Bootstrapping in Unicorn Land
Why you should consider not taking investor money.
I moved to San Francisco about 4 years ago. I was working for a startup at the time that had a lot of momentum and a lot of funding. We decided to move everyone from NYC to the new San Francisco office.
I was excited. I had lived in New York my entire life and was eager to explore a new city. I knew I wanted to build my own startup and that going to SF would put me right in the heart of things.
Upon arrival, I immediately began living the San Francisco startup life. I only ended up working for that company for a couple more months. I consulted for a bit helping companies build communities, then wasted no time starting my next company, Feast, with my roommate Nadia.
Feast brought me much deeper into the San Francisco startup life. We were accepted into Batch 6 of 500 Startups and spent the next few months working around the clock to set our company up to be able to fundraise (the whole point of the accelerator).
That didn’t work out too well. I must have spoken to over 70 different investors. A couple said yes but then backed out. Everyone else just said no. Looking back, I don’t know how we could have expected anything different. We weren’t a very good investment.
What happened during that time was we found ourselves building a company in order to fundraise…which is completely backwards.
Only after we took a hard look at ourselves, and said fuck it… let’s just build what we want to build, did we actually create something of value.
We ended up selling the company, nothing crazy but it was enough to get everyone their money back and make sure the product could continue to teach people how to cook (Feast is now Foodist Kitchen). It’s now teaching thousands of people under the care and improvements of Darya Rose.
I learned a great deal from building Feast. I didn’t realize exactly how much it would shape my approach until starting my next company, CMX.
Right before the sale, I told my friend Max Altschuler about an idea for a conference for community professionals called CMX Summit.
The idea was simple: after talking to hundreds of people who, like me, were building community for businesses, I thought we needed a dedicated conference. At the time, it wasn’t something I saw as a huge business opportunity. It’s just something that I thought needed to exist.
Max had recently launched a conference of his own and offered to partner up to get CMX Summit off the ground.
The response to CMX Summit was far bigger than we could have imagined. It sold out in just five weeks with people flying out from all over the world to attend. Before I knew it, Nadia and I had sold Feast, and I was working on CMX full time.
But this time I did it differently.
We didn’t raise any money. We were cash flow positive from the day we opened up ticket sales. Raising money from investors didn’t cross our minds. We knew what we wanted to build, and felt confident that we could pull it off.
Now two years later, CMX remains completely bootstrapped. On top of the conference, we built a publication, professional training, research and an online community of thousands of community professionals. In the future we plan to develop software to further serve community professionals.
The business is doing well. We’re projected to bring in close to a million in revenue this year, we’re profitable, and the team is very slowly growing.
Bootstrapping in the Land of Unicorns
Being an entrepreneur in San Francisco that hasn’t raised money, and isn’t trying to, has been an interesting and eye opening experience. Sure bootstrapping comes with a wealth of real challenges, but also opportunities.
What’s weird isn’t that people don’t see the opportunity, it’s that no one seems to even consider it as an option.
It feels a bit like everyone around me is under a spell, locked in a standard that may not be in their best interest, but they don’t see another way.
To give you an analogy, I recently quit drinking for two months. Not drinking really opened up my eyes to how much of my life involved drinking alcohol. Not because I necessarily wanted to, but because that’s just the way things were. Most of my time with friends, work events, experiences, all included having a drink in my hand. It’s always been the standard. It’s expected.
Taking on the challenge of not drinking showed me that my standard was flawed. Sure there are some situations where drinking really adds to the experience, but in most situations, I didn’t need it! I just drank because someone offered it to me, or because everyone else was drinking.
That’s kind of how it feels bootstrapping in this startup world. Everyone is drinking capital in situations where they don’t really need it. But it’s the standard, so it’s okay.
When you want to start a business, you raise a seed round, or apply for an accelerator. That’s just how it’s done, right?
With the exception of the last 6 months or so, we’ve seen an increase in funding in almost every quarter since 2012.
Perhaps the current “market correction” we’re seeing will force companies to rethink the standard, but there’s a long way to go.
