In the present fundraising climate — set against the backdrop of the tech market slowdown — the global investment community is looking to protect itself. There’s more pressure on investments, and on founders, as investors chase deliverables — fast.
But turning to VC money isn’t the only option Europe’s founders have when they’re looking at early-stage growth — bootstrapping your startup offers a viable alternative without many of the downsides of working with VCs. Bootstrapping is the process of getting started solely with savings (and sometimes borrowed/invested funds from family and friends) and revenue you make yourself, and could stand you in good stead for future growth.
Now is an especially good time to bootstrap as you are less beholden to wider market trends and pressures, and instead you can tap into your immediate, trusted network for support and backing; all of which can get your company moving from the offset.
What do you get from bootstrapping your startup?
Bootstrapping isn’t an option for every startup. You must have access to some capital, whether your own or via family or friends, and have a network resilient enough to help you during those early days. At Planta, we’ve been able to function as a tight unit and make decisions quickly, supported by an experienced founding team.
To bootstrap your startup successfully you also have to be prepared for awkward conversations, such as the first time you’re approached by external investors.
So how do you know if bootstrapping is for you? As an early-stage startup, you should focus more on the best way forward for your business beyond the next 12 months. You need to ask yourself:
- How do we want to operate?
- What way of working is best for our business?
- What is our revenue strategy?
- What does the market look like?
Using Planta as an example, we want to build the best possible product, and to make that a reality we allocate maximum resources to support this goal. We think the best way of working is to create flexibility and control. That means quick decision-making with total control of the process. It also means a smaller team, fewer projects, fewer internal meetings and no reporting, as well as eliminating all possible “time thieves” that could hinder the team’s focus on building the best possible product for our users.
Planta launched in 2018 and funded its first year through the founders’ savings — it ended 2019 in profit. That was both a goal and a necessity in order to continue bootstrapping, so a clear revenue strategy was crucial. The first year was doable thanks to the founders being able to create the product themselves, through developing, coding and designing the startup. Only 12 months after launching could we afford to hire our first external employee, our in-house plant expert.
In practical terms, bootstrapping requires patience, prioritisation and the understanding that “forced situations” can often lead to creative breakthroughs — decisive action when faced with challenges. Speaking anecdotally, we can grow with a small team, and an even smaller budget, as it’s much easier to manage the team and include them in our mission.
Could you run more projects at the same time with more people? Yes. But that would also create more internal meetings and roadmap discussions (more “time thieves”), and when more people are involved it is harder to focus on the core product and real value for our users.
Even if you pursue the bootstrap process, however, it is important to always listen when prospective investors make an approach, as long as it feels serious. Be cautious though. We’ve taken meetings with prospective investors where they’ve said, unprompted, that they’ve never used the product, nor have they actually downloaded the app or interacted with it at all. That’s a giant red flag, and a clear sign they don’t have our users’ interests at heart.
But equally an external party might offer high-quality advice that could lead to a breakthrough, or provide you with some grounding as you go through a growth period. In our case it’s not a question of always being bootstrapped, it’s a question of what the best way forward for the company is right now and in the near future. That keeps all options open, and investors accept that.
The downsides to VC vs the upsides to bootstrapping
Bootstrapping has been fundamental to our growth. We were profitable two years after launch and have recently expanded to Japan and South Korea, in addition to operating in North America and Europe. Bootstrapping enabled this in several ways. We had:
- Fewer internal bureaucratic hurdles;
- Absolute accountability;
- Optimised decision making policies;
- Streamlined workflows;
- The ability to pause or accelerate projects according to strategic aims or developments.
I know from the tech community that sometimes an investor might have a clause inserted that requires them to be consulted on strategy, or a board seat that carries certain checks and balances. Imagine the frustration of knowing the correct next move, but having to wait several days for the final thumbs up and potentially losing ground. Bootstrapping removes that hurdle — allowing the team to execute and move quickly.
Talking to other people in the ecosystem, we’ve been told — time and time again — that they miss the freedom and efficient workflow from the bootstrapped days. How much time do early-stage companies spend preparing for investor meetings? This could be considered an immense drain on limited resources.
At Planta, key decisions — such as when to launch in a new market, the right time to invest in different marketing initiatives, where or when to start a new project or just simply readjust the roadmap — happen on Slack, between a few of us, and we strike a swift resolution.
I know a startup that recently accepted their first outside investments, and the first activity post-investment was a partnership with a brand from the investors’ network. The founders felt it was not connected at all to their product, users or vision. It was too focused on PR, which of course can be important, but it took time away from other key projects, which were ultimately paused. Crucially, it caused the first disagreement between the founders, the wider company and the new board, and team morale was affected. To me, this is a case of short term “wins” being prioritised over core company values and the importance of togetherness.
Recently we paused work on a revenue plan to focus on an app performance project. External investors would have almost certainly told us to continue with the revenue plan, and reaching a decision with external parties would have required several hours of meetings, analysis and preparatory work.
Have we made the correct decision? It’s too early to tell. But we saved a significant amount of time, energy and resources and we made the decision ourselves — we’re 100% accountable for the outcome. All these things give us energy, and though these values and feelings are hard to quantify they give us a boost every week.
Other alternative financing options
I would stress, though, that outside capital can be truly beneficial. The European tech community would be much smaller and less empowered if it were not for the investment community, and I urge startups to consider all available options when exploring accepting outside capital.
As the ecosystem continuously evolves, more accessible financing solutions will be increasingly available — in spite of the current tech slowdown, startups have multiple options when it comes to fuelling growth. In the past 12 months, passive investing and revenue-based financing have made great strides, for example.
Ultimately, no two startups are the same and on that basis, never limit yourself to the path taken by your peers, because it might not be the right one for you.
In our case, we love and place immense value on flexibility in how we operate, how we build our organisation and the decision-making process. Bootstrapping delivers on all these fronts, and is not as daunting as it may seem — the accountability can even help drive you forward.
Jesper Svensson is CEO of Planta.