Poor, Hungry and Creative. Bootstrapping a startup
Hi! I’m Alex, the Y-Productive CEO and co-founder. I bootstrap the company from my own pocket. Money is an extremely limited resource especially when you earn nothing, have a small child and a wife on maternity leave.
After 12 months of being an investor and co-founder, I still believe that a company should start “poor, hungry and creative” before growing like mad. Here is why:
- Poor. Limited money was the first challenge for the idea of Y-Productive. If I weren’t able to convince people to join my venture, then the idea wasn’t worth it. Try to convince somebody to become a partner or invest money in an idea and you’ll get your first validation of the idea. People who get paid for joining you are not counted.
- Hungry. For us hungry means lean and focused. It requires working smart as we don’t have the luxury of trying a lot of ideas or implementing a lot of features before our money runs out.
- Creative. One of definitions of the word “creative” in the Merriam-Webster dictionary is “managed so as to get around conventional limits”. It’s definitely about bootstrapping.
In this article I share essential ingredients which will ease the hard work of bootstrapping a startup. Our story is written with the sweat-earned experience of Y-Productive and our previous startups, so these tips may save you the time and money that we’ve invested to learn the hard way.
Mission and vision ain’t bullshit
“Solve your own pain” is good advice for aspiring startup founders.
It’s a good foundation to be able to answer the question “Why does your company exist except to make money?”. It’s easy to answer that with something like “we want to change the world for the better” at the beginning of a venture, but it becomes extremely hard to find sufficient energy to follow such an abstract mission when facing unavoidable bumps in the road. Each company should know when their winter is coming…
My own answer to the question above is “Y-Productive exists to improve the productivity of a digital worker “. This is our mission, our North Star.
Our vision of the future is based on the company’s mission, which is to ensure that the lives of our customers, through our efforts, have changed for the better. We designated our vision as follows:
“ A digital worker is able to do more within the same period of time as he is now equipped with tools and knowledge to improve productivity.He knows exactly how he spends his time and where he needs to improve. Social networks and low-output work will no longer consume much of his work time. He feels proud of himself as he has done a great job and still has sufficient energy left for out-of-office life”.
Note that mission and vision don’t answer the “How?” question. It’s not their purpose to define the way in which we solve the productivity problem of digital workers. The “How?” has changed lots of times during the lifetime of our startup because we talked to customers, we saw customers using Y-Productive and we have been coming up with better and better ways to solve the productivity issues.
Our mission and vision statements help us to align and focus all teammates at Y-Productive. When we make decisions regarding product features or listen to customer feedback, we shape all our conclusions through the lens of our vision. It allows us not to get into the deep waters of opportunistic approach. It is extremely dangerous as it drains a lot of limited resources and tears the company apart in every direction.
IMHO, opportunistic companies are those created mainly to make money. We can observe this tendency in Silicon Valley. It was created by companies that were started in a garage, with a mission to improve people’s lives. Now it is flooded with the “startup bubbles” created only to secure investment and then implode, solving no real-world problem and leaving no footprint. If your mission relates only to making money and nothing else — that’s a good sign to stop and think about your company’s “Why?” if you want to be something more than a short-lived non-memorable venture.
The most important job that the mission and vision do for us is that they provide us advanced warning of when hard times are coming. They unite the team. They are tiny sparks of hope which direct us. This is what startups are about, the faith and hope in pursuit of solving a certain problem and making money only by helping people, not cheating them. I am convinced from my own experience, that money eventually comes to such startups because they deserve it.
Bootstrapping vs Venture Capital
We decided to go the bootstrapped way from the very beginning.
There are three reasons for this:
- Productivity management software is not rocket science that wouldn’t take off without venture capital.
- Raising money is a full-time job that would affect our focus significantly.
- Having limited resources makes us more focused and creative. Focused means that we think several times before building something that our users don’t need. Creative means that we are able to make progress without spending money on it.
Of course, limited resources have their cons — like:
- The speed. It’s a real pain for us right now as we get tons of valuable feedback. We know where we should be heading, but we simply can’t get there faster.
