Why I chose customer-funded growth over taking VC money
It’s the first page in a familiar story. A college kid comes up with a clever idea and starts building it in his spare hours. He goes all-in to focus on building the product and works 80-hour weeks, keeping his eyes firmly on the prize. Soon, he’s creating pitch decks and dazzling VCs. The valuations soar. He’s a media darling.
That’s how you accomplish big things, right?
But this glittering narrative lures founders into a business world they might not be cut out for. It creates intense pressure and oversimplifies the concept of success.
I’d like to offer an alternative path, one that led me to build JotForm in one of the most competitive industries around online forms. We’ve been persevering for 12 years and counting, and we’ve done it without taking a single dime in outside funding.
So, here are my lessons from my customer-funded growth journey.
Let your day job support you
My interest in startups was sparked when I developed a free, open-source membership program for a student website. People started paying me for customizations, so I created a paid version.
I could have pursued this dream when I graduated, but I wasn’t ready. Instead, I got a stable job as a programmer for a New York media company and polished my product before and after the nine to five.
It would take me another five years before starting my own business. In the meantime, I was paid to immerse myself in new technologies and develop my skills as a programmer. My job allowed me to build my side project without any real-world pressures, secure in the knowledge that, because it wasn’t supporting me financially yet, I didn’t need to get it “right” straight away.
When I did go all-in, I was armed with the confidence and experience I needed, plus enough savings to get my business off the ground.
Find a problem, build a solution
The editors at the media company I worked for always needed their web forms customized. It was boring, time-consuming work. Every day I thought to myself, “Surely there must be an easier way.”
And it turned out there was. After plenty of trial and error, I developed a drag-and-drop form builder that you didn’t need HTML experience for. JotForm was born, and I worked on it for six months before releasing the first version in 2006.
Was I passionate about forms? Not really. But I knew life for myself and others would be easier with my product, and that prospect made me excited.
There’s a common misconception that success is born from an undying passion for what you’re building, plus a hefty dose of grit and determination. Passion is a powerful motivator. But if you don’t have a superior solution to a common problem, you don’t have a viable business idea.
With a problem and a solution, you already have a customer base and can hit the ground running.
Grow at your own pace
If VC funding is the speedy hare, organic growth is the tortoise.
Both options have their pros and cons. And in the lightning-fast world of startups, a certain degree of speed is necessary to keep things afloat. But the moment you accept a cash infusion, the timer on returns starts ticking and only gets faster.
Premature scaling is the number one cause of startup death: blowing money on new hires, shiny offices, fancy technology, and PR and marketing before a company really needs — or can afford — them.
With organic growth, there’s no timeline to follow or hockey stick growth charts to produce. And this creates a good deal of much-needed sanity.
But even if I’d wanted to raise capital, I doubt I could have secured it. I didn’t have the CV or the degree for it, nor the right type of idea. Securing VC investment is an arduous, complicated process that can take anything north of six months. When the ordeal is over, a tiny 0.05 percent of all startups walk away with funding.
I wouldn’t have stood a chance.
Instead, I used that time to refine my product and spread the word. I promoted my solution by emailing blogs and posting on technology forums. I didn’t spend any money, and I didn’t lose any sleep.
By the end of year one, 150,000 people had signed up.
Focus on profits from day one
VCs want to see big numbers in exchange for their money: surface-level vanity metrics like user acquisition and daily downloads.
These numbers tell you how popular a product is, but not about its potential for long-term growth.
I didn’t buy in, and my focus was solely on being profitable. To keep costs as low as possible, I decided to move back to my native country, Turkey. It wasn’t easy, but it meant I was able to hire my first employee, who helped me create the first paid version of JotForm.
Being frugal from day one gave me the security I needed; I never had to gamble on estimates and valuations. With customer-funded growth, the numbers can’t lie. Yes, it took time — lots of it — but that’s a price I was happy to pay for stability.
Bootstrapping has given me the most valuable asset I believe a business can have: freedom.
- Freedom to answer to no one but our users
- Freedom to build the business the way I want to, not the way investors want me to
- Freedom to do it without a co-founder
- Freedom to focus 100 percent on the product without distractions
But that doesn’t mean it’s right for everyone. Both routes have their benefits and their pitfalls:
- Independence from the demands of investors.
- Zero distractions: in the absence of outside influence, you can focus solely on your product, rather than building decks for the next investors meeting.
- You’re free to develop a product for a small, loyal subset of people, without pressure to appeal to the masses.
- Being accountable only to yourself gives you total autonomy.
- When it’s your own money on the line, you’re forced to be strategic, frugal, and ultimately more careful.
- Your cash flow may be erratic and unpredictable.
- Milestones take longer to reach, which may be detrimental in a fast-moving industry.
- Not having outside investors may affect your company’s credibility.
- Bootstrapping can highlight a founder’s lack of experience and resources.
- A personal investment may not be enough to get a business off the ground.
- You can skip a large part of a long process.
- A cash infusion can be the deciding factor in a business lasting or failing in a fast-moving industry.
- Being backed by well-respected investors can create the trustworthiness customers need to buy in.
- Startups work well in a state of progression. Raising investment keeps things moving forward all the time.
- You need to aim for perfection and scrutinize your business model and concepts down to the last detail.
- Presenting your ideas and raising capital can help you and your team build confidence.
- Unlike a bank loan, there’s no obligation to repay the money. If you win, the investor wins too. If you lose, they lose.
- The right VC can open lots of doors.
- Having vested interest in your success, a VC will want to give you the best business and management experience they can.
- It’s easy to overspend and hard to be disciplined. A young startup with a ton of capital may not have the right budgeting skills.
- Your investors own part of your company, giving them the right to have the final say in controlling decisions.
- You may be in danger of being ousted.
- VCs will put their interests before yours.
- Your company may not be ready for the kind of growth a VC will demand.
- If you have a solid product and a strong business model already, you could be giving away a large chunk of your company unnecessarily.
- Focusing on investors’ needs can be distracting and have a knock-on effect on a company’s operations.
- Trying to raise capital is time-consuming.
- Under pressure to scale, you can end up building a bigger team than your customer base requires.
- You need to control a certain narrative for your audience, which can be challenging for those without experience in public speaking or those who simply don’t like being in the public eye.
Originally published at www.techinasia.com.