Why Bootstrapping doesn’t mean you have no ambition
Dispelling the myth that if you choose to bootstrap your business instead of raising money then you are building a lifestyle business.
There are many ways to build a big business. But if you read the tech press over the last few years then you would think that there is only one proper way. That the first thing you have to do is raise money, and when you have done that? Raise some more. A lot more. And then go again. The guys that succeed are hailed as superstars, and rightly so in many cases as the chances of succeeding this way are incredibly small.
For Phorest we took a different route.
Before starting Phorest I had been a founder in computer game networking middleware startup called Demonware and was actively involved in raising a €750k initial seed round in 2003. For Demonware, there was no chance of generating revenue without building a product. And in those days there was no way of building a product like that without at least 5-10 developers. So raising money was the only option. Don’t get me wrong, it was an amazing experience at such a young age, and it was an incredible group of guys but there were some things I didn’t enjoy about the process. In particular the momentum of the company revolved around getting hold of VCs and selling the idea of the company to them rather than building a product and selling that product to customers.
Of course once the money was raised and the product was built — we had to go out and sell the product but by then you were on a train that was somewhat out of your control. And as soon as the money was raised thoughts moved onto raising the next round.
When I left Demonware I wanted to try building a company where we didn’t have to raise money straight away and see what happened. So we started Phorest with a very simple tool that enabled businesses to send bulk text messages. And we used the cash generated from that to build a basic appointment software that sent SMS appointment reminders. And the success of that tool in one particular vertical — salons and spas, is what led us to expand that appointment software into a fully featured salon software platform. And we were able to move from one step to the next (each one was about 6-10 months apart) at our own pace — making the decisions as fully informed as possible — and without the pressure of an investor demanding we stick to what we had originally set out to achieve. This process is now commonly referred to as Bootstrapping — but nobody called it that in those days.
I had friends who asked me why we were not looking to raise money. I would reply that it didn’t make sense to where we were at. They would wonder whether I was building a lifestyle business implying that I lacked the ambition to build a large business. But that wasn’t true at all. I want to build Phorest into the best company in the world in what it does. We just weren't sure how we were going to do it at that time or even whether there was a big enough market in this niche for venture capital to get the kind of return that would make the opportunity exciting for VCs.
Once the larger opportunity started to become apparent, then we were ready to raise a round. But we came at this from a position of strength (€1m+ Revenues) and the knowledge that we could walk away if necessary.
But some bootstrapped companies can go after the big opportunity without having to raise money at all — just look at MindValley or Teamwork. You certainly wouldn’t call Vishen Lakhiani lacking in ambition.
I have really enjoyed the process of going from one stage of business to the next and learning about the different skills you need at each level. Each time you level up you have to develop new skills. It is a different job in many ways. Sometimes the new skills come straight away but often they don’t and you can find yourself way out of your comfort zone and you don’t know if you are going to be competent at the new level.
Luckily so far I think I have managed to adjust to each new level, sometimes after some costly mistakes;). I have no idea if I will have or be able to learn the skills for the next level but I can’t wait to give it a shot. Of course for a business that has been heavily backed by VCs they don’t necessarily have the time to let the founders find their feet — so they will bring in someone who they think has done it before. This sometimes works out but often the company loses the focus on the customer that the founder had — the passion for why the company was solving the problem in the first place. This is the passion that leads to new innovations and new opportunities down the line that are not obviously apparent. This is also the passion that helps create customer loyalty.
Ultimately there are significant advantages to bootstrapping a company for the long haul;
- Your company will have to be more customer focused in order to succeed and
- You will have a much greater opportunity to develop your leadership skills.