Raising angel and venture capital funding has become so commonplace that it’s fairly difficult to find a single company that hasn’t raised money, or isn’t trying to raise money in the valley. Seriously, try to think of one and see how long it takes you.
It’s celebrated when someone raises money. Articles are written about you and people look at you as if you’ve already succeeded.
I often find myself envious of my friends who raise $2 million seed rounds with no problem before even launching a product. I imagine what our small team could do with that kind of money…the impact we could have.
But then I take a step back and think about what that money really represents.
Raising money means that the kind of company you can build is now limited.
In most cases, it means rapid growth or nothing.
And therein lies the problem. If the standard today is to raise money, then the standard is that only companies with a rapid growth model will succeed. In reality only a small percentage of companies actually fit the mold for VC funding.
Sure they adapt their presentations to make the opportunity look bigger. They size the market, they talk about their growth plans etc. But the reality is that most of the companies in the valley are building companies that have the opportunity to impact many lives for the better, and may even change the world, but will never reach a $1 billion valuation. And they shouldn’t.
Not all problems worth solving are unicorn problems.
If you’re taking VC money, then the expectation is that you’re working to be a unicorn. The problem is only .07% of startups actually become “unicorns”.
Of that other 99.93%, I wonder how many of those companies could have been successful companies that could have helped millions of people, without being worth billions of dollars.
Our goal at CMX isn’t to be a unicorn. Could it happen? Sure. Opportunity usually leads to more opportunity. But we’re not building our company to become a unicorn, we’re building it to solve a problem we see in the world.
Our goal is to build a long lasting company that helps people on a real level, is built on solid revenue and where the team finds extreme levels of meaning and balance in their work.
Taking funding could make building that kind of business really hard. Funding almost always leads to more funding, which leads to more funding. Taking funding means that the decisions you make for your company have to work toward that promised outcome. Before you know it, you’ve raised a B round and anything less than a hundreds of millions exit becomes a “failure”.
So we’ve been bootstrapping…
It’s incredibly difficult to build a business with no outside capital.
We’ve had to do an insane amount of work with only two, now three, people. I didn’t take a salary for the first 2 years (I got paid a percentage from each event’s profits). I’ve come dangerously close to losing tens of thousands of dollars of my own money.
But it’s also had a lot of value. It’s forced us to be relentless in choosing what to focus on and what to say no to.
It’s forced us to only hire one person at a time, and that person has to be so obvious that they’re worth our entire budget. There’s no room for anyone who can’t execute and isn’t a perfect cultural fit.
It’s forced us to focus on revenue but in a way that aligns with the goals of our community, rather than a 10x promise to investors.
It’s given us freedom. We can build this company exactly the way we want to.
So while I’m jealous of my friends who bring in $2mil seed rounds, I’m also extremely proud of what we’ve built, and recognize the benefits of bootstrapping.
Don’t get me wrong, we’re ambitious. We want to build a company that will change the way business is done on a fundamental level, and we intend to generate healthy profit along the way. But we’re going to do it our way.
Who knows, we may even raise money one day. We’ve received offers. But it wouldn’t be because it’s the standard, it’ll be because we’ve made a thoughtful, strategic decision for our business.
Changing the standard…
For all the info out there about VC funding for startups, there isn’t much available as far as bootstrapping or anything in between.
You don’t see many people writing about bootstrapping, aside from Jason Fried and few others. And there seem to be very few alternative options to angel and VC funding for an entrepreneur looking for capital.
We need more of this conversation.
I’ve seen and personally experienced too many companies who raise money and as a result, lose focus on what’s important. Money can buy you top notch talent, a beautiful design, a nice office, a slick product…but it can’t replace the hard, sometimes tortuous work, of staying razor focused on solving real problems, for real people.
Funding or not, that’s what great companies are built on: A focus on solving real problems, and a standard of excellence. Money can’t buy that. In fact, in many cases it just distracts from it.
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Thanks to Jonathan Howard, Roy Povarchik and Nadia Eghbal for their feedback on this post.