A couple of years ago, our CEO said no to millions.
No, this wasn’t a multi-million deal from a customer to buy software services from us (he probably would’ve said yes to that) nor was it an startup money from an oil sheikh in exchange for the hand of his firstborn daughter (he still may have said yes to that) — this was an offer from a competitor to acquire the first product of the company he and his partner founded, SurveyGizmo.
He’s never taken venture capital or investment money – apart from one round of limited angel funding – so he still owned all the equity. All those millions would have gone straight to his pockets (after taxes).
Most people told him he was Crazy, capital C crazy. That’s a lot of money, and in the startup game that’s kind of like winning Monopoly – acquisition and a high-value exit is the point of the game to most startup founders.
But he says, he would just have started a company that was doing the same exact thing that he is doing right now. A web company that is making the best software as a service as we can possibly do, in an agile and customer-focused way.
That was his bootstrap genesis.
So here is the bootstrap bible that he’s written with us as a company that we now want to share with all of you. (Or how to do what you love without going into so much debt that the sale of your firstborn children to oil sheikhs starts to look attractive.)
Nine Commandments of the Bootstrap Bible
- Thy Business Shalt ALWAYS Be About Thy Customers
Get customers now; not later.
When you start a business, any business (could be a software startup, could be a pizzeria), you need to:
- Find a customer
- Get them to buy your product (this may also mean building your product for them after they’ve bought it or shared some of the costs for it)
- Then get them to like it
Your first product, like the first pancake or pizza, will not be perfect.
The recipe, the software UI, or the cooking / software methods might not be quite right yet. But that’s ok.
Because you should be iterating, or changing your product to always be better for your customers. (See Commandment #8).
Building Your Product Fast + Building What’s Important to the Customer
To get customers, build your product. This may sound easy, and it probably is for pizzerias, but for a lot of software or hardware ventures, building something can be complicated. For these kinds of complicated products or services, start simple, and keep it simple.
Pizzerias don’t have to start out with 100 different kinds of signature pizzas. And software doesn’t need to necessarily have the entire bucket list of features that customers want. Figuring out what are the most essential features of a product (cheese, flatbread, special sauce), that’s about asking the right questions. (See Commandment #3.)
Be Your Own Customer – Eat Your Own Dogfood
Be your own customer. You can even be your first customer, and in fact a lot of startups and businesses solve the problems that their founder was facing and couldn’t find a solution for. There was this documentation problem, and you couldn’t find off-the-shelf software that really met all of my needs – so you could go out and write some software for yourself. Or, there aren’t any great pizza or pancake places in Colorado – so you went out and started you own Pizza-Pancake Parlor (this never actually happened, but the other thing our CEO really did – (www.helpgizmo.com)).
Indeed, you should always, always eat your own dogfood (or pizza, or pancakes, or software). Because that’s the only way you’ll ever understand the kinds of feedback that your customers will have, and that’s the only way you’ll ever be able to incorporate customer feedback into your products and services offerings. And yes, it’s the only way you’ll ever keep your business about your customer.
- Ignore Investment Money (VC) Temptations
Debt is the Root of all Evil
Money is the root of all evil. But really, for startups, this should be premised with venture capital money is the root of all evil.
Ok, this may not be the case for everyone. But in that case, you’re not bootstrapping. You’ve bought yourself a boss – who isn’t your customer. Your new VC boss may not have the same interests or goals as your customers, and that’s where the root of the problem lies. Sure, it can be the case where you’ve hit the jackpot, the goldmine, that perfect VC spouse/partner who will in fact treat you like an equal partner, treat your business like the VC’s own. And that’s great.
But at that point, you’re not really bootstrapping anymore.
You’re in debt, regardless of what anyone says. Your business’s income is greater than its output, but your revenue stream is not based on customer money for a product that you sell. It’s based on debt.
So really, it’s debt that’s the root of all evil.
Most people, at that point, like a bad credit card balance (and a credit card with a $10 million limit funded by VC’s), will start ignoring the facts of reality. The credit is available, it doesn’t matter what the balance is. You can keep spending money on things that don’t necessarily tie to the bottom line, and there’s no feedback loop to tell you if anything is in fact tying to the bottom line (tying to customers, tying to product development that will have customers buying it immediately).
VC Fundraising as a Meth-cooking Addiction
This endless credit mentality can lead to an endless spiraling downwards where some customers will lead to revenue, or a tiny profit margin, and a promise to ever-new rounds of VC capital that just another $5M – $10M will lead to the promised land of year-over-year explosive exponential growth and a high-value, high-return acquisition or IPO. This is like a bad meth-making addiction on Breaking Bad – once you’re in the criminal world, you might as well stay, even with all the drug addicts and dealers shooting at you, because the money is too good to stop. And once you’ve gotten good at cooking the meth, or in this case, selling to the VC’s (who end up being your customer for the startup myth that you’re peddling – instead of actually focusing on selling products to real customers), that becomes what you’re good at. You become great at selling to VC’s, and not necessarily so great at selling your product to customers, because that’s what you end up spending all your time doing.
