Author: Saurabh Singla, Co-founder & CEO at LazyLad
Recently, India has been abuzz with startup activity and with a fast evolving ecosystem, the space is only hotting up further. From 3100 startups in 2014, the number is expected to touch a whopping 11,500 by 2020.
With the ecosystem opening up, it is common to hear about several start-ups that are still in the concept stage, walking away with lucrative investments to pursue their dreams. While the trend may be encouraging, what is also true is that only a miniscule percentage of start-ups actually receive funding. But simply because the others are unable to find success with investors doesn’t mean that they should lose hope and stop believing in their product or idea that they were so passionate about. Bootstrapping is a great option too. It’s just that with so much noise around funding, most entrepreneurs get carried away and ditch this route, since toying with another person’s money seems to be a safer bet.
Ideally, every startup should bootstrap for as long as possible and at least get to a stage where it has developed the product, tested the concept and generated enough traction before they even think of looking out for investors. In fact, the right time to actually seek investments is when the startup has done a reality check and is fully confident about the product (not just in terms of the concept, but the actual execution) after having gone through the grind with the limited resources at hand, and is ready to scale up multifold.
With sufficient traction to boast of and a firm conviction in the product/idea (evident from the fact that you were not afraid of putting your own money behind it), investors are now likely to take you far more seriously and chances are that you can negotiate a far better deal than you could have bagged otherwise. Moreover, with the business already on a sound footing you need not jump at the first investment that comes your way. You will be in a position to hang on long enough to find the ‘right investor’ and not just ‘any investor’; someone who understands the vision of the company, has the expertise to guide you in the right direction, shares the same values and with whom you can connect and take the business to a whole new level.
A lot of the businesses that are global giants today started very small as bootstrapped ventures. Some of them include Apple, Coca Cola, Microsoft, Dell and HP. In India startups like Flipkart and CaratLane, all faced similar challenges when starting up. They bootstrapped their way to get traction and then got venture funding, a story that has made and will continue making waves for years to come. In fact, Flipkart is now valued at an astonishing USD 15.5 billion!
The benefits of bootstrapping outweigh the risks
This “prove yourself” route is undoubtedly difficult, as the decision to launch your company with your and your family’s/friends’ savings at stake will put tremendous pressure on you mentally. You will have to minimise your expenses and dig deep to stretch your resources to the limit. But the good part is that since you will be paying your own bills, with no external financial help, you will be driven to start generating revenue as quickly as you can. There is no other choice! For a startup to reach this milestone alone is a huge success and with your energies focused on revenue, rather than preparing investor pitches (which is a far more time consuming process than you can imagine), chances are you’ll get there quicker.
Moreover, bootstrapping at the initial stages of the startup provides founders with time to innovate, learn, fail and pivot soon so as to find the product market fit which is vital for startup’s success. But once you raise funds it becomes difficult to pivot because the focus changes from getting the right product market fit to scaling up. Without a viable model and strong product the startups cannot survive for long.
To add to it, getting investors very early on in the business would mean giving them a stake in the business. Easy as it may sound, it means you are no longer in charge. So, while you may have your vision clearly chalked out and know exactly what is best for the business, you are no longer in control and will need to seek their approval on all business-related decisions, which could slow down the momentum or sometimes even lead to your own vision getting diluted.
For startups, getting venture capital is a validation of their ideas and efforts and injects the much needed funds for its stabilization and growth. But if taken too early, it can split up ownership, kill autonomy, and dilute focus and adaptability. Above all, remember that funding does not guarantee success. If the concept and business model are great, there’s no stopping the startup from becoming successful.
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