Silicon Valley is the startup capital of the world. More founders and money flock to the Valley than anywhere else, and for good reason.
But in a world of abundance, efficiency and first principles are often overlooked. In a race for growth at all costs, bubbles inevitably build (and pop). Look at the Dotcom crash. In a winner take all market, this philosophy makes sense. The network effects and future profits justify the means. They justify pouring tens of millions of dollars of capital into early stage startups.
This is raw, pure capitalism and it built the world as we know it — with huge successes and unrivaled value creation.
That said, it is not the only way…
There are two ways to start a business: bootstrap (fund it yourself or with customer cash) or raise capital. Today I‘d like to open founder’s eyes to the world of bootstrapping.
NOTE: I am angel investor and invest in venture scale, fundable businesses. I believe this to be the best model for creating outsized returns.
I have always been a solopreneur. I have built businesses, funded them myself and been rewarded — hence how I stumbled into the world of investing.
Raising money could have DRASTICALLY increased my growth/results, but it wasn’t the path I chose.
Instead, after college I moved to Thailand with no idea how to make money, thinking that I would figure it out.
$1000 per month
It seems very foolish looking back — but at the same time it was brilliant. Living in South East Asia, alternating between Chiang Mai, Thailand and Ho Chi Minh City, Vietnam, my cost basis was nothing. I needed $1000/mo to live relatively well, pay for food, my coworking space, a gym membership, a motorbike and a shitty apartment.
You can get pretty far with a $1k burn rate. That is exactly what I did.
NOTE: Startups can get similar savings by moving abroad/out of tech hubs for much of the year. Medellin, Colombia is one such city with an extremely low cost of living, high quality of life and strong expat/entrepreneur tech scene.
This used to be a thing in Silicon Valley. The goal was always to get to breakeven, where revenues outpaced expenses
It feels as though there has been a reversion from this, which has both pros and cons.
The problem with Ramen profitable is that it only accounts for young, single founders. There is no way to raise a family and take a shot in the dark on a startup if you can’t feed your kids (just look at Ehrlich).
But the types of salaries I see for many founders has me scratching my head. If you are saving money at the end of each month as an early stage founder, your salary is too high.
Bootstrapping keeps businesses honest. When it is your money and you “keep what you kill”, you are more cautious about wasting cash on expensive Machiatos, ineffective advertising and overpriced employees.
This isn’t to say that fuel slows the fire. But before a certain point, too much funding makes founders complacent. For the most extreme examples of this, look to today’s ICOs. Tezos raised $200M+ and are embroiled in scandal.
“When your back is against the wall you just start shooting.” — TI
Scrappy founders almost always win.
Building a team, the bootstrapped way
NOTE: I skipped the whole narrative about building my business as it didn’t add to the core of the article. For more on how I built and sold my ecommerce company in under a year, visit THESYNDICATE.VC
(For more on the future of Amazon, see this in-depth article.)
How the Big 4 intend to take over the world: Amazon, Google, Facebook, Apple Today Amazon feels unstoppable. The…medium.com
After a first few months it was clear I needed help. I couldn’t do everything myself. I needed to outsource menial labor, but hiring a “real” employee wasn’t in the cards either. Because I was traveling through Southeast Asia and later South America, Europe and South Africa, having an “employee” with me was impractical (and expensive).
Instead I took a page from Tim Ferriss’ playbook and hired an overseas assistant.
I do not see enough venture focused founders thinking seriously about this. I have hired numerous top notch employees from the Philippines to handle customer service, Amazon issues, product listings, email automation and many other adhoc tasks.
I effectively multiplied my productivity while paying $4–6/hr (a very good wage for Manila standards).
When I tell founders about my experiences, they are amazed. Everytime they ask, “Can you really get quality candidates for $4–6/hr? It seems like a scam.”
And while it depends on the tasks. If you are willing to put in the work, you can find great people to take things off your plate and perform lower level tasks in your business — saving you time without breaking the bank.
Still skeptical? WordPress is 100% distributed, and they power 37% of the internet. Check UpWork.com (formerly oDesk). I have hired devs and designers online as well. You can too, especially for one-off jobs.
Spray and pray
This is my mantra and I use it often. Customer acquisition can be expensive. The key to fast growth (in addition to having a great product solving a real pain) is finding hacks and doubling down on what works.
Airbnb ate Craigslist’s lunch. LinkedIn spammed your entire network. Zynga rode Zuck’s growth(until he pulled the plug).
