Does bootstrapping really work? Would it work for you? Here are five case studies that show you that it can be done. Your bootstrapped business can be successful using these tips from companies that have learned how to bootstrap their way to success.
Seeking funding and/or taking out a loan aren’t the only ways to guarantee success in world of startup companies. Many successful small businesses have bootstrapped themselves to success, without being dependent on venture capitalists, angel investors or banks.
A poster child for proud bootstrapped companies, 37Signals found a way to start making profits immediately with its suite of online productivity tools. The company was launched in 1999, and has developed many new products (with both free and paid versions) since its inception. In 2006, Bezos Expeditions, run by Amazon’s Jeff Bezos, invested in the company, helping it grow even further.
Over time, founder Jason Fried has become a spokesperson for startups who prefer to bootstrap. His book Rework (written with partner David Heinemeier Hansson), is a lesson in bootstrapping.
What to Take Away: In an interview, Fried says that not having much startup capital for your business forces you to build something effective that makes money. Without funding to burn through, you can be a better business owner because it’s completely up to you to generate income.
After working in the payment processing industry, Brian Johnson knew he could do it better than the competition. As a result, he established Braintree in 2007 and never considered anything but bootstrapping his way to success.
Setting a high minimum fee for services, Braintree found it could draw the type of clients it wanted -- those experiencing issues with other payment processors who were willing to pay a premium to get better service.
Since the beginning, Braintree has grown to more than 30 employees. It generated $4.5 million in 2010. The company is tightly managed and lacks the traditional layers of management and executives, as the company might have had if it had sought VC funding.
What to Take Away: Rather than believing that his employees are passionate about credit card processing, Johnson focuses the company goals on being passionate about running a great business. According to Braintree’s site, principles the company believes in include: “excellence, self awareness / improvement, initiative / ownership, virtue, teamwork, and problem solving / creativity.”
The lesson: empower your employees to create the best company they have ever worked for. Show your employees that they have stock in the company, and your business will produce happy clients and more referrals.
Envato is in the business of helping people sell products online. Interestingly, it was founded by three people without any business experience. Collis Ta’eed, a designer by nature, found himself – along with his wife, brother and friend – immersed in the world of online sales.
The four partners pooled their savings, totaling about $40,000, and maxed out several credit cards to get started. After starting many different platforms, Envato honed in on the most successful, and the company gained traction.
Envato now has more than 50,000,000 pageviews across all of its sites, and has helped thousands of people earn a living online. The company has grown from a fledgling startup into an internationally important player, with employees working around the globe.
What to Take Away: If you don’t have an MBA, don’t shy away from starting a business. With passion for your idea and the willingness to learn along the way, success isn’t limited to those who have worked in business before.
Lead411, which launched in 2001, provides information and news for sales and marketing professionals. Founder Tom Blue chose not to seek investor funding because he wanted control of his company. He said that bootstrapping his company forced him to focus on projects that have a high return on investment (ROI), and that bootstrapping helped him figure out what worked.
The company has grown 30% since 2001, with the site generating nearly one million pageviews per month. Its many awards, including the "Hottest Companies in San Francisco" award, have gotten attention on sites like VentureBeat, B2B and ReadWriteWeb.
What to Take Away: Funding is a must for every startup, but decide whether startup capital is more important than retaining control of the business. Involving investors can take away your own equity and prevent you from innovating.
5. Office Divvy
Founded in 2008, Office Divvy provides co-location facilities, coworking space and virtual office solutions, startup acceleration programs and outsourced operations.
Rather than seeking outside investors, the three founders used their savings to fund the company in three rounds in the first three years. The reason for this was that the company’s goal was to achieve organic business growth and organic facility-and-service-expansion, rather than artifically accelerate the growth of the company from the outset. Often with investors, growth comes faster than the owners want, and that can deter a startup from being successful in the long-term. Bootstrapping allowed Office Divvy to focus on customer loyalty and equity.
The company is now successful, and looking to add more locations in Florida.
What to Take Away: Stay true to your vision. If VCs offer funding but threaten to take away your dream, consider the tradeoffs.