Sometimes one client and a credit card is all you need to start up.
In 2009, my business partners and I had a grand vision for a new digital advertising platform. (It’s always a grand vision, right?) We knew from past experiences that we didn’t want to take on investors, so we convinced one client — just one — to join us on ideal payment terms. Between this first client and our friends at American Express, we were able to “bootstrap” our company to profitability.
There’s nothing wrong with taking on investors, but early on it’s easy to let investors hijack your vision and find yourself working for someone else at a company you didn’t mean to build. We didn’t want that.
There’s nothing wrong with taking on investors, but early on it’s easy to let investors hijack your vision and find yourself working for someone else at a company you didn’t mean to build.
Raise Funds and Potentially Lose This
If you’re thinking of leveraging investors to fund your business, make sure you consider what you may be giving up in exchange:
Taking outside investment means handing over equity to venture capitalists. And in many cases, I think it’s more productive to give equity to people who are key to the concept, such as early employees and co-founders who will help move your business forward. Since my company didn’t give outside investors equity, we were able to use these larger stakes four years later to attract a seasoned CTO and CFO.
It’s inevitable that once investors hand you money, they’ll want a say in what you’re building. You can’t really blame them, and it’s true that the right VC can help push you beyond your limits. However, you don’t want to make the wrong moves for the wrong reasons and end up losing sight of your vision.
Steve Jobs encouraged entrepreneurs to “Stay hungry. Stay foolish.” I don’t know about foolish, but when you bootstrap a company, your sole focus is on revenue right from the start. Taking capital early can make founders complacent, thinking they’ve bought some time. The tradeoff is that you become less concerned about building a sustainable business.
Choosing Your Funding Route
Self-funding worked for us, and I’ve seen it work for lots of other companies over the years. But every entrepreneur has to make the decision independently.
Here are a few questions to ask yourself as you weigh options:
What’s your end game?
What are you building? Do you want to grow a large organization or a small company that services a niche industry? Your growth plan is going to look different if you’re starting from scratch than if you take on venture capital. Are you okay with accelerating quickly, but maybe building a different company than you expect? Or would you rather build your company your way — even if it takes longer?
What are initial costs?
Let’s be honest: building a software or service company in today’s marketplace takes less initial capital than ever before. You can build a prototype without a large team or overhead costs. Growing a manufacturing or medical supply company, however, is a different story. Those types of businesses require significant capital investments. Consider how much money you really need to build your business, and take as little as you can reasonably manage.
What are the terms?
Sometimes the terms of a financing deal are just too good to pass up. If you have the right investor who’s offering good terms and brings more than money to the table, take the deal. Just be very clear about what you want and where you’re going.
How much is the MVP?
How much will it cost to build your minimum viable product (MVP)? Before you seek funding, plan to build a bare-bones prototype and prove your concept for as little money as possible. Once the prototype is built, people often find they don’t need investor capital after all. They can spin the prototype into a profitable business. However, if you do decide to raise money, a functioning prototype and customers will make you more attractive to potential investors.
Whether you choose to bootstrap or take early capital, remember to always focus on building a long-term sustainable business that will turn a profit as quickly as possible. Then, you’ll control your own destiny.
This article has been edited and condensed.
Hagan Major is the co-founder and COO of YellowHammer, a New York City-based performance trading platform that provides programmatic buying solutions for advertisers and agencies that demand a tangible return on their advertising dollars. As COO, Hagan is responsible for YellowHammer’s corporate strategy, client performance, and distribution. He oversees the development of YellowHammer’s technology platforms on the buying and selling sides, as well as the development of client strategies. Connect with @yellowhammermg on Twitter.
© YFS Magazine. All Rights Reserved. Copying prohibited. All material is protected by U.S. and international copyright laws. Unauthorized reproduction or distribution of this material is prohibited. Sharing of this material under Attribution-NonCommercial-NoDerivatives 4.0 International terms, listed here, is permitted.