So stop, Walt. Stop being Heisenberg. Stop selling into the temptation of VC money. It’s instant cash. And some businesses really do make a good go of it leveraging that. But most don’t. 9 out of 10 startups fail. The ones that survive, even those who take VC money, sell to customers. They make their businesses about their customers, and they respect Commandment #1 (see above).
Make Money/Serve Customers First (See Commandment #1)
Plus, if you do want VC money, the best way to get VCs to chase you, instead of having to chase them, is to MAKE MONEY FIRST. Sell to customers first. VCs will see the value in total financial independence and a profit margin (see Commandment #7) – and you’ll get a way better deal out of maintaining control (and equity, not to mention a higher valuation) so that you can continue to serve your customer first, and always maintain profitability.
- Haters Gonna Hate – But Universal Love is Based on Feedback
Target Your Customer
Not everyone is going to be your customer. Just like not everyone likes pizzas (health-nuts, lactose intolerant), or pancakes (I hate ‘em), or Facebook (most anyone with a mind towards digital footprints and NSA stalking). Sometimes it’s just not a good fit, and there’s no way that you can get everyone to like any one thing.
But getting those who are your customers to love you universally… well, that’s hard. But it’s worth it. Like any good relationship, it’s about listening and communicating well. Universal customer love is based on feedback.
Ask the Right Questions
If you are constantly talking to your customers to make your product or service about them (and solving their needs and their problems), then you don’t need to worry as much about differentiating yourself in the market. You should be asking them whether or not their needs and problems are being addressed in different or better ways by your competitors.
As a baseline, you should NEVER assume that everyone or all of your customers will think as you do (that your product is great! – and that it’s exactly what they will need). If you’re asking the right questions, in an objective way, you should be constantly getting answers on how to improve. Maybe, people just don’t need a place that sells exclusively pizzas and pancakes, regardless of the fact that you think it’s a fantastic idea and why would anyone want anything else. Maybe, people want a variety of food types or have a variety of food needs from friends who are gluten-free, dairy-free, vegan types when they’re heading to a restaurant – and so expanding your menu is the only way you can stay in business. You can’t get this information, if you’re not asking the right questions though, and if you’re just asking whether people (yay or nay) like your food, then yeah, bub, that’s not going to cut it. Ask better questions.
Great Product Design: Your Customer Feedback Loop
Asking better questions feeds into your customer feedback loop. Our company spends a lot of time speaking with our customers about what a good feedback loop looks like (link to: http://www.surveygizmo.com/survey-blog/boost-your-business-by-converting-feedback-into-reviews/). But the essence of it is:
- Figure out what you want/need to know (and why)
- Ask questions objectively
- To the right kinds of people/customers
- Analyze the answers/results
- Change things based on the answers/results, and then
- Go back to asking more questions + figuring out what you need to know for constant improvement
Get Feedback From Yourself
Do what you love, because everything else will feel like work. Your product and your business should be one that you love from the start. If you hate pizza, you shouldn’t be starting a pizza parlor. If you hate survey software, then yeah, you shouldn’t be starting a survey software company.
It doesn’t really stay that simple after you start the business. Because even if you love making and eating pizza, if you start a pizza parlor, you could very well end up doing the books all the time, or the marketing, or smoothing over angry customers who hate all your experimentations with pizza (why can’t you just stick to that crazy pizza I loved last month!). Doing what you love as a business can get complicated, since the business part may ensue a lot of what you hate.
But that’s what finding partners and employees are for. Find people you can trust and who believe in your company as much as you do and who love what you hate –and then get them to do it instead.
Listen to yourself, and get feedback from yourself. If you’re feeling rundown, and staring at numbers in columns is making you want to tear your hair out – go back to doing what you love, and see Commandment #5. But give everything a chance, and try everything, because even if you love making pizza, it could turn out that you’re also super into accounting methods and analysis.
- Benevolent Dictators Know Best
The Buck Stops Here
You need a clearly delineated hierarchy structure. Someone’s gotta be in charge. Decision by committee takes much, much longer than you can afford. If you’re a bootstrapping startup, you can’t constantly be giving your customers what they need if things are stuck for overly long in the decision-making stage. You’ll end up with customers who are no longer interested in what you’re selling. Even if the product is better in the end, customers need something now, not in ten months. They’ll have gone with another choice, and maybe they’ll be back in the future, but by then there could be a competitive product that could be even better. To get things done quickly, take responsibility and be in charge – and find others who can take charge too.
The Benevolent Part: Treat Employees Well
You do need folks to be onboard though. Buy-in from employees and partners is necessary – and so that’s when the benevolent part comes in. You need to treat your employees and partners as internal customers, listen to them, get their feedback, and treat them well. Because when you’ve expanded enough to have them, your startup business and your product IS them. They can make or break your success. And so you should treat them with respect and well.
… Except When Customer Knows Best
Benevolent dictators (AKA founders / CEOs) know best except when the customer knows best. Refer to Commandment #1 and #3. This should be premised with the customer knows best – but only when they’re willing to pay for what they want.
