Bootstrapping Chronicles, Chapter 1

(The original article was published here.)

Preface: Why Bootstrap?

I’ve written a few short articles about my experience bootstrapping businesses. I’ve both bootstrapped and raised money (both sides of the pond). These are my learnings (with context) and hopefully, they are helpful for others.

The first question one might ask is when should you bootstrap. In my experience, it makes sense for low-to-mid complexity products (or if you have deep pockets). There are no doubt products and services that you cannot bootstrap, such as deep tech with a slow time to market, training AI models that will run you millions of dollars in compute resources, or where you aggressively need to pay for market share to corner a market.

If you’re building a relatively straightforward product, it makes a lot of sense to bootstrap. In fact, it probably doesn’t make sense to raise money if you (and/or your team) are able to write some or most of the code yourself to generate the first revenue.

Put another way, why would you want to give up control of your company for a small angel round? The second you accept the term sheet, you’ve picked your path. It will be challenging to change it, as you need to convince others. If you bootstrap, you are in control of your destiny. That, and the fact that you don’t need a $100m exit to change your life. If you sell for $10m bootstrapped, you will often pocket more than you would at $150m if you take VC money (as you likely be at Series C at least, and are heavily diluted). You will, on the other hand, make a lot of LPs and fund managers rich if you sign that term sheet and end up selling. I’ve seen entrepreneurs close $100+ million exits and walk away with just a few hundred thousand, and bootstrapped businesses sell for just north of $10m where the founder kept it all.

The worst of both worlds is to raise money at shitty valuations, get a small amount of money, and yet live like you're bootstrapping (yes, I’m looking at European angels/VCs). If you're raising money, and they tell you that your salary should be rent + 10% or whatever, do yourself a favor and walk away.

It’s one thing to be broke while bootstrapping your own business (I’ve been there), but there’s absolutely no reason to do that while making someone else rich.

Bootstrapping Lessons, Chapter 1: YippieMove

While still in college in the early 2000s, Alexander Ljungberg and I created our first business called YippieMove. It was an email migration tool that targeted students. The idea came when graduating, and I realized my account would be shut down and my email would be wiped (this is probably no longer a problem). The idea was to offer cheap email migration for students ($10). As an experienced entrepreneur, it’s easy to point out countless flaws in our plan, but it did give us a taste of fundraising in the valley. (My biggest regret from this was probably not applying for YC, as we would have been in the same cohort as Airbnb.)

Fast forward a few years, and we ended up pivoting to self-served email migrations for SMB and colleges (we had Harvard and a few other big names as customers). In the end, it was a business that flatlined early. Our only saving grace was that we rode on a wave of Google Apps (now Google Workspace) adoption, and Google didn’t have any tooling for this.

What I learned from this endeavor was a few things:

1. Never build a business selling to students. Their willingness to pay is minimal at best and they don’t value their time.
2. Channel sales made our business viable (shout-out to Crisantos H. , Rob Naficy et al that we were working with).
3. Marketplaces are a powerful sales channel for small niche services. In today’s world, where G2/Capterra is fully gamified, I’m not sure where that leads. Back then, Google's own listings drove a large part of our revenue.
4. Do Your Homework on TAM and GTM: The advantage of raising funds is it forces you to thoroughly understand your Total Addressable Market (TAM) and Go-To-Market (GTM) strategy. This exercise is invaluable. Often, developing the product is the straightforward part, while devising an effective GTM strategy is more complex. For us, the TAM for non-enterprise email migration proved too limited.
5. Establish a Recurring Revenue Stream: While our channel sales did result in repeat business, they didn’t scale as much as we needed. In hindsight, pivoting to a backup service — which some of our clients used us for (hello, Naval Ravikant :) — might have been a more sustainable model for generating recurring revenue.

I also got to know Kevin Henrikson , who (fortunately) passed on investing in YippieMove, but turned out to become a friend, mentor and board member for Screenly .

I’ll continue my lessons in Chapter 2 with my next experience with building Blotter.