The Founder’s Paradox: How to Bootstrap a Big Software Company When Everyone Else Raises Money
Idioms change with the times. Take “pull yourself up by the bootstraps.” It is an old cliche that has twisted over the last 150 years. The earliest reference in an 1834 periodical satirically referenced the outlandish concept of being able to haul oneself over a fence by the straps of your own boots. Physically impossible! But in the 1950s, the meaning shifted from laughable to laudable — co-opted by engineers referring to the arduous task of getting early computers to start up. I think you can see how it progressed from fences to entrepreneurship from there.
Few large-scale ventures offer the latitude to self-fund and succeed without external investment like software does. Startup and operational costs are low and potential return is high.
And yet, the prevailing wisdom is that the first thing the founder of a tech startup should do is to raise money. My feelings about this should come as no surprise. I have written at length about why we have chosen to say no to VC, why we continue to say no as Aha! grows, and my perception of the value that you really get from most VC firms.
Back in 2016, I pondered funding that was once easy to secure had started to fade out. More recently there were murmurs of pre-pandemic slowdown. But none of that has come to bear. According to PitchBook, 2020 top-line figures of the U.S. venture capital industry were “staggering” with $156.2 billion invested, $290.1 billion exited, and $73.6 billion raised. 2021 appears to be on pace.
The money is there in surplus for promising companies and everyone thinks you should take it. But what are you trying to build and what gives you the most control to get there?
See money for what it is — a tool with limited capabilities. You probably do not reach for a shovel when there is nothing to dig. So stop seeking capital on impulse alone. Some companies do require infusions of cash to prosper, especially when there are major infrastructure or research costs. But software is different.
Plenty of businesses never succeed, with or without VC funding. Money alone will not make your business work and so many factors are out of your control. Building a successful business is a massive effort and progress is incremental. This is especially true for SaaS businesses that are more like annuity streams that grow over time than home-run financial advances.
Self-funding is not easy but bootstrapping gives you the most options. And options are highly valuable as an entrepreneur — maybe the most valuable thing you can own.
As a founder, I have been fortunate. I have worked on SaaS products for a long time and my past roles helped me develop a broad set of skills. I have an exceptional cofounder in Dr. Chris Waters — we have worked on many other products together and have a long friendship too. And I am married to a wonderful woman who continues to support my aspirations.
We invested a small amount of our own money to get Aha! started but most of it was driven by our insights, hard work, and principled approach. However, there were lots of former colleagues and friends who thought we should raise early and often — especially when we soon emerged as the obvious choice for product managers everywhere.
Our achievements only solidified our confidence in knowing we would never need to raise funds. I still get a lot of questions about how we were able to bootstrap Aha! from the beginning. So here is what we learned to be most effective:
Focus on learning about customers, the market, and what will attract people to your company. Having a solid cofounder can really help if they add abilities you do not have. Chris and I are perfect foils in many ways — he is a technical power and I bring product and marketing skills.
Be the "smart money"
People are often told to bring in smart money. Meaning: the sage, experienced guidance of investors. But no one cares about your money or success as much as you do. Cut operating costs. Over-invest in what is working. Have courage to try something new when it looks promising. No one knows the business like you do, so apply funds wisely.
Do it all yourself
Put off hiring and outsourcing what you can do yourself — until it is impossible for you to continue doing it yourself. It will be painful. You will spend almost all of your time working. But it will also give you insight into the value of that work, which will help you with hiring exceptional talent. It will also ensure that you can support new folks and support their growth. When you hire someone, you are as responsible for their success as they are.
Let customers buy
Raising money is a protracted distraction. Even after you are done raising, you have to keep investors informed of progress. Your time is better spent focusing on the people who might want to buy what you are selling. Make it easy and enjoyable for them to do so. We do this at Aha! with a free 30-day trial for all our products and hiring experts to help users realize the value of our software. Comprehensive support — no salespeople.
Tell your authentic story
Branding is not colors or logos. It is intangible and all about interactions. What do people think or feel about your company? That is based on what they experience with your company. Know what makes you unique and infuse it into every part of your organization. You want customers to feel that brand essence at every touchpoint, from the content you write to the values that guide your team.
Ask to be shut down
Share your strategic plan with people you trust. And then see if they can poke holes in it. Find opportunities that make you defend your value proposition over and over. This rigor is essential for any entrepreneur — never be satisfied and always spar to stay sharp.
Investors are looking for a big liquidity event. But you should not. You should focus on all the “nexts” — releasing the next product update, serving the next customer, hiring the next teammate, and finding the next channel to share your story. Be proud of each milestone but do not be complacent. That is how you keep improving.
All founders want to create something new and improve the world. I am here to say you do not need to raise money to achieve that.
If you are just beginning on your own entrepreneurial adventure, I can offer one more suggestion: Decide what you want your business to do. What is it for? When I muse on this question, I often think about businesses of old.
The purpose back then was centered around product, people, and profit — not how much money was raised. If you want your business to be known for something real, not theoretical valuations, then it might be time to pull yourself up by the bootstraps.
Read more of The Founder’s Paradox.