The best startups find organic growth hacks to get early adopters/customers. For bootstrapped businesses this is even more important. I didn’t have hundreds of thousands in seed funding. I didn’t have growth experts or even much budget for PPC. And if I did advertise, it had to be pretty close to breakeven.
But I hustled, I broke the rules. I posted in dozens of Facebook groups. I started social media accounts. I tried forums, I tried everything.
Ultimately spamming Facebook was incredibly effective, thanks to Amazon’s algorithms which rewarded speed of sales above all else.
And I learned the art of the “advertising” post — it has to be personal. When trying to leverage social media or any platform for fast, organic growth you need to know that people aren’t stupid — but they are also generally good.
Rather than posting BUY MY PRODUCT, HERE’S A DISCOUNT, I found a tactful way. I created the idea of a review group and encouraged users to join for great deals. That netted ~200 email addresses in 2 days, more than enough for me.
And people don’t like aggressive calls to action, at least not in Facebook. So I told people to message me. They did, and I replied with a canned message almost immediately. Guess how many people read ALL their Facebook messages? It is much more than email. The speed/ease of transaction/action was key, so was keeping it personal.
Using these techniques and rapid iteration, I was able to build a polished launch formula that landed the #3 product ranking on Amazon in 2 days with just a single review.
Break the rules until you shouldn’t
Amazon is a winner take all/most market. That means speed is everything and rules are more like suggestions.
Specifically, Amazon’s Terms of Service prohibit any efforts to game the system or increase your sales. So as you’d expect, any entrepreneur worth their salt ignores TOS.
I found that primary images with a background got more traffic and sales. They stand out because Amazon only “allows” for white backgrounds. So of course we gamed that initially to get a little boost. After spiking the algorithm and ranking products, we’d start to play by the rules.
This is especially important as the business scales. Once you are doing tens or hundreds of thousands of dollar per month, there is a lot on the line. The risk/reward ratios begin to invert and sellers (like me) straighten out.
How Google, Apple, Facebook and Amazon mercilessly copy and crush startups — and how you can beat them at their own…thinkgrowth.org
The same is true of reviews/giveaways. Discounted/incentivized reviews were completely against TOS, but everyone else was doing it (because it spiked sales and social proof). My goal was to sell product, so I followed suit.
I found a few tricks to further juice the system and doubled down on those until Amazon started suspending sellers. At a certain scale I didn’t want to risk the business, so I started playing by the rules.
Move fast and break things
Saving money vs saving face
So many startups do the conventional thing. They raise money, hire a team and start paid acquisition. If Facebook doesn’t work they try Google. And then Pinterest or even Instagram. They do things by the book.
No one ever got fired for buying IBM
If you aren’t taking risks, you aren’t really trying. I did plenty of greyhat things, and I don’t regret it for a second.
But my businesses need to pass the grandma test. If you are embarrassed to tell your grandma about your business, you are in the wrong business.
Part of startup success is the ability to share what you are doing. You bust your butt, you try everything and you talk to other founders, investors and advisors about it all. If you aren’t comfortable with that, you are either: violating your moral compass or don’t have what it takes to be a successful founder.
The answer to that question should tell you all you need to know about the future of your business and any changes you need to make.
Software is eating/exponentializing your job
One thing I learned from founders while traveling was the importance of automation. I met dozens of founders running sizable 7,8 and 9 figure businesses with very low overhead. They hacked together systems to amplify their effectiveness and bought software needed to scale.
Founders that raise money do this too, but overall they are less capital efficient.
Use the free versions as long as you can — once those become a hindrance to the business, upgrade immediately. Faster growth and great efficiency yield larger gains than small monthly bills.
Building the perfect system takes time. It also often takes looking outside of your network or comfort zone. Don’t focus on what XYZ funded startup is using to manage their backend and payroll because they just got funded. With that much money, frugality often goes out the window.
Instead talk to some bootstrapped business owners in related verticals. Find out what they do and what they use. Then compare prices…
Saving money increases your runway and ability to experiment. Nobody likes raising money and an extra month or two is often the difference between another round (or profitability) and running out of cash.
I am not going to discuss the many things that bootstrapped business could learn from venture backed startups — though there are many important principles, mainly thinking bigger, moving faster and tackling “seemingly impossible” problems.
The purpose of this article is to help early stage startups grow and scale as efficiently as possible. Right now the “lean startup” is doing a pretty good job of this, but things could be better. Taking the concepts above and applying them to your business could have interesting outcomes — would love to hear your success stories and opinions in the comments section below.
For founders: did you take on investors? Why or why not? What have you learned since starting your business?