When I started my rate comparison site, LowestRates.ca, we chose to not raise huge sums of money. Instead, we launched the platform with $150,000 and told ourselves if we run out, we're done. We bootstrapped and focused on selling our vision to customers, not investors. Here's why it worked for us, and why it might work for you too.
The case for bootstrapping
I should start by saying that it's not feasible for all companies to start with relatively little seed money and become profitable. Many ventures require costly infrastructure or technology to get the ball rolling. There's never a one-size-fits-all solution in business.
But for those companies that can afford it, starting with a set amount – and knowing that when it's done, it's done – drives you to be creative, resourceful, and to find a profitable way of acquiring customers. That's the crux of bootstrapping; it forces you to prove your business model because you don't have a cushion to fall back on.
In our case, we acquired customers through search engine optimization (SEO), or trying to get our site to rank highly in search results without paying for it. In itself, SEO doesn't cost much, but it requires expertise, effort, and plenty of patience. Done right, it can result in a slow, sustained build; only after two years did we see any real traction. But in the end, it worked, it was affordable, and now we have what no amount of seed funding can buy: a profitable customer base.
Nothing glamorous about it
Bootstrapping is hard. You find yourself questioning why you left your job, why you share a desk with a printer, why you traded your office for a basement, and why you haven't seen a paycheque in years.
Funds are tight and every expense comes with scrutiny: "Is this absolutely necessary? Is this going to get us to where we want to be?"
It's frustrating when nobody has heard of your company and you don't have the funds to invest in a public awareness campaign.
Family and friends ask when you're going to get a "real job," and the countless hours of work you put in don't yield the results you were hoping for.
There's nothing glamorous about doing things the old-fashioned way, but if you believe in your model and you stick to the game plan, you might just end up thanking yourself when things finally start to turn around.
The cost of investment
There's no question that raising funds can be helpful. It can help fast-track growth, attract top-tier talent, generate media attention, motivate staff, and spur partnerships.
But many companies don't require large investment up front, so it's important for entrepreneurs to weigh their options before jumping in.
Remember, when you get funding, you have to give something in return. This often means shares of your company. When you look at how you want to ultimately make money – selling, going public, issuing dividends, etc. – this means you'll have a smaller piece of the pie down the road. So ask yourself: Is the investment help now worth the smaller potential reward later?
Attracting funding can be more about the potential to drive revenue than about actually being viable. The problem here is that funded companies often haven't had to ask themselves the tough questions: Can I build this business in a sustainable manner? How can I acquire consumers profitably?
Lastly, when companies are focused on raising money and satisfying investors, they're not as focused on making money and satisfying consumers. What if the investors lose their money? What if they try to steer the company in a different direction? Frankly, these are the sorts of questions I've been happy to avoid. Drew Houston of Dropbox puts it best: "Being cash-flow positive means you control your destiny. Instead of being funded by your investors, you're funded by your customers."
Banking on success
Bootstrapping offers the ability to control your own destiny. You shoulder more of the risk, but you also get to call the shots; you have less money up front, but this forces you to develop your model and you retain a bigger piece of the pie. For some companies, bootstrapping is a strategy that could really pay off. For others, landing big amounts of seed funding is the way to go.
Ultimately, whatever route you choose, the key is knowing how and why you're going to be successful. Plan for it, believe in it, and never lose sight of it. Bootstrap or big bucks, your patience and persistence will always be your greatest assets.
Justin Thouin is the CEO and co-founder of LowestRates.ca, a Toronto-based company that compares personal finance products.