Bootstrapping is smart business, managing risk at every level, from the business owner and employees to the end user.
“It is the obvious which is so difficult to see most of the time. People say 'It's as plain as the nose on your face.' But how much of the nose on your face can you see, unless someone holds a mirror up to you?” ? Isaac Asimov, I, Robot
I recently read an article on a business method espoused by Silicon Valley entrepreneur Eric Ries in his book titled, The Lean Startup. He urges businesses to hit the market with a viable product as soon as possible and not spend too much time on perfection.
Read: Manage costs.
Ries suggests that startups refine the product through product testing in the market and getting feedback from initial customers. His model is taking the business world by storm: The book hit bestseller lists, creating an almost cult-like following in the entrepreneurial world.
It is always interesting to see ideas such as his catch fire, especially when they are based on simple common sense. Bootstrapping is a smart business move, period. It manages risk at every level, starting from the business owner and employees to the end user.
Breker Verification Systems, the EDA startup I co-founded in 2003, is built on a similar principle, setting itself apart from the typical high-tech startup that raises loads of money to figure out if a viable product can be built. From there, the startup raises more money to actually build the product and then raises even more to create hype around the product. By the end of the process, the founders’ and employees’ holdings are often diluted to a pittance, and many times investors start dictating the technical roadmap, even if it is not the best thing for the future potential of the technology.
Breker is an example of the value of bootstrapping as a management practice. It remains one of the few surviving startups of its generation in the EDA industry and only recently took Series A funding to scale operations, expanding sales, support and R&D.
What then does “bootstrapping” mean as a business practice? I define it as a business management discipline that forces a startup to build and grow the business from within, allowing market forces to shape the long- and short-term strategy. Within this discipline, the three buckets to manage are cost, sales and exit.
Perhaps I am stating the obvious that good business management demands that the entrepreneur knows how to optimize assets, realize when the product is good enough and understand when to quit.