Every developer who makes a popular web or mobile app is eventually faced with a decision: They can either stick with the status quo or swing for the fences. These days, many people are taking VC and going big — but is that the right choice?
Despite growing competition from ReadItLater, which just raised $2.5 million, VC-backed Scribd and Apple, Instapaper’s Marco Arment is sticking to his now outside funding stance. He said even with the added company, he can make Instapaper work by focusing on his niche and executing.
99Designs acquired a devoted customer base, logged millions in annual revenue, and achieved profitable operations without taking on a dime of venture capital. I sat down with employee number one and CTO Lachlan Donald to find out how the company bootstrapped its way to profitability.
A session called Bootstrap Your Startup at South by Southwest 2009 provided valuable insight for the many web workers who are either embarking on their own online business venture or considering doing so.
Led by Bijoy Goswami, CEO of Aviri, and Marcy Hoen, founder of Austin Art Start, the focus was on bootstrapping, or a period of self-funding that many businesses choose to follow in their early stages – and, at times, later stages for established companies, which is referred to as “rebootstrapping.” The dynamic of bootstrapping was presented as sitting between the worlds of “cookie cutter” and “funding-driven” business models (see Slide 8 of the online slide show). Cookie-cutter businesses are those that require little creativity or innovation, such as purchasing a fast food franchise, whereas funding-driven businesses take money from investors with the idea of quickly reaching profitability.
The bootstrapped model, on the other hand, allows start-up founders to have maximum flexibility and creativity while seeking out the business model that will best suit the growing company. In fact, Goswani went so far as to present an opinion that some would likely disagree with: that founders who take venture funding are not true entrepreneurs because it is not their money being used to fund the company. The implication, then, is that creativity and innovation are curtailed from the moment of taking funding forward, because the primary concern is returning the investment to financial backers as soon as possible. Goswani cracked up the room by saying in a mock lecturing tone: “At a funded company, it’s not about your journey, guy.”
Read More about Bootstrapping Web Workers Get A Roadmap At SXSW 2009
Felicia Day, creator of web series The Guild, said during her talk at NewTeeVee Live that she had some major sponsorship on news on the way. Looks like it’s a bit more than just that: The Hollywood Reporter writes that Microsoft (s MSFT) has nabbed the exclusive rights to the second season of the series and will show it across the Xbox, MSN and Zune platforms.
Sprint (s S) will sponsor all 12 episodes of the season across the three Microsoft outlets and will have commercials attached as well as product placements within the show.
Day told us earlier this month that she rejected about 25 offers to sponsor the geek-friendly comedy, saying, “For me, an important part of the show is that I retain the rights to the show.” Her deal with the Redmond giant lets her keep the intellectual property rights to The Guild while collecting an up-front fee. This means that should The Guild follow in the footsteps of Sanctuary (another series where the creator held on to the IP) and move to TV, Microsoft won’t participate in any revenues generated from that.
Read More about Microsoft Locks Up The Guild
Greg Linden was one of the key developers behind Amazon’s recommendations system, which recommends books, movies, and other products to Amazon customers based on their purchase history. He subsequently went to Stanford and picked up an MBA, and in January 2004, he launched a startup named Findory, which offers personalized online newspapers. It’s hard to imagine anyone more qualified to make a startup like this a success, yet Findory shut down in November 2007. In a brilliant post-mortem, Linden says his big mistake was to bootstrap his company while trying to raise funding from venture capital firms — he just couldn’t convince them to invest. He should have raised his funding from angel investors instead.
Where to raise funding is an important decision every startup founder has to make. The three viable sources at the very early stages of a company are: Read More about Venture Capital, Angels or Bootstrap?
If you’re bootstrapping your startup, offshoring your web development is a great way to save money. But it’s also fraught with risk. Working with remote contractors makes it far harder to manage project development and communicate ideas. Taking proper steps to protect yourself is crucial.
I’ve been bootstrapping my e-commerce startup, Aroxo, for the last year and blogging about it for Found|READ and on my own site. My previous post explained how to use your network to build a quality list of prospects. Today I’ll tell you how to vet the list to select the right offshore developer. Read More about F|R Crib Sheet: How to Source Good Offshore Developers
Editor’s Note: Our latest “startup math” piece comes to you from Found|READ contributor Steve Nielsen. He is founder and CEO of PartnerUp , the online network that helps entrepreneurs find good business partners. Steve’s last post was a handy index of the major Web2.0 M&A deals in 2007: 100 M&A Deals. 100 Startup Lessons. It’s another great reference for you.
No matter the size of the venture, all startups need one very important ingredient to start, succeed and ultimately survive: money. Some startups get it from venture capitalists or angel investors. Some lucky ventures are even built with small-business loans and grants. But if you’re panicking because you’re not getting the financing you need from these sources, relax and follow in the footsteps of successful startups like Dell, Inc. or Craigslist, Inc.
The founders of these famous companies pulled themselves up by their bootstraps and invested in their ventures with their own money. Bootstrapping your business, the act of avoiding external investors, means going solo in the financing department, all the while–stretching your money as far as possible–keeping expenses to a minimum. Read More about Boot$trapping: ‘Spend it’ Like Dell & Newmark
Even though my company, Altos Research, isn’t actively seeking capital, I had breakfast the other day with a venture guy at Buck’s in Woodside, Calif. VCs can be very useful for strategic advice even if — or, especially when — you don’t want their money. Interestingly, we spent much of the time talking about why Altos should not take venture capital.
From day one my cofounder and I planned to bootstrap Altos, which provides real-time real estate market analytics, but it was really an intuitive decision. I left Woodside pondering how to express the logic behind our bootstrapping choice. I finally hit on the straight answer: taking venture capital actually reduces your odds of success.
I’m talking about your success as founder. This is considerably different than the ultimate success of a company. Maybe I’m romantic, but… Read More about My Case Against Venture Capital
Editor’s Note: Matt Rogers is the founder of Aroxo, a novel retail and exchange website based in London. Matt has been chronicling his founder’s experience, and sharing the lessons learned with Found|READ. Earlier posts include How to bootstrap Your Startup and Getting to Launch. His latest installment is about site testing, and how best to “iron out the kinks” prior to launch. Aroxo is almost ready…
Aroxo recently turned a major corner in its development: We moved from closed functional testing to using real live alpha testers — people who’d never seen Aroxo before. Without doubt, this is one of the most revealing, painful, and valuable stages in creating your start-up.
When launching anything you want to ensure that it works, but also that people find it easy and natural to use. Your [internal] functional testing should cover the first objective, your [open] alpha testing should cover the UI.
We employed four different tests to get Aroxo’s system ready for launch, each at a different stage:
1) Over-the-shoulder. To determine the sticking points; where the system confuses users.
2) Task-driven testing. To determine how well the system stands up on its own.
3) Goal-driven testing. Once you know your site is slick and functional, this is for discovering end-to-end flaws.
4) Beta testing. To test site’s marketing points and highlight future development opportunities. It comes at the very end.
Not only is each test different, but you get different learnings from it. I discuss each testing stage below.
Read More about Aroxo: The 4-Stages of Testing Your Web Product