your Company growing “nicely” will not deliver returns expected by your investors. It’s a simple Math. If I am investing my cash into other investable assets, I expect a return of 12-15% (keeping risk of stock markets in mind). Since am investing in a “higher risk” asset, I will look for a premium and hence will look for my pound of flesh. Investors at times urge entrepreneurs to ditch a profitable sound business model to take unnecessary risks to deliver these premium returns. Many a times it is preferable to either get massive or simply fail.So even if you do attract VC funding, it would be best to spend wisely.Much depends on the nature of your venture and how much investment is required but much more depends on what is your vision and your relationship with your venture and the money.

  One needs to be comfortable with one\’s choice as you would be the only one responsible for the success or failure of that investment.

So while we are all chasing the BIG Indian dream of being the next BIG THING in entrepreneurial ecosystem, sometimes doing business in an old fashioned way might just be the right antidote for the crazy rollercoaster ride ahead. If your venture fulfils the need of your customers, if it has steady growth with sound cash flows, sooner or later investors will make a beeline for it.

So don’t bother about being cool, its more important not to be a fool!!