Guest post: On Bootstrapping (yes, it exists)

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This is a guest post by Duane Jackson. A self-taught programmer with no formal qualifications, he started his first company after his release from prison in 2003. KashFlow was born in 2005 out of his frustration at not being able to find any user friendly accounting software for his first start-up.

On Friday afternoon there was a rip in the fabric of space-time and we got a glimpse into a parallel universe. A universe where bootstrapped startups are as mythical as Santa and the Tooth Fairy.

TechCrunch Europe guest blogger, Iqbal Gandham, worked through the numbers involved with starting a business and concluded that  it was impossible to do so without at least £50k of capital. The problem is in the numbers he started with – a small error here and a small error there are all compounded to create a very erroneous total.

Co-founders are NOT essential, you DON’T need to pay £200 a month for hosting. And if it’s going to take you 12-18 months to get a product out of the door then you’re dead before you even begin.

I officially started KashFlow, my SaaS accounting software business, in 2005. For the first 3 years it didn’t do much as my focus was elsewhere. It was only in 2008 that we really started to push things forward.

Last year, 2010, we finally hit that magic number: £1m turnover.

We’ve never taken VC money. The company was initially funded by a small loan from the Princes Trust, personal credit cards and lots and lots of sweat and 18 hour days.

Bootstrapping a business is very different to building a business with VC money.

Conserving Cash

Every penny you initially spend is coming from your own pocket. This makes you very cost concious and is a good habit to have and to keep as your business grows. We still buy our stationary at Tesco’s instead of Viking.

I suspect bootstrapped businesses get at least  twice as much value out of a pound coin than VC-backed startups do.

Generating Cash

Then there is the urgency to generate cashflow. If you have £10m in the bank you can leave worrying about generating turnover and profit  until next year. Or maybe the year after.

But when you’re looking at an overdrawn bank account and borrowing money from friends to cover the rent (thanks, Lucy!) it really focusses your mind on getting the money coming in.

I’m betting bootstrapped businesses get a product released and generating cash at least three times as fast as their well-funded counterparts.

Smart Hiring

If you have money in the bank you can hire the best (i.e. most expensive) people.

Bootstrapped startups don’t have that luxury. The early people who join a bootstrapped start-up are joining for the right reasons – not the great salary – and appreciate that every penny counts and they work accordingly.

I won’t embarrass my Sales Director by telling you her starting salary, but it’s not far off what our Office Junior is now paid. Her hard work can be directly attributed to half of last years turnover and she’s now paid accordingly.

My right-hand girl joined us straight out of school and was paid minimum wage – actually a lot less if you include the unofficial hours she worked. She knows every aspect of the company as well as I do and can keep everything running (and growing) smoothly in my absence.

Staff are (initially) cheaper, more motivated and work harder in bootstrapped startups than anywhere else.

Inventive Solutions

We needed hosting early on. We could have got it relatively cheaply – certainly for less than the £200/month Iqbal suggests. But due to the nature of what we do, shared hosting wasn’t appropriate. Thankfully, I met another entrepreneur that needed was paying £500/month to a streaming media company that were not giving him the level of service he expected.

So he paid us £400 a month which more than covered the cost of co-locating a server. And as we had very few users it comfortably handled our site, the database and his radio station and even left us some money left over.

Bootstrapped startups find inventive ways to get around the fact they have no money. It’s not begging or asking favours – it’s finding inventive win-win situations.

I’m not saying bootstrapping is easy, it isn’t. But then neither is spending a year of your life pitching to VC firms. The big difference is that when you  bootstrap you still own pretty much all of the company and you don’t have to answer to anybody.

So why the general negative attitude towards bootstrapping? I think there are two reasons.

Firstly, we don’t hear much about the bootstrappers – they’re quietly focused on growing their businesses rather than raising their personal profile.

Secondly, many of them exit early and don’t make it into the billion-dollar, household name category, even if they do make life-changing sums of money for the founders. There’s no shame in that.

Others, like FreshBooks and MailChimp, get a lot of traction without ever raising a penny of VC money. If and when they do, they’ll get much better terms than an unproven startup.

There are times when bootstrapping isn’t a good idea: If you’re launching a consumer product that needs lots of marketing to get anywhere; If you’re launching a tech startup and you can’t code; when your would-be competitors are all based on the freemium model, and you don’t have enough savings to ride out a few years.