- “Limited resources” mindset. It’s more tempting to make tactical decisions that seem to help us make money faster. That’s why we revert to our mission and vision statements all the time, but I am sure that we have made and will continue to make a lot of mistakes due to the mindset. The most scary thing about “limited resources” mindset is that you don’t even notice problems — you know, recognizing and acknowledging a problem is 80% of solution.
The biggest unexpected bonus of the bootstrapping decision was a natural filter for people who joined us. I think this bonus still keeps us alive as our co-founders’ faith in what we do is incredible. Yes, at Y-Productive every team member is a co-founder and we’ve put a lot of thought to achieve that.
Everyone is a co-founder
None of us receives any salary at all or receives bare minimum. Our designer Vasyl is rented out to other startups which can pay him a salary so that he can earn for a living — we call him “the one sold into slavery” :)
But everyone is satisfied with these conditions. How do we achieve that?
Here are the ingredients that make us stick to each other as the company endures this rocky ride:
- Full transparency. Everyone knows each other’s salaries and equity share. Moreover everyone knows why he receives that amount of money or shares and what he needs to do to get more or “be like that guy”.
- Involvement with all decisions. We are partners and we make decisions together. We hold each other accountable for decisions and, e.g., I am asked about the progress I make in my position of CEO as much as I am asking software developers about feature status.
- Dynamic Equity Share. Read this blog post for more details. In brief, we made a deal not to split and fix shares ahead of time, but agreed to a basic set of rules about how we would continually allocate shares according to the contribution of each partner. We contribute time and cash which is eventually converted to shares. Of course, due to differences in our experience, cash contribution and whether a teammate needs some cash for a living, we earn a different amount of equity.
Defining “everyone is a co-founder” culture was a big challenge for me.
I asked myself:
- What if people cheat the system and log more hours to get more shares?
- What if people know each other’s salaries and become jealous? What if they start being a little underhand having such knowledge?
- What if we waste a lot of time in endless meetings and no decision results if I involve people in this process?
- …and a lot of other “what if” questions.
The determination to follow this path came when I recalled my experience from times when I worked as a process consultant with small and big software companies. People always cheat the system if they consider the system unfair, no matter how complicated the rules that are invented.
In Y-Productive we worked out all our rules from principles of transparency and trust. Basically, everyone who joins us undergoes a thorough screening process to check if he shares our values and if he has the hard and soft skills that we require. As a result, a person becomes our partner which means we credit him with a great deal of trust and the right to earn equity. But if someone breaks our fundamental principles, it’s hard to regain trust and we wave goodbye to each other.
When we were starting, it took us a week to agree upon rules and set up the Dynamic Equity Split. It consumed a lot of time at the beginning of a venture when a team would have been better focused on Customer Development. But, this week spent working on agreements at the inception of a venture may save you a year in the future.
I made that mistake with my previous startup. I was too eager to make my business progress faster, talk to our potential customers, make new hires on the team and so on, so that I and other partners didn’t agree on any specific rules and policies. We just agreed about our equity share and that’s all. As a result we spent a huge amount of energy and time on internal fights. Making any progress was incredibly hard. Such a situation is insane, but pretty widespread — you focus on internal inter-people issues when your resources are limited and competitors are much more powerful. I am still regretting that lost year of my life. It was a tear inducing but valuable lesson to learn.
Summary
Being poor and hungry is a great gift to our startup. As a result of limited resources we have come up with an “everyone is co-founder” culture. The culture of mutual respect and cooperation has released incredible amounts of energy which has allowed us to focus on the most important goal, serving our customers. Our mission and vision serve as our North Star in hard times, it helps to shape our customers’ feedback. That’s basically how our extremely small team of 5 is making progress bit by bit.
We would prefer to stay small and serve a smaller number of customers, but exceed expectations and feel that we really help improve people’s productivity. This is a luxury of being focused that we don’t want to lose.
When you are a bootstrapped startup, a fight for life is what you do from day #1. Putting a highly limited amount of one’s own money into any high-risk business is not easy in any respect, from family matters to personal attitude to money. But after 12 months of being a founder and investor, I can say for sure that every penny is worthy of its investment when you do it with care.
