Well it sure helps to have some other people to guide you who have personally made the journey and worked out where the hidden wells are along the way. A key element to carry you is risk capital – but the businesses that are really great to invest in are often the ones that don’t want the money – usually they need it, but they often don’t want it because they don’t want to deal with the crap that comes with it.
Software companies are a great example of how bootstrapping can work really well, and a new idea can be tested and validated, and even sold, well before significant amounts of money are needed. There is still a valley of death for these businesses, because just selling product and having happy customers can make you complacent and fail to recognize that these early adopters are not the whole market, and you have to grow or die. The day you launch your product you start the clock on competition, if in fact they haven’t already got something similar cooking and ready to release already. First mover advantage is a two edged sword and often instead of creating and then owning a market, you simply create it for a competitor to go take it from you. The curse of software is the ease with which it can be replicated by competitors and lack of patent protection. You have to understand how to really scale your business, and differentiate from competitors, and have a clear and focused strategy around that growth to leverage your limited resources for maximum result. Money is a fulcrum--who gives it to you can be the lever, depending on the depth of their experience, personal networks, and commitment as an investor.
For many hardware businesses, it's not possible to boostrap without capital – even if there isn’t money to be had, entrepreneurs have a gift for finding it – a customer who is a real believer in your product is often a great source of needed capital whether it's NRE or advance payment
This applies primarily to deep tech, rather than Internet or execution plays. Early adopters validate your product, fine tune it and provide premium price because they value the unfair advantage you give them – if they are not willing to pay that premium then it's just about price and you shouldn’t play in that game. A good test of the compelling advantage of your technology is to try and raise money by getting a customer to fund your company in exchange for exclusivity (you can limit the term later). Too many companies delude themselves into their value only to find their customer walks them into the purchasing department who has no interest in value other than to get as much of it for as little as possible ;-)
Early adopters let you under the hood of their company engine, and with that inside knowledge you gain deep customer intimacy that begets understanding of their real pain point, which when coupled with your deep technology understanding creates a unique solution that neither of you ever would have thought of alone. The pioneering customers help you prove your value proposition, and later will help evangelize your virtues and enable sales to the broader market where price will become an issue, but armed with the proven business case of your early adopters you can win those sales.
Once you have your clear value proposition and product that supplies it, you need to iterate your sales process many, many times, until you find the right repeatable model that secures recurring revenue. It has always amazed me what happens when a career sales person is brought in to replace the peer-to-peer selling of engineers – don’t underestimate the value of peer-to-peer, it’s the secret sauce of selling to early adopters, but there is an inflection point where the domain experienced sales person can turn up the heat for broader market acceptance and really start to ramp sales. This is the other element of risk capital; its hard to judge when to increase burn in order to capture the market – if you are bootsrapping, you will often miss this point and grow organically, trading time for money. This is usually a bad trade because you can’t win back time – there are many, many bet-the-company decisions an entrepreneur is faced with, it’s a lot easier to seize the opportunity if there is a financial buffer, and ideally people who have made these decisions before for their own businesses.
So if it's so easy, why do we so rarely succeed? (see Part III next time)