I’m glad I live in this universe where bootstrapping is possible, I wouldn’t have it any other way.

  • Martin Smallridge

    Blimey… Weird to know that I don’t exist, or do I… Oh the quandry… :)

    There’s some truth in bootstrapping being considerably harder* (read: “massive understatement”) but the satisfaction of finally passing your patient wife/husband/partner/family-member in income and taking on the role of primary bread winner is a very satisfying one when the hard work pays off.

    It can be done santa, it can be done!

  • Lasse Koivisto

    Hey Duane,

    I liked the post a lot. I agree that bootstrapping is real, but something you wrote, that I also read at the text of Seth Godin about bootstrapping, is that it’s not a good idea to bootstrap a consumer good company. I’m sure it is wrong!

    As I wrote in the comments of Iqbal post, I have an example of this kind of bootstrapping in my family that worked. I think we take a lot for granted and think “Consumer good company. You can’t bootstrap it”, but never really thought about alternatives.

    Anyway, good text.


    Lasse Koivisto

  • Daniel Tenner

    Ah well, you’re really agreeing with Iqbal, you’re just saying that it’s possible to find that £50k in your own wallet.

    If you have the money to sit around for 18 months with no income until your startup starts making money (which is likely to be how long it takes, unless you’re building a really straightforward b2b with established sales channels), then you can bootstrap.

    Or, if you can fund yourself out of a job that pays you enough while leaving you with hours to spare every day on the business, then you can bootstrap, but your product will probably suffer a lot of out of this, compared to what it might have been had you gone full time. We’re talking about years of delay, which was the case for you, since you mention that for the first 3 years kashflow didn’t do much. Imagine where it might be had you been full-time on it since 2005…

    Most people with business ideas are not in situation 1, so they’ll end up trying for 2, and hobbling their businesses. Kashflow could be a £10m turnover business today if it had had its 3-year headstart.

    There’s a huge qualitative difference, for the product, between running a startup on the side of a full-time job, and running it full-time. The latter will require some funding, from yourself (if you have a high-paying job or have saved up for years) or from angels (who are nowhere to be found).

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    […] This post was mentioned on Twitter by TechCrunch Europe, Chris Fox, OliverOgg, Lasse Koivisto, Andrew Sinclair and others. Andrew Sinclair said: Guest post: On Bootstrapping (yes, it exists) – Great response from the founder of Kashflow […]

  • David Bonilla

    Whoa! I have a strange deja vu feeling… ;)

    Our own fresh (today morning) spanish version from Linking Paths (served in English thanks to Google Translate):

  • Iqbal

    Hi Duane

    I actually use Kashflow, and like the product very much. I have a question, how much did it cost you (living, food etc) and your team before you git revenue, or should I say revenue to cover your food, living etc ?


    • Duane Jackson

      Hi Iqbal,

      Great to hear you’re a KashFlow customer, and even better that you really like it. Some nice updates coming this week too.

      Hard to say what it cost really. The “team” was just me and my sister-in-law (now uber-PA and General Manager @MissKashFlow).

      I benefited from the New Deal scheme which allowed me to claim benefits, including housing benefit, for 6months whilst I got started. Plus consultancy work/freelance development brought in cash. That, along with spouses (low) salaries covered basic living costs. We hit revenue within a few weeks of the product being released and we only increased expenditure as income increased.

  • Bootstrapper

    Bootstrapping is scary but having spent sometime trying to raise seed funding from of Angels and VC’s, bootstrapping is preferable. Nearly all of the VC/Angels I spoke to asked me to”show traction” or in other words invest my own money, build the site, get customers and show some revenue aka de-risk the whole project – and then they would consider investing.

    Even then they will still want 30% of your company and offer you a fraction of the investment a similar startup in the valley could raise at the same stage. So if I could raise £100k+, I would expect to see the US counterpart/competitor raise $1m+

    UK/European VC’s have very little appetite for risk and have little foresight to new business models. Would a European VC/Angel ever have funded twitter to the level of growth without demanding a revenue stream by now.

    Often UK/European startups can see the same ideas as our US counterparts but fail to raise the funding quickly enough or big enough to execute. Sometimes I think our European friends in Germany/France have a better chance at success due to the language barrier.

