Why Bootstrap When We Can Raise Money?

Everyone needs to bootstrap, if for no other reason than to learn how.

The definition of Bootstrap.

Noun:

1. Those two little leather loops you grab every morning before the sun comes up to pull on the boots that get the work done all day long until it is dark again.
2. That thing you grab on the side of your boots when you’re stuck so deep in the mud you can’t take another step without falling flat on your face.

Okay, I might have taken some liberties with that definition. Not exactly Webster’s version.

Bootstrapping teaches us critical skills necessary to overcome obstacles throughout the lifecycle of a SaaS business.

Discipline

It takes discipline to run a business and bootstrapping forces us to get up every morning and put in the hours. There is no escape hatch. No magic wand to wave. We must make payroll, pay vendors, and get product out the door. It must happen to keep the dream alive. Pull your boots on and get after it. All day. Every day.

Creativity

When your back is up against the wall with no clear way out, you must get creative. I’m not talking about “creative accounting.” That is another topic all together with all kinds of ethical implications. What I am talking about is cashflow. Creative ways to create positive cashflow. Negotiating with vendors on payment terms or converting to performance-based arrangements. Bartering with independent contractors to share value but protect cash. Negotiating with customers for extended terms with cash up front. It is amazing what ideas will pop up when a business is bootstrapped.

Profitability

Be sure not to confuse bootstrapping with profitability. Seems logical that to bootstrap a business must be profitable. Afterall, how else will it have the funds to grow? Great question! Profitability is reported strictly on the income statement (P&L). While cash is monitored on the statement of cash flows and balance sheet. A SaaS business can have positive cashflow and not be profitable. Likewise, a SaaS business can show to be profitable and still be cash poor.

Financial Models

Bootstrapping forces financial discipline as mentioned earlier. One of the most valuable lessons is the need to build financial models. Knowing your numbers is more important than ever when you are bootstrapping a SaaS business. Bootstrappers build models to connect the SaaS business KPIs to the income statement (P&L). Use it to forecast revenue, create “use of funds” projections for both revenues and expenses, track actual to forecast, and most importantly, tie it to cashflow.

Those lessons learned while bootstrapping your business will come in handy someday. Let’s say you raised a round or two, maybe you even have been running for a couple years with positive cash flow. But something happens. You lose a big customer. You have downtime and drive up churn. The economy tanks. It could be a number of things but in the end, you are burning cash like crazy! What do you do?

Reflect back on your times when you bootstrapped the business and get creative. If you have never bootstrapped, you may never have learned those necessary lessons.

Get up. Get after it. Do it again.

Build your product. Get some customers. Prove your model works.

Make sense?