The best way of growing a company doesn’t exist. There are multiple ways, and the “best” way depends on your market, your timing, current market economics and a lot of other things. But if you ask me which way I prefer someone builds a company, certainly their first company, it is by bootstrapping it. In this post I’ll explain why I think bootstrapping is great and why, in spite of that, we still invest in other companies.
This love for bootstrapping may seem strange coming from people who call themselves investors, or even “venture capitalists”. However, we bootstrapped Yoast, and we’ve learned a lot in doing so. With most of our investments, if they can, we’ll try to help them to break even so they don’t need add-on rounds of funding to keep growing. In economic times like these, this means it will at least give them more runway, and in the best case, will make them profitable (more) quickly.
Unhealthy effects of funding / too much money
Having a lot of money on your bank account, regardless of whether you made it yourself or got it from an investor, takes some of the pressure away. Part of that is healthy: it might free you from some stress that might block you from achieving greatness. But for many people, that pressure is also what makes them good entrepreneurs.
Bootstrapping? Efficiency is key
As we go into economically unstable times, you’ll see a lot of large corporations fire what equates to entire stadiums full of people. It’s very easy to say that that’s “stupid”, and they should never have let it go out of control that much, etc. Having grown a company myself I can tell you: that’s incredibly hard. I know of very few companies that were always extremely efficient. As a company grows, that gets harder and harder.
Bootstrapping a company makes you almost inherently efficient. It’s your own money, you can only spend it once, you’ll think twice before hiring another employee. I think that’s very healthy. It’s easy to grow fast if you have lots of money, but it won’t necessarily make you move faster. It feels counter-intuitive, but hiring more people will not always make you faster.
When we invest, you’ll often hear me ask: could you raise less? Sell a smaller stake, do it with less money? Make a good forecast about your liquidity and see what you’d really need. Of course it’s ok to have a bit of a cushion, but if you raise half a million too much in your first round, you’ll never get those shares back.
In most cases, the reason that your company is successful is you. Of course, your people are important, of course, there are lots of contributing factors. But successful businesses tend to have a strong and clear vision of where they want to go. Having anyone stop you from doing that is annoying. If you need a lot of funding, you’ll almost inherently give away quite a bit of control over your company, even if you still have the majority vote.
When we invest in a company, we can be quite hands-on in our help if people want us to be. We can help with things like storytelling, branding, marketing, SEO in particular and even with technical challenges. That’s what made us interesting to most of our portfolio companies. But we don’t need to be hands on. We’d love a bit of an update on how the company’s doing every once in a while, but we’ll mostly leave you to it. Because if we invested, we invested and believe in you.
When bootstrapping, staying profitable is paramount
When you’re bootstrapping your company, you have to stay (or become) profitable. If you don’t, you can’t grow. This forces you to focus on the things that make money. This does not mean that money has to be the most important thing, in fact, it probably should never be the only reason to do something. But it does force you to make sure you’re making money, which we believe in the long run will make sure you build a healthy company.
We choose to invest mostly in companies that have a relatively quick path to profitability. Not because we want to exit quickly, we mostly don’t care, but because we don’t think the idea of raising multiple rounds before a company reaches profitability builds healthy companies.
So when should you take investment?
There are certainly reasons to take investment that I fully appreciate. Sometimes taking that next big leap requires money. You might do a big marketing investment, hire a few people to seize your momentum and quickly gain market share, these (and many others) can be good reasons to get an investor.
That doesn’t mean you need to lose your bootstrapping vibe entirely. In fact, hanging on to that will always build you a better business.
An investor should really always bring more to the table than just money, because if they don’t, you’re mostly better off going to a bank and getting a loan. Investors should truly become partners in building your company. It’s good to ask your investors upfront how they’d like to be connected to you and how often they’d like to talk to you.
We choose to invest in companies and founders that we connect with. The personal “click” is just as important as your business plan. We should be happy to introduce you to our network and you should be happy to work with us.