- Marry and Multiply Well
Besides your relationships with your customers, this is the most important thing that you need to do well (especially in a bootstrap startup): pick the right partners.
Partners + Employees
Just as with customers – not everyone is the right choice for your business as an employee or partner. Nor would you want them to be.
Hiring and partnering well is the most important thing within your company besides making your customers happy. Getting people who love what they do, love what you’re about, are smart, and can get things done is absolutely essential to your business’s success, particularly in a bootstrapped startup.
It may be hard to find all of those things in one person – but you absolutely cannot compromise. Because a person who is in the “gray area”, where it’s not a checkmark in the box for each of those things, will cost your company a lot more than just a paycheck. Their attitude will effect everyone around them, and decrease everyone else’s attitude, productivity, and efficiency.
For employees and partners who have made the cut, not everyone will always be on the same page as you all the time, but as with all good relationships, it’s about communication. If they can’t communicate with you about what they need and accept when things don’t go their way, or the compromises to their visions of things, then, it’s a toxic relationship waiting to explode.
Literally Marry Well
Partners in life, love, happiness, and children – if you want a startup, you’ve got to partner well in business and in life. It might sound hokey, but someone who can’t stand the idea of you putting all of your waking hours (12 hours a day) for at least the first 5 years (and then even for the rest of the foreseeable future), and putting all of your monetizable assets (e.g., house, car, retirement) at risk or on the market for the sake of your business – that person won’t stay or help if your life is your business, as it has to be in starting any business.
And if you’re unhappy personally, that will just reflect back in your professional life. Mind, body, spirit. All that zen stuff. Just trust me, for your company’s mind-body wellness, you need to partner well personally with someone who will support you in all your endeavors (especially your business), because after all the work and exhaustion that starting a business will provide, you don’t want to head home to someone who’s not just as committed to your business as you.
There are also some well-documented instances of startup relationship implosions, so just type into the Google “Startup Divorce” for the evidence.
- Metrics Shalt Be Golden
The only way to figure out if things are working is to track whether or not things are working over time. The best way to track good vs. bad is to figure out objective metrics or measures for how and why.
Here’s an example, using the pizza parlor hypo I’ve been overusing:
To figure out which ingredients are most popular, you could track based on the product purchases, how many of which pizza types are purchased in a certain period of time, which ingredients are incorporated, and survey customers regarding which pizzas are their favorite, which they order most, how many people they order for, what the dietary restrictions are, etc. Tracking this over time gets you the info you need regarding purchasing requirements for your business, seasonal trends, and new menu ideas.
Same thing works for our business as a software as a service, we track which account plan types attract the most trials, users, attrition and growth rates – and then we tie this back to decision making about new offerings or growth and development directions.
Whatever your business, you can get more data about your customers from all different kinds of objective measurements from employee productivity and ROI to customer attraction to certain products or offerings over others.
- Thou Shalt Remain Profitable
Profitability = Validation (The You’re Doing Something Right Metric)
Profitability is king to a bootstrapped startup. Profitability validates your methods (and madness) to your employees, your partners, and your customers.
Profitability also validates your products and methods for your business.
If customers are buying, then they’re happy(ish) – see Commandment #3. So you can know as an objective measure if you’re moving in the right direction.
If you’re not profitable, then do something different. That could mean tweaking your product/service, pivoting to a different market or product entirely, hiring different people or different skill sets. It could mean a lot of things. Being un-profitable means that you have to go back to Commandment #1 (and #6 and #8) and start again, analyzing as much as you can to figure out how your business can be better (and profitable).
Having Customers Understand Your Profitability Requirements
You should also use profitability to communicate with your customers in explaining that even if your product is fantastic (and who wouldn’t love a fantastic product for free), in order to stay in business and continue to provide fantastic products or services, you have to stay profitable. Being clear with customers regarding the reasons why certain things need to be paid for ahead of time, in order for you to stay in business (e.g., hardware, developer time, etc.), helps keep your customers on the same page as you.
Money Now vs. Money Later
Also, keep in mind that money now to a bootstrapped startup is worth more than money later. Offering customers small, manageable commitments (lower tiered products/services offerings with only essential features) is a way to get customers to commit more quickly and provide money now instead of delayed money later.
Also, promises don’t mean very much of anything. Results do. And a customer’s result for you is money. If customers want the moon, you can get it for them, but NASA doesn’t get rockets to the moon for less than a couple of billion dollars, and in all likelihood your pricing won’t get too much better than that.
- Stay Calm and Agile On
Change quickly. Even if things are working – things can quickly stop working. You need to be constantly vigilant, constantly measuring, and constantly experimenting with how to do things better.
And when things go wrong – as things always will in a startup business – fail fast. That way, you can know to stop failing quickly, and then do something different.
Stay agile, and stay light on your feet.
- And a Nation of Startups Shalt Come From You…
When you’re doing something that works, do it more/better/faster, then do it again. For a different product or offering. And when what you’re doing works, others will want to do as you do.