    Many German startups are copies of US ideas but due to the language barriers can grow in their own country whilst remaining under the US radar. – Xing, Spreadshirt, Qype, MyCityDeal etc. and so might be able to take longer to grow while bootstrapping.

    UK startups sadly cannot manage this language barrier trick and so we will see a number of failures this year or hopefully they will be acquired. e.g Keynoir (Groupon), Skimlinks (Commission Junction), Huddle (Microsoft), Rummble (FourSquare) etc.

    So my advise to UK startups. Keep of the US radar by NOT getting written up on (EU version doesn’t matter no one in the US reads it), NOT attending Seedcamp and NOT going to LeWeb.

    And if you can manage to bootstrap and raise funding under the radar you might make it. Good luck!

  • Frank Carver

    Excellent article Duane. I’ve worked for VC funded companies, and I’ve worked for bootstrapped ones. Every one of your points is right on the button. For several years I worked for a successful bootstrapped _hardware_ company.

  • asinclair

    Great article Duane, really enjoyed it, and good response to Iqbal’s post.

    I am currently bootstrapping, have been for 2 months now, and loving every minute of it. It is a struggle, and a worry with no income, but you have to just focus on the product you are building and look forward to the day when it starts paying you back.

    I think there is a negative perception as people just look at the numbers and don’t look at the benefits, even if it ends in failure. You can learn new skills, generally have very flexible working hours and conditions in the early days, and can gain great satisfaction knowing that everything you do and every line of code you write is getting you closer to becoming a profitable/sustainable business.

    Many people take sabbaticals, end up being made redundant with a fat redundancy cheque, or even have managed to save up to afford some “time off” to try bootstrapping. So, it is not nearly as mythical as Santa or even the tooth fairy!

    • Anonymous

      Hi – I’d be interested to know what your startup is all about – and how you fund your business/general living expenses. I have an idea for a startup which I’m dubious to get going as for the costs involved and currently only live on a part-time salary ( although a slightly modest one ).

      • asinclair

        Hi Laurence, my startup is building a music/event product – it is self funded through savings; savings that are used for my day-to-day living expenses – the startup itself has no overheads, we get free software from the Microsoft BizSpark program, and work from home. We hope to launch and start monetizing asap!!

  • Jeff Nutbeem

    Excellent post. I thought very much the same when I read the original article yesterday. It was also interesting that he couldn’t seem to contemplate running a business outside London.

  • Funded

    From Duane’s latest press release: “KashFlow has received two rounds of venture capital funding from their now chairman, Lord Young of Graffham. Lord Young is a former Secretary of State for Trade & Industry and ex Chairman of Cable and Wireless.”


  • Benjamin Yoskovitz

    Duane – Just want to thank you for linking to my post on about early exits.

  • David | Cleartext

    A really good article and similar to how we started Cleartext, from home, no funding, working hard. Funnily enough we started in 2005 as well, now we have hundreds of clients in both the UK and Australia.

  • Ian

    Duane – great response to Iqbal and your comment about why bootstrappers and their companies are not more in the public eye is spot on – theres little time for self-promotion to our peers when there are customers to find/support and bills to pay.

    My SaaS company EventHQ has been going for 4 years now, bootstrapped through consulting work. Bootstrapping isn’t for everyone, it takes longer and the competing pressures of researching/building product vs earning money (vs personal/family time) are hard to balance, but it can be done and its great fun doing it.

  • Frank Carver's Punch Barrel / Tech Crunch On Bootstrapping (yes, it exists)

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  • Mark Spoff

    We’re bootstrapping and in our 6th month – we launch *softly* soon. We started talks with VC’s but soon began to feel that we would lose our ‘ideal’ so backed out after making some good progress.
    We don’t regret it – and continue to make every penny count. We’ve built a web framework, web-app, iPhone app and completed our branding. It’s our first start up and we hope to have a long happy life running it – so far as possible – without diluting our control or vision.

  • Ahventure

    As an early stage VC, I found that post quite good. We should aim, as a VC, at financing great Ventures with just early stage amounts of cash.

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  • Epcohers1

    Bootstrapping in business means starting a business without external help or
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    cash flow and are cautious with their expenses

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    Survey for people who have already bootstrapped a company (successfully or
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