In the world of tech startups, bootstrapping has a special cachet. Bootstrapped companies that make it big—say, to $100M ARR—without relying on venture capital or angel investors are looked on with something like awe. (Note that relying is the key word here–some boostrappers may take VC money, but only after they don’t truly need it.)
The founders of such companies are the Yodas of the tech startup world, full of hard-won wisdom and quotable advice. They know what it takes to grow a company to profitability the hard way. Here are some concrete strategies the founders of MailChimp, Atlassian, and Tableau have used to maximize their margins and grow without VC.
Figure out what your potential customers really need
Ben Chestnut and Dan Kurzius, co-founders of MailChimp, got their idea by listening to the clients of the web design firm they used to run. Many of their customers wanted to improve their email communications. So the designers started a side project doing email marketing software.
Now, 17 years later, MailChimp has some $400M in annual revenue. Many SaaS bootstrappers get their start this way, funneling revenues from a consulting business into building and marketing a product. It’s a great way to back into product/market fit—you know you’re solving a real problem for real customers.
Start slow and steady, and stay focused
Bootstrapped businesses grow more slowly than VC-backed companies. Know that going in, keep your head down, and work your angle. MailChimp existed for years before it became a full-time job for its co-founders and Chestnut and Kurzius stayed focused on the clients who’d inspired them: small businesses. VCs would tell them to target bigger firms, which would fuel the rapid growth investors need to hit their target returns.
Chestnut and Kurzius were reluctant to chase enterprise clients at the expense of their customer base. As Chestnut remembers, “something in our gut always said that didn’t feel right.” So he and Kurzius kept bootstrapping, staying methodical and laser-focused on making a product their clients couldn’t live without.
Change your lifestyle
Christian Chabot, cofounder of data visualization firm Tableau, says that bootstrappers need to be willing to make sacrifices that many founders would balk at. A huge one is working for free for longer than you would if you got funding—in the early years, there simply won’t be any income. Chabot downsized his lifestyle a year before taking the plunge in 2003, moving to a small apartment, slashing his cable bill, and cutting off all extraneous expenses. His cofounders kept their already-frugal lifestyles pared down.
Such dedication to their cause was a good move for Tableau: being thrifty with early revenues helped the company hit $100M ARR nine years after founding.
Measure everything, test everything
Scott Farquhar, founder and owner of Atlassian, a enterprise software firm that went from “garage to $60 million” in eight years, recommends measuring and testing everything. Make sure you know exactly how things are going along your entire sales funnel. Embrace failures, since they teach you something important. Just make sure to measure them so you know what precisely to change. There’s a reason one of the company values is “measure twice, cut once.”
Be unique and create a good place to work
Bootstrapped companies often can’t pay their employees competitive salaries, but they can offer exciting opportunity and an awesome culture. Farquhar advises creating a company that has personality and concern for its employees. Be the one to stand out: “Buy the beer at the conference.” But also make those intimate relationships with your staff count. One Atlassian employee reported finding a welcome card and some chocolates at his workstation on his first day, a small touch that thrilled him. Try to make your company someplace you would want to work if you were that employee.
If you raise capital, do it right
Tableau’s philosophy from the start was “raise customers before raising capital.” Some bootstrappers never raise capital, but others do so once they have customers and positive cash flow. Tableau’s $15 million in VC funding serves as insurance in case anything goes wrong. Other bootstrappers turn to alternate funding sources, such as revenue-based financing, which doesn’t involve handing over equity or making personal guarantees. At Lighter Capital, we’re proud to provide this kind of funding—the most bootstrapper-friendly financing out there.
Bootstrapping takes sacrifice, energy, and smarts. But more than anything it takes steadily working to enact a vision that you know can make people’s lives better. Ultimately, these gurus will tell you that’s what matters most.