Bootstrapping: A Preferred Method

My company just celebrated its 5th anniversary. Wow, that was fast, its scary how quickly 5 years have flown by! I must first say that I am very proud of everything we have accomplished so far, and I am even more excited about the future. Reaching this milestone got me thinking more about start ups, growing companies, business in general, and my own personal experiences with my current company. After 5 years, its interesting to reflect back to the beginning.

The Start Up

We started Blue Sky back in 2001 with a few thousand dollars and a committment from a client on a large project. We launched as a web development shop that did everything under the sun. When we launched, my partner and I had several folks join us full time with our new venture. That was our first mistake. We had about 8 employees including ourselves. That is alot of mouths to feed, with very little money. To spare you all of the details (of course they are interesting but thats not for this post), 6 months into the business it was pretty much just my partner and I running the show.

Starting a business in 2001, people thought we were nuts. It was true, sales were not easy anywhere, but especially in the web development world since everyone was running and sticking their heads in the sand with the “dot bomb” implosion. Nonetheless, we were in business and were determined to figure out a way to make it work. We decided to shift the business from being a “web shop,” to focusing on a rapidly growing area, email marketing. My partner built the first version of our technology, and I started to sell us into advertising and public relations agencies as being an outsourced solution for their client’s email marketing initiatives. To me, this is when the company really began.

Bootstrapping the Business

The headline of this post is the core of what I want to cover. Companies that are grown organically and bootstrapped fascinate me. These are companies that do not raise any money and are grown and developed through cash flow and revenue, and you can be absolutely certain that we bootstrapped from day one. We never considered raising money back in the day, it wasn’t an option because everyones checkbook was on lock down as they watched their fortunes get smoked by speculative internet ideas. Back in 2001, if you had enough balls to launch a business, you were on your own. We were resilient, more than we even knew. I think many people would have thrown in the towel after the first 6 months of what we experienced.

For us, bootstrapping the business during these times came with many challenges and many sacrifices. We barely paid ourselves anything the first year, were on the peanut butter and jelly sandwich diet, just made the rent, couldn’t take our then girlfriends (now wives) out to dinner, and were extremely grateful for just being able to afford the simple things in life like coffee and lunch :-) However, in that state, we had one thing going for us, we had a service that companies needed.

So, after our extremely tough first year of over staffing, laying folks off, and changing our business model, we finally had a base from which to work off. Email marketing was growing in demand, and as mentioned we made it our core offering. Here is how it worked, I would sell the service, my partner would execute the campaigns, we would send a tracking report to the client, I would send an invoice and we would get paid. Hence the wheels of commerce began to turn and we slowly, but steadily, started to generate revenue.

This process continued to evolve, I closed more business, we sent more campaigns, we booked more revenue. We did this on our own and thats the key factor. We conducted business in what I believe to be the best way, we were providing a service, doing a great job and getting paid for it. Nothing was speculative, and most importantly we didn’t have to answer to anyone, we were calling the shots the entire time. The company began to grow organically i.e. through revenue and cash flow.

A Key Lesson

Those first 8 or so months taught us to really watch how we spent our money and where. Neither one of us enjoyed the experience of bringing a bunch of people on board just to have to let them go a few short months later. One of our advisors told us that we would be amazed how much the two of us could actually accomplish on our own before we needed to hire anyone else. With those tender memories of the first year in mind, we stretched that out as long as we could, working our tails off, and then we started to build out the staff slowly and strategically and only when the business demanded it. What that meant to us was, “we are hiring this person because we can no longer keep up with the volume of business we are pulling in while maintaining excellent customer service and continuing to innovate with our technology.”

In many ways still today, when the urge comes to spend money on something, those first 8 months are seared in our memories so well that we are naturally forced to think, “do we really NEED this?” During those times we learned what fiscal reponsibility and discipline are all about. We took those lessons from the first year and they have stuck with us.

5 years in, we are still operating and funding our growth through cash flow, and we are still a lean mean machine. We now have various functional areas within the company and team members who spearhead each of them. There is technology & product development, operations, sales & marketing, creative, account management & finance. Every functional area of the business is continuously being built out as we service what is now a large client base of product customers and service customers.

On the flipside of things, not having the luxury of capital has definitely slowed certain areas of our development over the 5 years. It goes without saying that with a million or two in the bank we could be doing things faster and could be further along in some areas of the business than we are now. That said, we are going pretty fast :-) This month we are launching the 6th version of our web based email marketing platform. I consider it to be a solid contender, feature for feature, with the big venture funded companies that we compete with on a daily basis. It is our belief that small companies can do great things, and if you look at the landscape today you can see that happening all over.

The Takeaway

So, after reflecting on where we came from, what does this all mean and what can be taken away from our start up experience? In short, many things. From an owner’s perspective, growing this business over the 5 years organically has really put us in a great position. We have a profitable, cash flowing business that is 5 years old with incredible year after year growth. We have no outside investors, no loans, no debt. There is no big board, no one telling us what do to, no one hounding us for monthly or quarterly revenue numbers and probing into our world. We can approach things on our terms, meaning we can, as we say, continuously innovate, experiment and adapt to the market in our own way. We are solely responsible for where we go and how we get there.

Depending on what your vision is for your company, and what your overall business strategy is, you may at one point in time need to raise money to accomplish certain things, i.e. an acquisition, expansion, etc.. The reason I point this out is that if you have a company thats already in business, is profitable and generating cash flow, you will be in a much better position to negotiate your required funding terms when it comes time to do so. You will be in a much stronger position versus the person who is looking for start up capital for a business that “could be.” Your negotiating on reality, and more importantly hard factual numbers. If you are in this position, the terms you reach with angel investors or a venture fund should be more favorable than not.

As far as we have come as a business, we still have ALOT of work to do to and the list keeps growing every day. One of my colleagues who has started and sold a business and is very successful will tell you “your company is always broken.” This is a great mantra to live by as an entrepreneur. You should never be satisfied, never get comfortable, never take your eye off your goals and vision, and never underestimate your ability to do amazing things. Continuous execution is the key to success.

For anyone who is interested, The Baltimore Sun’s Stacy Hirsch wrote a 3 part series on the first 8 months of our business start up period. These were the toughest times for us, and it was a very interesting experience to be very much in the public eye during those times (no pressure!). These articles were printed on the front page of the business section in Sunday’s paper and accompanied by photographs. Check out our story from her point of view (registration may be required):

New start-up’s owners hoping sky’s the limit
May 27, 2001

High-tech anxiety
August 12, 2001

Old blood rejuvenates dreams of younger men
January 10, 2002

Tags: business, entrepreneurship, entrepreneurs, startups, bootstrapping, capital, emailmarketing, advisors, investment, venturecapital,

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