Sep 8, 2015

Bootstrapping is perpetual state of running the start-up in resource crunch

India is seeing more start-ups today than at any time in history. How many will survive time will only tell. Getting investors to back the idea with their money is first step to survival. Ideas are fragile; they need to be cultivated with capital. The number one reason start-up idea fails is because it runs out of money.

Entrepreneurs just being efficient does not work in current era, they need to be capital efficient. Investor money is the difference that makes the difference. Getting start-up of the ground with a prototype is very easy & cheap with cloud services technology & online tools. Entrepreneurs planning about salaries, rent, profit by way of bootstrapping are creating lifestyle business. I call it a living dead situation as it is about creating income & not wealth. But start-ups that are poised to make it big will plan for infusing growth capital in their business. The idea of giving equity to grow equity is first step towards wealth creation. Air is today filled with new ideas, fresh energy & passion to become an entrepreneur.

Investors are smart to factor while investing that it takes longer and costs more to accomplish the said vision. Entrepreneurs think they can do it all with less money than what they really need. They try to embark on a journey optimistically with minimal money thinking that they will create, generate or raise money when required. Entrepreneur need to think investor as friends with resources. They can scales when it has the right team on board. Growth is about getting visibility, speed to build products, marketing & building brands for which money is required. Start-ups need to raise as much cash they can & whenever they can. An entrepreneur getting too much obsessed about equity dilution only harms themselves. They are scared about getting investors on board as they lose out the control. The way to look at investors is like partners bringing in smart money & also decoupling risk of fighting the battle alone.

Bootstrapping business is an old way of doing business. It takes one step at a time, build business with internal accruals & customer funding. The growth of such start-up companies is slow & does not scale with few exceptions. Survival of fittest theory does not work for wealth creation. Stay away from people who say money is not important resource to be successful.

The valuations today are astronomical & ridiculous investment rounds are happening. Lot of people think that investor have gone mad when they see start-ups raising massive sums of money. The money is not going into products but to create categories that did not exists before. The investment is to change behaviour & create habit forming technologies. The capital is used to engage customers so that they come back each time, every time. Spending too much or raising very little capital both can end up with running out of money & lead to premature death of an idea. The stories of companies that failed by running out of cash are legion. It's all about survival of the richest. It gives a huge competitive advantage over under funded start-ups. Bootstrapped entrepreneurs sloth, funded start-ups scale. Investor money comes with its own set of riders & strings attached. Capital comes with its own share of problems and drawbacks but better than a business being in living dead state.

Source: CAN


Post a Comment

Twitter Delicious Facebook Digg Stumbleupon Favorites More