Over the years, I have had the good fortune of working as an investment banker with several self-funded (i.e. bootstrapped) technology startups in India. Almost all the entrepreneurs I have worked with have war stories to tell of their early years of building the business, gaining credibility with customers and talent pool, overcoming onerous regulatory constraints and licensing requirements, and in some cases, taking these businesses global. Learning how these entrepreneurs prevailed against all odds to create successful businesses without raising significant external capital is both fascinating and inspiring, and it has been a privilege for me to have been a small part of their journey.
I recently came across an excellent article in Forbes by Naren Gupta of Nexus Venture Partners on how Indian tech entrepreneurs are distracted by vanity metrics (valuation, funding raised) and what he described as the focus on the short-term. As I read the article, I felt that bootstrapped businesses have tremendous insights on how to create a vibrant, sustainable business that is liked by customers and admired by peers and competitors. Below, I share my select observations from having worked with bootstrapped businesses over the years.
First, perhaps the most important lesson comes from the title of a book by Prof V Raghunathan ‘Don’t Sprint the Marathon’. Building a business is not a race against time or peers/competitors. If you insist, however, to think of starting up as a race, think of it as more of a marathon than a sprint. A good start or gaining a lead in the first few kilometres has no bearing whatsoever on the eventual outcome of a marathon. Almost all bootstrapped businesses I have come across followed the ‘fail often, fail fast, fail cheap’ mantra, junked what was not working, and refined and perfected what market and customers found of value. Importantly, they went for scale after they knew what worked and what didn’t. Another noteworthy aspect was the focus on dominating a specific market niche first and then expanding into adjacent spaces, instead of opening too many flanks and spreading themselves thin across multiple segments.
Second, I found that most bootstrapped entrepreneurs either directly drove sales or were very closely connected with the sales function as they built the business. This helped them stay close to the market, understand what was delighting and paining the customer, and most importantly, show commitment to customer experience by setting things right when needed. This close attention to the sales function is obviously not a coincidence, as sales, and therefore cash flow, is the lifeblood of a self-funded startup. Again, focus is as much on sales efficiency (i.e. cost of sales vs contribution margin) as it is on sales itself.
Third, and this is perhaps the most interesting observation, is that they have no active exit plan. This is not to say that they don’t want to monetise what they have created, or that they are hermits who are in it only for the love of the game with no draw towards their personal economics. It does mean that they typically possess the will to be patient till the right exit opportunity comes along, and their business affords them the staying power to choose the right moment for creating personal wealth. In other words, they are long-term greedy.
India is home to some world-class entrepreneurs who have created very compelling businesses while staying highly frugal. In the current tight funding environment, drawing from the experience of these outstanding founders can offer rich insights to startups looking to shape their businesses with limited capital.
Nitin Bhatia is managing director of Signal Hill Capital, an independent advisory firm that provides M&A and growth capital services to mid-market firms in the TMT and services space.
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