Bootstrapping Builds Strong Companies
by KG Charles-Harris
The Stanford Summit is exciting; a marvelous opportunity to catch up with people you know and to make new contacts. Obviously, the economy was a major topic of conversation.
Lorenzo Carver, CEO of Liquid Scenarios, and I sat down for a conversation regarding the positive and negative experience we have both had bootstrapping our companies during the past few years.
We both, after extensive experience sitting on the venture capital, investment banking and entrepreneurial sides of the table, chose to bootstrap our companies through product development and product launch.
I first met Lorenzo at last year’s AlwaysOn Stanford Summit and met him again at this year’s Summit. It was a pleasure seeing him again as we have both moved forward strongly during the difficult economic environment. Lorenzo has had a varied career advising companies, developing strategy and assisting in raising capital. He has raised several billion dollars for his and other’s ventures during his career.
Also my ventures, EMANIO and the M3 Foundation, have developed well during the recession despite strict fiscal discipline. Or maybe thanks to it.
As I spoke with Lorenzo, he mentioned that bootstrapping is “a double edged sword; companies that are bootstrapped need to have customers and serve customers in order to survive”.
In other words, the order of business for bootstrapped companies is business. Making money is the order of the game. In contrast to VC funded companies, bootstrapped companies quickly have to find their way to revenue and profits. All investment in product or market development is coming from revenue and profits, so acquiring these are the core responsibilities of the CEO and the rest of the management team.
Lorenzo continued, “Companies that have financing when things get tough have more options, but often lack the strong teams and lack control in how to keep the team together when things get tough”. In other words, the act of bootstrapping builds a certain discipline in a team. Everyone is aware of the fact that their livelihoods are dependent on getting that revenue and profit. Costs have to be kept low and sales have to get done.
Well financed companies most often lack that discipline and there is tremendous waste in a lot of VC funded companies. However, they also are able to do more and grab opportunities that bootstrapped companies are unable to act upon because of a lack of resources or the need to stay profitable.
We were both in agreement with the fact that everyone we had worked with was in a similar situation to the one we found ourselves in. The business environment turned toxic overnight and fourth quarter last year and first quarter this year were horrendous for everyone we had spoken to, including partners and customers.
There is no question that there will be more bootstrapping as companies are having difficulty finding investment capital or lenders. This, in turn, will bring greater scrutiny of budgets and purchase orders across the spectrum. We both believe, though Lorenzo is more optimistic than I am, that bankruptcies will continue to grow and that the business environment will continue to be difficult for years to come.
However, there are few times better to grow a company than during difficult times. Many of the great companies of today were started during difficult economic environments, had difficulty finding capital and had to find innovative ways of growing. This developed their corporate cultures to be strong and focused toward creating great value propositions with scant resources.
To any budding entrepreneurs out there, this is the time to truly consider your dreams and take the step.
KG Charles-Harris is CEO of Emanio and a special contributor to MAPping Company Success.
