Bootstrapping Your Start-Up: Why You Shouldn’t Take Venture Capital

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By: Founder & CEO David Erickson

As a successful entrepreneur, I am often asked to offer my best advice for those looking to start their own companies. My answer: Don’t take the money. Venture capital isn’t always what it is cracked up to be. Focus on what matters — being a CEO, building your products and your company culture. You may not have seen that one coming. When you’re ready to take your new business off the ground, securing equity can feel like the only thing that will actually move your start-up forward. We are often trained to believe that money equals success and validation. If you don’t receive money for your idea, is your company really worth anything?

The answer is a resounding yes.

When I started, I didn’t set out on a mission to make the most money possible. My goals were to find a solution for a particular niche customer. I genuinely love telecom and when I figured out how voice was packetized, it was like turning a new page. I didn’t look at it as the day I figured out how to pay all my bills. So there’s nothing that I did, or had, when I came to the business world that was amazing or worth writing home about. I was just a guy who was showing up. I had a passion to solve problems and was always coming up with ideas. And that’s really the first step to all of it. Financial prospects were not my motivation. Bootstrapping my business became a way a life.

The Turtle Conundrum: Does VC Funding Promise Success in the Big Sea?

One of my favorite philosophies in business is something called the “Turtle Conundrum”. As an investor once put it, “Many turtles hatch, few make it to the sea.” So how do you up your odds? The more important question is, “If the turtle raised money, would he have a better chance?” Looking at what happened with and how we scaled by bootstrapping our way to play with the big fish out there, I’m not so sure.

I understand the conundrum like this: you can only penetrate a market so far. The turtles heading to the vast ocean establish a beachhead and they make a go for it. What happens as a direct result of that is tangible change. The race can be scary. People with great money at stake tend to have more fear.

Make Your Own Business Decisions

Over the years, I’ve learned to be agile. The hardest thing about a business plan is that you have to follow it. The start-up mentality is to have a set plan or a target you’re chasing, but it gets tricky when you begin to look for angel investors and raise money. Whether you're raising funds through family, the guy down the street or an institution means you are selling them one particular version of your plan.

So when you want to zig, and the plan says zag, what is the next step? Do you go back to the people who gave you the money and say, “Hey, the stuff I sold you has changed; we’re going to go a different route.” You can, and sometimes people are successful at this maneuver. But the question then becomes, how agile are you in your start-up?

Things are going to happen. As a key business player, you want to be able to change. I can’t even begin to tell you all the things that happened with just in the first year. What has allowed us to grow, and survive, is this flexibility.

Start Small & Get Some Perspective

Don’t be afraid to be a one-man band. I worked fearlessly for 918 days straight when I started the company. For 918 days, I answered the customer service line 24-hours a day, 7 days a week, 365 days a year. The reasoning behind this wasn’t some huge business calculation; I did it because I didn’t have any money to hire someone. What came out of that grueling experience was invaluable. I was the guy answering the phone, the guy running the site, the guy doing everything. I learned what worked and used that information to effect change directly based on what users were experiencing. If I had taken money from investors, I might have the initial luxury of not doing everything myself, but I would have lost valuable learning moments and would not have gotten to know my customers and what they needed.

Don’t Let Money Get in the Way of Your Creativity

I am a big believer that money can absolutely get in the way of creativity. Think about it. It’s amazing how creative you have to be when you don’t have money. Can the reverse be true? Sure. If you have a lot of money, you can go out and hire that salesman and put a bunch of money into marketing — but then you end up spending all your time managing what they’re doing, instead of being hands-on with the problems in the first place.

Fundraise When You Don’t Need Funds

It’s so much easier to raise money when you don’t actually need it. If you spend all your time trying to raise funds when you need your company to take off, then you’re not spending your time growing the business. I like to think that the money givers need the money as much as the money takers. Investors will come looking for you when you’ve built a successful foundation.

It’s also important to not look at investment offers as a form of flattery like I did when I was starting out. You don’t need to find approval in your business model by going into debt. You already believe in your company. You believe it has a chance or you wouldn’t be doing what you’re doing in the first place.

Still, to this day, has zero debt and we have not received any institutional funding. To me, the key to not raising money is understanding that this idea isn’t just a choice — it’s a lifestyle for your business and for you as an entrepreneur.

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