In the current climate of raising funds – against background Technology market slowdown – The global investment community is trying to protect itself. There is more pressure on investment and founders, because investors are chasing results – fast.
But turning to venture capital money is not the only option that Europe’s founders have when looking at growth at an early stage – booting your startup offers a viable alternative without the many disadvantages of working with virtual investors. Bootstrapping is a process where you start with savings (and sometimes borrowed / invested from family and friends) and income that you earn yourself that could help you grow in the future.
Now is a particularly good time to implement, as you are less committed to wider market trends and pressures and can instead use your immediate trusted support and support network; which all can get your company moving from offset.
What do you get by booting your startup?
Bootstrapping is not an option for every boot. You need to have access to some capital, whether your own or through family or friends, and have a resilient network to help you in the early days. At Planta, we were able to operate as a solid unit and make quick decisions, with the support of an experienced founding team.
If you want to start your startup successfully, you must also be prepared for unpleasant conversations, for example, when you are first approached by external investors.
So how do you know if bootstrapping is for you? As a startup, you should focus more on the best way forward for your business after the next 12 months. You have to ask yourself:
- How do we want to work?
- What way of working is best for our business?
- What is our revenue strategy?
- What does the market look like?
Following the example of Planta, we want to create the best possible product, and to make this a reality, we devote maximum resources to supporting this goal. We think the best way to work is to create flexibility and control. This means quick decisions with complete process control. It also means a smaller team, fewer projects, fewer internal meetings and no reporting, as well as eliminating all possible “time thieves” who could hinder the team’s focus on creating the best possible product for our users.
The plant was launched in 2018 and financed its first year through the savings of the founders – the year 2019 ended in profit. That was the goal and the need to continue the bootstrap, so a clear revenue strategy was essential. The first year was feasible thanks to the fact that the founders were able to create the product themselves, through the development, coding and design of the startup. Just 12 months after launch, we could afford to hire the first external employee, our internal plant expert.
👉 Read: Bootstrapping guide for beginners
From a practical point of view, bootstrapping requires patience, prioritization and an understanding that “forced situations” can often lead to creative breakthroughs – take decisive action when faced with challenges. Anecdotally, we can grow with a small team and an even smaller budget because it is much easier to manage a team and include them in our mission.
Could you run more than one project at a time? Yes. But it would also create more internal meetings and discussions about the plan (more “time thieves”), and when more people are involved, it is harder to focus on the main product and the real value for our users.
Even as you continue the bootstrap process, it is important to always listen when potential investors take the approach if you feel serious. But be careful. We held meetings with potential investors, where they said without prompting that they had never used the product, nor actually downloaded the application or interacted with it at all. This is a huge red flag and a clear sign that they are not interested in the interests of our users.
But in the same way, an outside party can offer high-quality advice that could lead to a breakthrough or provide you with some grounding as you go through a period of growth. In our case, it’s not always about being bootstrapped, it’s about being the best way forward for society right now and in the near future. This leaves all options open and investors accept it.
Disadvantages of VC vs. benefits of bootstrapping
Bootstrapping is essential to our growth. Two years after launch, we have been profitable and have recently expanded to Japan and South Korea, in addition to operating in North America and Europe. Bootstrapping made it possible in several ways. We had:
- Fewer internal bureaucratic obstacles;
- Absolute responsibility;
- Optimized decision-making policy;
- Simplified working procedures;
- Ability to suspend or accelerate projects according to strategic goals or development.
I know from the technical community that sometimes an investor may have inserted a clause that requires him to be consulted on a strategy, or a place on the board that carries certain checks and balances. Imagine the frustration of knowing the right next step, but you have to wait a few days for the last toe up and potentially lose ground. Bootstrapping removes this obstacle – allowing the team to work and move quickly.
When we talked to other people in the ecosystem, we were told – over and over again – that they lacked the freedom and efficient workflow from deployment. How much time do companies spend at an early stage preparing for investor meetings? This could be seen as a huge strain on limited resources.
In Plant, Key decisions – such as when to launch a new market, the right time to invest in various marketing initiatives, where or when to start a new project or simply modify a road map – are taking place at Slack between us and us to reach a quick fix.
👉 Read: Bootstrapping vs. VC: choosing the best way to finance your startup
I know a startup that recently received its first external investments and the first activity after the investment was a partnership with a brand from a network of investors. The founders felt that it had nothing to do with their product, user or vision. It was too focused on PR, which may be important, of course, but it took time for other key projects that were eventually suspended. Crucially, this caused the first disagreements between the founders, the wider company and the new board, and affected the team’s morale. For me, this is a case where short-term “winnings” are given priority over the company’s core values and the importance of togetherness.
We have recently suspended work on the revenue plan, which we must focus on application performance project. External investors would almost certainly tell us to continue with the revenue plan and reach a decision with external parties would require several hours of negotiations, analysis and preparatory work.
Did we make the right decision? It’s too early to say. But we have saved a considerable amount of time, energy and resources and we have decided for ourselves – we are 100% responsible for the result. All of these things give us energy, and although these values and feelings are difficult to quantify, they give us energy every week.
Other alternative financing options
However, I would emphasize that external capital can be really beneficial. The European technology community would be much smaller and less empowered without the investment community, and I call on startups to consider all available options when examining the uptake of external capital.
As the ecosystem continues to evolve, financing solutions will become increasingly available – despite the current technological slowdown, startups have several options to support growth. In the last 12 months, passive investing and revenue-based financing they have made great progress, for example.
Ultimately, there aren’t two identical startups, and on that basis, never limit yourself to the path your colleagues have taken, because that may not be the right one for you.
In our case, we love and place great emphasis on flexibility how we work, how we build our organization and decision-making process. Bootstrapping works on all of these fronts and is not as daunting as it may seem – responsibility can even move you forward.
Jesper Svensson is the CEO of Planta.