Bootstrapping isn’t for the faint of heart
Founder Friday is a weekly guest post written by a founder who is based in or hails from the Silicon Prairie. Each month, a topic relevant to startups is presented and founders share lessons learned or best practices utilized on that topic. July's topic is bootstrapping.
Software developers are usually very good problem solvers. So are entrepreneurs. I think a lot of software developers want to start their own business, but they struggle to find the right business idea and problem to solve. I have always loved the challenge of a big problem and I am a third generation entrepreneur. So I would say it was in my blood. But like other developers, I always struggled with what kind of business to start. Lucky for me, one day the opportunity presented itself.
While I was in college I sold computers at Sears. On one random day a car dealer came in to buy a computer. He also needed some help with some software he had. Next thing you know, I was creating software for his car dealership and getting my first real world experience. In 2003, about 3 years later, that same car dealer introduced me to someone else who also had a problem he needed solved. He was simply trying to upload pictures of cars to the Internet. He had several dealers lined up to use the product if I could build it. I had finally found my opportunity, and what would become VinSolutions was born.
I was working at another company and working every night to create the software we needed. After months of work, we finally had a first version that was usable and we started making a few hundred dollars a month. It was an exciting time. I kept working my full time job for several more months as the company slowly grew. About 2 years after we started the company I was finally able to quit my job and work full time making almost as much as I did at my previous job. We slowly grew the company and did a good job bootstrapping the company. Our expenses were very low since I was writing all the software and my business partner was doing sales and everything else.
Bootstrapping a company is kind of like golfing in the rough. It doesn't mean you can't be successful, it just means the journey is a lot harder. VinSolutions never had an angel investor or "Series A" round of financing. We had my VISA, my Mastercard, paying customers and a lot of sweat equity. The first two years I never made any money from the company. I had two personal credit cards maxed out and was working 70-plus hours a week. Years later we joked that we were always golfing in the rough because the company never had any money. Being in the rough forced us to cut a lot of corners. The lack of capital forced us to work harder and do more with less. We always wondered what it would be like to golf from the fairway. If we would have raised capital could we have had a better product and grown that much faster?
In 2008 we decided to try and raise capital so we could grow the company faster, pay off debt, and stop cutting corners. Unfortunately, it was during the banking recession. GM and Chrysler were bankrupt and the automotive industry seemed like a grim place to be. The banks weren't loaning money and being in the automotive sector didn't help. We met with several banks trying to get a simple line of credit and didn't have any luck. We finally secured a small line of credit by doing personal guarantees. Oddly enough, the recession actually helped us and it fueled our growth. We could provide car dealers with better technology and save them money. We ended up being in the right place at the right time and our sales were booming. We always joked that we wanted to have the problem of having more sales than we knew what to do with. Like every entrepreneur, we wanted that problem. We got it. Rapid sales growth caused us problems across the entire company. We had major backlogs in our implementation department and strained our ever growing support team. We were buying servers non stop and finding scalability problems in the software on a regular basis. In 2010 VinSolutions was on the Inc. 500 as the 33rd fastest growing software company.
In 2010 we now had an industry leading product and rapid sales growth. We were hiring people every week and trying to manage cash flow the best we could. We always needed more office space, desktops, servers, or something. We were growing so fast that we weren't very profitable as we kept reinvesting back into the company to try and keep up with the growth. So we decided to raise capital from VCs. We set out to sell about 40% of the company to raise growth capital and take a little money off the table for the current shareholders. We ended up getting some fantastic offers from multiple VC companies and strategic industry investors. (Ironically enough, through the several month process of talking to VCs, we had finally turned the corner and became profitable for the first time and no longer even needed to raise capital.) We ultimately decided to accept an offer from AutoTrader.com in April of 2011 to sell the entire company. They made us an offer that we couldn't refuse.
Bootstrapping the company definitely affected the management team and culture of the company. The lack of capital caused us to do things like cut our monthly prices in lieu of higher setup fees to get much needed cash up front. That hurt our long term revenue. We didn't always hire the best people because we couldn't afford top talent. It mostly caused us to be very reactive. We couldn't afford to hire extra support people and train them in advance of new clients coming on board. Instead we had to use the revenue from the new clients to hire the new support people. We were always behind. The company had a culture for being firefighters. We did whatever it took to get a new account or keep an account from canceling. Although, that is what every company should do, we were just forced to do it to survive. It forced us to work smart and hard.
Bootstrapping a company can be a very stressful thing to do. It isn't for the faint of heart and I don't think that everyone can do it. It takes a lot of patience and you have to compete with competitors who typically have a lot more resources than you do. You have to work smarter and harder than they do. The risk of taking a large investment is it can remove the urgency and hunger that you had when you were fighting to survive. My advice is that if you raise the capital, make sure you keep your head down and keep working. Don't even stop to celebrate it. At VinSolutions, when we had huge wins and hit huge milestones, we never stopped to celebrate. We kept our heads down and focused on the next goal. We were competing with billion dollar companies. We didn't have time to party. We were hoping our competitors were.
With my new company, Stackify, I am able to self fund it and get to finally experience what it is like to hit the ball down the fairway. That creates a new set of challenges. We have to make sure we don't waste our shots now that we are on the fairway. We have to keep our heads down and follow through or we will end up back in the rough. We have to remember how hard it was to be in the rough and the lessons we learned while we were there.
Credits: Photo courtesy of Matt Watson
About the author: Matt Watson is the founder and CEO of Kansas City based startup Stackify. Stackify provides a DevOps software service for software development teams. He was also the co-founder and CTO of VinSolutions that was sold to AutoTrader.com in May, 2011.
Find Watson on Twitter, @mattwatson81.
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