One definition I have found useful for bootstrapping is growing your business organically until it requires and merits outside professional investment. Some businesses (e.g. starting a new semiconductor fabrication facility) cannot be bootstrapped beyond the planning stage so the folks who are able to get funded based on a plan typically have substantial relevant experience and credentials.
But many startups benefit from talking to customers first and relying on revenue as a more certain validation than an investor writing a check. If you don’t have paying customers for a software or SaaS firm in particular these days you really have not reached a significant risk reducing milestone and so your valuation may be poor. Even in Silicon Valley many startups choose bootstrapping as an early model because revenue is non-dilutive and investment is not required to gain traction and some early risk reducing milestones.
I was delighted when Mike Krupit volunteered to moderate a Bootstrapper Breakfast in Philadelphia, he brings considerable practical experience as an entrepreneur and the credibiilty to attract other seasoned entrepreneurs to join in serious conversations about building a business.
Last week Nathan Solomon posted several thoughtful e-mails to the Philly Startup Leaders E-Mail Listserv that I have condensed, with his approval, into the following article:
Philadelphia as a Tech Bootstrapping Community rather than a Tech Startup Community
This morning I had coffee with a VC friend who lives in Philadelphia and commutes to NYC. He loves Philadelphia and is committed to living here; he would do whatever he can to help folks here. But, he said the same thing that every VC and knowledgeable startup person has said to me at one time or another about Philadelphia. There is no deal flow here worth speaking of. We are close to NYC, and everyone knowledgeable has contacts with funders and mentors there. Hence, entities achieving funding are effectively NYC entities.
What does that mean for this city, and those who are working to form new initiatives here? I would suggest that it demands an alternative starting point for evaluating health and scale of startup community. As effectively a “satellite campus” of NYC in terms of funded entities, we should emphasize bootstrapped entities, and reject the model of massive scalability (required by the conventional tech VC model), as the primary requirement of a tech startup. I’m not saying that if someone is offered funding and takes it, that’s a bad thing (it’s definitely a very good thing); however, this city should brand itself as so good for bootstrapping that it has unique value that cannot be found in NYC or SF or even Boston.
What can be done to support such a positioning? First of all, it’s demonstrably true that this is a great city to live in, as a night or weekend out will prove; with an incredibly dynamism at this point that is also born out by the ubiquity of construction within the city. It’s also true that it’s much, much more viable here to either quit your day job and live cheaply or to have energy and focus to do something in your spare time here. This city is also in a unique situation where our universities are so much larger a proportion of the economy than are the firms that grow from the city. Hence, we are uniquely weighted toward a population of smart young people, with a dearth of established businesses that are interesting enough to be compelling destinations for these kids. So, our position is that we have a lot of capable young people who would stay here if there were opportunities to do so.
A great thing is that it’s not very expensive to support bootstrapping, and that any bootstrapped startup brought or built here has a fantastic effect beyond itself, as the smartest, most ambitious people remain part of the community, helping other initiatives to grow as well. I’ve been thinking about this lately, in part part because folks have been asking me to persuade more small game companies to move to the region.
Whether purely by messaging, or by a combination of that plus concrete initiatives, I think there’s a viable opportunity to encourage more initiatives here, and to encourage initiatives to move here. As it stands, I know of several bootstrapped businesses that came to Philadelphia specifically because it was more viable to be here than NYC or the West Coast.
I do believe that investment (angel or VC) is generally a very good thing, and I also believe that creating a massively scalable business is similarly desirable. My mention of the latter was only regarding its central importance to the tech investor community. An advantage of not being a Tech Startup town is that you can also be much more welcoming to business concepts that fall outside of the “massively scalable” requirement. This may be any number of business types, including service businesses, or tech that will never have a huge audience but may well have one that can sustain a dozen people doing something interesting and useful, or small scale manufacturing.
If someone is striving to help startups in Philadelphia, their activities may well be different based upon the Tech/Bootstrap differentiation:
- If you think that we’re a Tech Startup town, you’ll be focusing on introductions to investment and creation of effective pitches.
- If you think we’re a Bootstrap town, you’ll be thinking of how best to help network with people and facilitate resources:
- How can we invite people to join the economy here, or to stay here when they leave college?
- There are about a dozen people in the local startup/government community that do an incredible amount of connecting of others: I don’t think it would be hard to scale this up, if others took it on themselves as a shared task.
I’m not suggesting a random acceptance and encouragement of all business concepts, but if in our own fields we do what we can to uniquely position and advance the city as a place where things can get done (and then put in extra effort to help it be so); I don’t think that’s much different than what we all do now.
One of the things that attracted me to joining the Philly Startup Leaders group was the last half of their manifesto:
Philly Startup Leaders is a community of startup entrepreneurs dedicated to helping each other on their entrepreneurial journeys.
We provide the kind of emotional and practical support that can only come from a fellow entrepreneur. Emotionally, we share wisdom, inspiration, and friendship. Practically, we share advice, connections, and resources. We mentor each other and coach new entrepreneurs who are making the transition.
We often collaborate and connect with the larger ecosystem—with people and organizations who are not themselves entrepreneurial.
But what makes us so different and so effective is our focus on connecting entrepreneurs with each other.
We thrive because we understand that, above all else, startup entrepreneurs need each other.
and their embrace of bootstrapping (see for example this 2008 talk by Blake Jennelle, one of the co-founders of PSL on “Bootstrap or Bust”)