I Grew My Business With No Outside Funding. Bootstrappers Have An Advantage Over VC-backed Startups—especially Now | Old North State Wealth News
Connect with us


I grew my business with no outside funding. Bootstrappers have an advantage over VC-backed startups—especially now



Theranos is the telltale story of when VC funding goes awry. The company, which claimed it developed a revolutionary blood-testing technology, raised roughly $724 million from investors. It was valued at $9 billion before it imploded because of a fatal flaw in the company—its product didn’t work. It was all hype, no real value. Even when VC-backed founders aren’t fraudulent, there’s a tendency to prioritize funding and scaling to the detriment of the product. 

I founded my company Jotform over 18 years ago. With no outside funding, it’s been a slow climb at times, but today, we have over 25 million users worldwide. I learned a lot about bootstrapping and how it creates the right mix of pressure, thrift, and creativity for developing great, profitable products. Here’s a closer look at why VC funding can cause startups to make bad products.   

Where VC funding goes awry

People often assume “small business” and “startup” are interchangeable. But ask any founder and they’ll likely tell you their ambitions are huge. Bootstrappers are no different. In fact, according to a recent report from startup lender Capchase, bootstrapped software-as-a-service businesses are growing just as fast as their venture-backed counterparts—despite spending only a quarter of what VC-backed businesses do on acquiring each new customer.

What’s more, studies show that 64% of the top 100 unicorn startups—those valued at over $1 billion—aren’t profitable at all. 

As the Capchase report explains, before investing in growth, top-performing startups focus their efforts on nailing the product-market fit. That means finding a match between your product and the people who need it. This, in turn, creates happy customers, high demand, and organic, sustainable growth. A staggering 34% of startups fail because they don’t find the right product-market fit. A brilliant idea doesn’t always cut it.  

Let’s say you’re a VC-backed startup and you’re not seeing the growth you’d hoped for. Maybe you’ll ramp up spending on sales and marketing campaigns, leaving a shorter runway (the amount of time your business can keep afloat with cash reserves alone). And maybe you’ll achieve the desired effect (customer acquisition), but it’s risky and the long-term return is uncertain. If you’re a bootstrapper, you don’t have that option.

So, what do you do instead?

What bootstrappers do differently

Bootstrapping may sound scrappy, but in many respects, it’s a luxury. As a bootstrapper, you have the luxury of focusing obsessively on your product and answering to no one. 

When I first founded my company, I loved our initial product, online forms, because I saw its potential to make people’s lives easier. That factor—ease of use—was my principal concern, hence our original tagline “The Easiest Form Builder.” I loved the product so much, and I got so much joy from seeing people using it, that I gave it away for free (while clocking 9-5 at my day job). From February 2006 to March 2007, we didn’t have a paid version of our product. Nonetheless, this was a pivotal period for the company. 

Why? Because I listened to early users and received invaluable feedback on how they were using our product and how I could improve it. I refined and iterated before I ever released a paid version. Because people genuinely saw the value in our product, we grew our customer base before spending a dime on marketing. 

If I had investors who required me to meet arbitrary KPIs, I would have been spending my early days mastering PR and sales. I wasn’t an expert in either of those fields, nor did I enjoy them. I’m certain the company wouldn’t have taken off if I’d been forced to focus exclusively on those aspects of the business. 

Your most important stakeholders

Today, as a mentor to several founders, I always share my rule of 50-50: spend half your time on the product, and half your time on growth. I also encourage founders to release their most important features as soon as possible so they can get them into users’ hands. Then, they can elicit critical feedback on their product—before even asking people to pay for it. 

That’s another takeaway: Never stop listening to users—your most important stakeholders. When people are too tied to their product, and ignore whether it meets their users’ needs, they’re bound to fail. Organically growing a business requires letting go of your ego and understanding that even smart products fall flat if they don’t meet a target audience’s specific needs. 

Another thing that bootstrappers do differently is that they focus their efforts on making an impact. The Capchase report, for example, found that the healthiest businesses don’t spend the most on sales and marketing, but rather, have a “razor-sharp” understanding of which channels and campaigns have the biggest impact and show a quicker return. In the early startup stages, perfecting your product has more of an impact than flashy marketing campaigns. With tighter budgets and smaller teams, bootstrappers tend to apply this way of thinking to everything they do. That’s why I tell entrepreneurs and team members to automate their busywork—to dedicate more time to “the big stuff,” or more meaningful work that moves the needle for your company or career. 

Recent reports show that in 2024, VC-funding hit a six-year low. This may have sent shudders across the startup landscape, but it shouldn’t. Bootstrapping is a safer, more reliable route. And perhaps most importantly for your company, it creates the optimal environment for developing a better product for your customers.

More must-read commentary published by Fortune:

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.

Read the full article here



Copyright © 2024 ONSWM News. Content posted on the Old North State Wealth News page was developed and produced by a third party news aggregation service. Old North State Wealth Management is not affiliated with the news aggregation service. The information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date the articles were published. The information presented is not an offer to buy or sell, or a solicitation of any offer to buy or sell, any of the securities discussed.