Last year, venture capital (VC) activity in the United States reached its highest level since the turn of the millennium. VC firms invested a total of $84.2 billion last year, up 16% from 2016 and more than 100% from ten years ago, according to the PitchBook-NVCA Venture Monitor. On the darker side, CB Insights found that 70% of startup technology companies fail less than two years after first raising financing.
There is no doubt VC funding is an incredibly helpful option for companies that need capital in order to rapidly scale, but in an age of high-valuations where even great ideas may not make it, some startups might want to consider alternatives that will not leave them with the added pressure of investors breathing down their neck.
So what are the best ways to pursue a bootstrapping strategy?
Make Securing Your First Customer Top Priority
“Running a lean and targeted business in the beginning is always a good idea,” says Sagi Gidali, Co-Founder and CPO of software-defined perimeter and cloud VPN technology provider Perimeter 81. “Before spending too much time building and perfecting the product, aim to have your first customer.”
For Perimeter 81, the proof is in the pudding. The company’s first client, a medium-sized agency, enabled them to pay the bills in the beginning and set them up for long-term success. “That was our approach and from there, we were able to take our product to market and grow quickly without the assistance of additional funds,” shares Gidali.
Be Cognizant Of Spinning Your Wheels
Ineffective processes and bureaucracy can lower productivity and be very costly for companies. In fact, 96% of workers say that unnecessary emails waste their time. Inefficiency can cause businesses to spin their wheels, making it tougher to launch products or services.
Many startups make the mistake of aiming for perfection before going to market, but this is a risky move when competitors may be working faster. And not to mention, getting customer feedback after the initial launch provides valuable insight and often leads to changes that can better the business.
“It can be easy to end up with redundant features when you are going back on forth on minor issues,” says Jason Grad, Founder and CEO of the charitable-donation app, Cheerful Giving. “Time is of the essence when you are bootstrapping. Put something to market you can be proud of and let your users and customers tell you how to improve.”
Consider A Partnership
Entrepreneurs who are passionate about their vision might struggle with sharing control, but finding a partner who believes in the idea and has complementary skills can be a good way to share the workload and lighten the day-to-day pressure. However, ensuring you and your partner are on the same page is paramount.
“Make sure you have the right partner and aligned expectations,” says Jon Fisher, co-founder and CEO of intelligent live streaming provider CrowdOptic. “Do not be afraid to have the tough, financial conversations in the beginning. They can make or break your company’s success down the road.”
I am not anti-funding, but it seems many entrepreneurs are focused on perfecting their VC pitch without considering the long-term impact, especially when securing funding does not always equate to success. In addition, the time and effort it takes to raise capital can take away from the time and focus required to perfect product or service offerings. Early-stage bootstrapping can teach entrepreneurs valuable lessons in budgeting and prioritizing so those funding rounds can be spent wisely in the future.
When It’s Time To Raise Funds, Consider Crowdfunding
In lieu of traditional VC funding and controversial Initial Coin Offerings (ICOs) relegated to blockchain projects, consider crowdfunding your bootstrapped startup. Particularly well suited for tangible product-based businesses, Kickstarter, IndieGoGo and Etsy provide robust crowdfunding services for a number of startups that want to get an early test of their target market and also raise money.
Some of the successful startup project fundraises have reached into the tens of millions. Crowdfunding expert and founder of Gadget Flow, a crowdfunding curation platform, Evan Varsamis says that of the 6000 gadget-based startups that the company has supported, practically all either succeeded with their fundraising goals or learned the direction to which they should pivot so long as their marketing initiatives were measured properly. Even in failure, crowdfunding can help startups “fail fast” and know where to pivot to next.
This article was originally published in: https://www.forbes.com