Why Bootstrap? Part 2. Organic Growth
When you take VC funding, one of the core expectations is exponential growth. A lot of times, those expected growth patterns actually makes sense for well-run VC funded startups. The VC thesis is that most of these startups has already achieved product market fit, with either their own funds or through angel funding…and they now need the millions of VC dollars to pour fuel on the proverbial fire to really ignite their existing growth rate. Typically, this money is spent on marketing, sales, and scaling an already working product. It’s actually a great recipe for success when startups are ready for it and designed for it.
This article was originally posted on bootstrapology.com
The unfortunate part occurs when the growth is forced, and VC money is deployed before the startup is totally ready for it. When you have VC investors waiting for your growth chart to go up and to the right, startups typically do everything in their power to make that happen. It’s often a seemingly honorable thing to see…founders looking scrappy, clamoring any way possible for every additional user, sale, or sign up. When you have the pressure of millions of dollars of investment money, you tend to hustle your way to growth one way or another. The problem though is this growth rate is often contrived, artificially induced, and not sustainable.
On the flip side, one of the things I find most beautiful about bootstrapped startups is their innate necessity to grow organically and not artificially. Since self funded startups rarely have the problem of excess money, by nature of their cash constraints, they really can’t spend much on artificial growth. To keep the business running, the lights on, and food on the table…bootstrap entrepreneurs need to quickly figure out how to create something customers will pay for, and reach profitability. Most people call this stage “finding product market fit”.
Bootstrappers viscerally know the importance of product market fit. When you have a great product people want and need…you get paid; when your product sucks…you go bankrupt. Bootstrappers understand that by finding product market fit…the product actually begins to sell itself. As a result, there will be newfound market demand for the product, and the startup can justify building up a sales team to meet that demand. In fact, the new revenues will finance the expansion of the sales team…not from a magical money tree. Even marketing benefits because customers and outsiders will talk and write about the product, hence organic marketing occurs and reduces the need for costly paid marketing campaigns. Often, it’s constraints that brings clarity to situations…and with financial constraints, bootstrappers are adept at knowing where to deploy their limited capital for maximal result, and the answer is usually to focus on the product over everything.
In my opinion, the definition of a “product driven company” is a company that always prioritizes achieving product market fit above all else, even at the cost of short term growth cycles. The danger for venture backed startups is to skip this critical step of finding product market fit, and prematurely going to market with guns blazing. It’s hard to exhibit this initial patience and product diligence under the pressure of VC growth expectations. How dumb would a founder look when they have millions in the bank and their growth curve looks flat like a pancake?
I’m willing to bet if someone did a study of 100 startups, and researched which ones were the most product driven…it would be bootstrapped startups, or startups who held out for a long time before taking outside investments…long enough to have product focus as part of their DNA. Startups who take VC money early tend to never find that product sweet spot, and are often swayed by short term gain motivations.
Having a background as a product manager, product designer, and bootstrapper, I’m of course drawn to product driven companies that value the organic growth pattern as described above. Don’t get me wrong…I geek out on sales and marketing too, and have high respect for the importance of both. But I think the sequence of prioritization of sales and marketing, and the sequence of when they scale, is extremely nuanced and important. In my opinion, a startup needs to invest blood, sweat, tears, and time attaining product market fit first, before pouring any substantial money into sales and marketing. The latter needs to serve the former and act as a catalyst to a growth and revenue pattern that has already begun organically.
This article was originally posted on bootstrapology.com
