When I say startups are designed to grow fast, I mean it in two senses. Partly I mean designed in the sense of intended, because most startups fail. But I also mean startups are different by nature, in the same way a redwood seedling has a different destiny from a bean sprout. - Paul Graham
Bootstrapped startups are constrained by cash. So a bootstrapped startup—which is designed to grow fast—sounds paradoxical, yet it isn't.
Bootstrapping is when the business model funds itself. And, according to PG, "A startup is a company designed to grow fast." Founders have to design a bootstrapped startup to grow as fast as its cashflows allow.
We're bootstrapping at Yokeru. We have found that a bootstrapped startup has to start slowly. It needs to prove a business model and reach profitability while saving. Money is a cruel constraint, and this stifles marketing efforts, and product development cycles tend to be longer (the team is smaller). A nifty bootstrapped team balances everything until it can grow. Although it's tempting to, a bootstrapped business can't spend time 'business building', such as looking pretty, before it can afford to.
These financial constraints force slower and more intentional decision making. The venture can make fewer bets: it can't afford to burn through cash. There is less distance from death (one wrong hire can push things to the end). Often, there are fewer pivots available (or none).
Paradoxically, this framework is antifragile. Hundreds of frugal decisions mean there is less to go wrong. With Yokeru, we don't have overheads we can't afford. And MailChimp, Canva and ConvertKit prove that driving sustainable growth in the long run works.
Changing the world is sexy. Closing another SaaS contract isn't. But a bootstrapped startup must find cashflows as early as possible, even if it isn't sexy. And the early cashflows are often tangential to the final business model that achieves scale (as we'll see below). So founders, like us, have to drop their egos.
It's two-phase process: The bootstrapping stage, of securing cash flows, and the startup phase, of self-funding growth. Paul Graham describes the second stage when he describes a startup. Yet, the bootstrapping stage is equally interesting. MailChimp began as a sales and marketing agency and grew to $12bn. Canva started as a yearbook design business and grew to $40bn.
With bootstrapped startups, in the early years of 'survival' time is best spent getting profitable. Immediately after that, the team can turn its attention to finding unique market insights. All those early customers become very useful here. These insights are secret; no one else can get to them.
Once the bootstrapping phase is complete, the venture is profitable. Once profitable, it can rapidly test different business models for the eventual 'scale' business.
There is an advantage to all this. With a bootstrapped business, the time horizon is further away. Funds don't have to be returned to investors within three or five years. Founders often hold significant stakes forever. Thinking on a multi-decade time horizon is a luxury. It's a competitive advantage but can only be enjoyed once the early 'bootstrapping stage' is over.
Live well,
Hector
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