Bootstrap: Get (oneself or something) into or out of a situation using existing resources.
I’ve always been a fan of this particular definition of “bootstrap” because it includes the notion of not only entering but also exiting a situation entirely of your own volition. To me, that is the key to making such an important business decision surrounding a startup endeavor — it’s not just how you start, it’s how you finish.
When I launched my first company in 2003 with my two partners, I had no idea what I was doing — none. Not unlike many startups, the first crucial decision we had to make was whether to bootstrap or finance. That answer shouldn’t be a reflection of your financial situation; it should be a reflection of your need for expertise, your confidence in your own abilities and your desire to guide your vision independently.
What kind of motivation do you really need?
Yes, taking on outside capital rather than putting your own chips in the pot can ease some of the initial (and long-term) pressure you will feel during the process. After all, when you use your own capital and drain your bank accounts to put everything into the business, if it fails, you’re broke. That’s pressure! And it's also motivation. Sometimes outside capital can feel a bit like Monopoly money. Obviously, if your business fails, you have to pay back your investors, but at least you still have your own cash to live on while you work out a payment plan. When you bootstrap, you’re all in. There is no plan B. And sometimes that is the kind of pressure and motivation people need to work hard every single day.
What kind of life do you want to lead?
When I bootstrapped my first business with my own cash, people would always ask me after a nice dinner out, “Why don’t you just expense it?” And every time, I replied, “Expense it? That’s my money!” I never expensed something that didn’t support my business. I never flew first class to meetings, and I never stayed in five-star hotels. That wasn’t the life I needed to lead as a business owner. I wasn’t about the showy perks. I was about building a great company. So if you want to have the luxury of a fat expense account to play with and all that implies, you can forget about bootstrapping; all those travel and entertainment funds come straight out of your own checking account.
Who do you want to answer to?
In the same vein as the expense account argument, if you want to spend company funds on a client dinner at Per Se, who would you rather explain that to — your investors or your mirror? In other words, bootstrapping allows you the freedom to make decisions — good or bad — without having to validate them to over-the-shoulder investors who may question why a $2,000 dinner serves the best interests of your company.
I was always willing to spend money to make money. I would host clients and vendors in luxury suites at Yankee Stadium. I would fly to Cleveland for a two-hour steak dinner. I would buy a new shirt for a prospect who spilled wine on his during lunch. I would spend what I had to in order to get the return I anticipated, and I didn’t have to explain that to anyone but my two partners. When you take outside capital, you need to prove to your investors that any and all expenses are valid. When it’s your money, make all the mistakes you want — though I don’t recommend this.
What kind of survival options do you want?
There will come a time when your business struggles, and maybe even comes close to failure. It happens to everyone who tries to do what we do. In that scenario, your financial foundation will greatly determine the choices you have and the decisions you make to survive and turn the corner.
If you have investors, it’s always an option to go back to them (or others) and ask for more money. This happens every day. Personally, I think that notion circles back to my first question about motivation: If you always know there are reserve funds available, will you ever truly operate with an appropriate level of fear, and will you ever really know how you and your team would respond in a dire situation without a parachute? To me, that’s when you see the best in people — their true nature and skill set — when it’s all on the line and there’s no way out but to fight. And when you’re a bootstrapped company with no interest in outside capital, that is when you play jazz — you improvise. When the economy tanked in 2008, my company nearly did as well. Our only option to stay afloat? Cut all executive salaries in order to keep paying our staff, and wait for the turnaround. It wasn’t easy, but it worked.
Getting In And Getting Out
A friend once asked me, “Would you rather own 100% of a $10 million-dollar business or 50% of a $200 million-dollar business?” To me, the answer is simple. The exit from my first company was a complete success, in my mind, not because we made money based on our decision to bootstrap, but because it allowed us the freedom to build the company the right way — on our own, through our collective hard work.
My mentors once said to me, “It’s better to go through life helping people out than counting all your money in a corner.” I asked them for help once — advisory, not financial — and they stepped up. Bootstrapping is not the easy route. Had I not listened to their advice, I’m sure I would not have enjoyed the success that got me where I am today and that led me to start yet another bootstrapped company.
Now let’s see how I get myself out of this one.
