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Bootstrapping Trends
by Shawn Hessinger on June 14, 2008
Photo courtesy of iStockphoto, Geoffrey Holman
Will ever lowering costs and ever increasing collaboration possibilities for entrepreneurs create a world ever more ripe for bootstrap startup.
Taylor Davidson writes in his blog that the result will be both a rise in entrepreneurship and an increase in the number of businesses selling services based on the entrepreneur's time and talents instead of products.
He maintains many of these "lifestyle businesses", say a one man consulting firm for example, will not fit the traditional Venture Capital model of "grow and sell" but will still need funding based on a much more modest return.
His recommendation?
Fund value-creating enterprises regardless of their size or growth potential. Entrepreneurs will not be able to bootstrap all the potentially great ventures out there that do not fit the traditional venture capital model.
I'm not so sure I agree. While Venture Capital may certainly have its uses, they probably have to do with providing funds for big capital purchase or the hiring of talent needed to scale up a company whose business model is proven.
There has already been plenty written about the worry over whether VC firms pump too much money into companies with only limited return potential.
Besides, outsourced talent like the type being discussed has many other options for startup rather than taking investment funds and will likely reap a far greater benefit not having to share their more modest earnings with investors. Options include:
• Taking out a small business loan
• Using credit cards for startup cost
• Funding startup with money from a client, a former employer who wants you to function as a subcontractor or both
• Using money from investments or a severance package until revue from your new venture begins to pour in
• Keeping your full-time gig until a part-time venture begins to pay off, etc....
Bootstrapping should only become easier with new collaborative tools and technology and the market for capital investment among these companies will likely be small...or non-existent.
The future will likely belong to the smallest and leanest which will make any unnecessary funding merely a further distraction.
Permalink: Does the future belong to bootstrappers?
Tags:
bootstrap
venture
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Vote for Does the future belong to bootstrappers?:
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Rating: 8.67 out of 3 vote(s) cast.
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Response from:
Taylor Davidson
(06/15/08 2:15am)
Response from:
Shawn Hessinger
(06/15/08 12:40pm)
Taylor,
Thanks for the comment. I don't mean to be overly down on VC's but I do think there is a limit to the kind of funding any entrepreneur should be seeking at the beginning of a venture. See Dane Carlson's "20 Things Not To Do Before Starting a Business". I think the one thing Dane misses is don't go and seek financing. I think a working business model, not a business plan showing a working business model, is absolutely essential before you seek financing. It just seems to me you should be absolutle sure you can sell something or that people will pay for a particular product or service before seeking that outside cash. On the subject of funding for small "lifestyle entrepreneurs" the closest thing to what you are describing might be something like microfinancing but this is generally done on a non-profit versus for profit model. Maybe small rotating funds set up by business friendly non-profits to help entrepreneurs with small startups might be an answer. There would be no profit margin, only the expectation of paying back the money to replenish the fund.
Thanks for the comment. I don't mean to be overly down on VC's but I do think there is a limit to the kind of funding any entrepreneur should be seeking at the beginning of a venture. See Dane Carlson's "20 Things Not To Do Before Starting a Business". I think the one thing Dane misses is don't go and seek financing. I think a working business model, not a business plan showing a working business model, is absolutely essential before you seek financing. It just seems to me you should be absolutle sure you can sell something or that people will pay for a particular product or service before seeking that outside cash. On the subject of funding for small "lifestyle entrepreneurs" the closest thing to what you are describing might be something like microfinancing but this is generally done on a non-profit versus for profit model. Maybe small rotating funds set up by business friendly non-profits to help entrepreneurs with small startups might be an answer. There would be no profit margin, only the expectation of paying back the money to replenish the fund.
Response from:
Taylor Davidson
(06/16/08 12:10pm)
I agree that entrepreneurs need to know what they're getting into before thinking about capital, and love to see more information and advice out there to force entrepreneurs to think about alternatives to VC.
1) I disagree that a working business model is necessary prior to raising VC. It simply will not be possible for an entrepreneur to fund or create without the capital or advice from VC. VCs are used to funding business model risk; the key thing for an entrepreneur is to realize that they're giving up (in terms of ownership and direction of their company) to a VC in exchange for funding that risk. The more an entrepreneur can test the business model the better (for the entrepreneur), but it's not necessary.
2) While microfinancing is generally done on the non-profit basis in the US, that's not necessarily the case internationally.
In any case, it is difficult for me to believe that non-profit driven investment will lead to successful entrepreneurship. The economic / incentive model simply does not fit.
1) I disagree that a working business model is necessary prior to raising VC. It simply will not be possible for an entrepreneur to fund or create without the capital or advice from VC. VCs are used to funding business model risk; the key thing for an entrepreneur is to realize that they're giving up (in terms of ownership and direction of their company) to a VC in exchange for funding that risk. The more an entrepreneur can test the business model the better (for the entrepreneur), but it's not necessary.
2) While microfinancing is generally done on the non-profit basis in the US, that's not necessarily the case internationally.
In any case, it is difficult for me to believe that non-profit driven investment will lead to successful entrepreneurship. The economic / incentive model simply does not fit.
Response from:
Taylor Davidson
(06/16/08 8:33pm)
Oops: from my previous comment:"It simply will not be possible for an entrepreneur to fund or create without the capital or advice from VC."
I left out "in all situations". Wow, pretty serious omission.
Some business models are difficult to test or get to a "working" stage without needing some traction and experience, and that takes time and capital to fund that experience.
But I am in complete agreement that not all need that. An entrepreneur at the very minimum needs to think about what can be "proved out" as an integral part of thinking about if (or when) they need outside investment.
I left out "in all situations". Wow, pretty serious omission.
Some business models are difficult to test or get to a "working" stage without needing some traction and experience, and that takes time and capital to fund that experience.
But I am in complete agreement that not all need that. An entrepreneur at the very minimum needs to think about what can be "proved out" as an integral part of thinking about if (or when) they need outside investment.
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I think the greatest opportunity we have is an investment model where outside funding is less of a distraction and more of an enabler. Better provisioning of overhead. Better access to resources to help an emerging company get the space (e.g. time, resources, contacts) to get to a profitable run-rate. Capital that allows an entrepreneur to scale on their terms, not because a venture capital investment essentially dictates growth.
Traditional venture capital (and angel funding) has never been about investing in proven business models. VC has always been about funding risks, and business model has always been one of those risks.
I believe in bootstrapping. In fact, in conferences and conversations I always advise that traditional VC is not for everyone. It all depends on an entrepreneur's particular business and their goals. We have a range of potential methods to fund emerging companies (of which self-funding is one) because VC is not the right model for all businesses. Yet VC gets most of the attention from entrepreneurs, media and culture.
I think we would all benefit from an investment model that helps create businesses outside of the traditional VC model but still provides the benefits of the outside resources that VC provides. It will never be all-or-nothing, but anything we can do to help bootstrappers the better...