Many entrepreneurs who start up a new venture may not secure, or even seek, private investment to back its launch, [...]
January 23 2007 by Douglas W. Burke
Many entrepreneurs who start up a new venture may not secure, or even seek, private investment to back its launch, opting instead to self-fund it – more commonly known as “bootstrapping.” While that certainly keeps more control and percentage of equity within the organization, doing so brings about its own challenges. Among them, include the need to quickly and effectively scale product development, profitable revenue and human resources without outside financial assistance.
Venture capitalists provide entrepreneurs experience, direction and a rolodex of strategic contacts in addition to funding. In their absence, the onus falls even more on the CEO – sometimes to the point of distraction. The key to success for a bootstrapped start-up will rest on the management team’s ability to stay focused; specifically in areas of the business itself, the corporate culture and the sales pipeline.
Focus on the Business Itself
Those of us who pride ourselves in our ability and experience in launching new businesses see the world as an endless series of targeted opportunities. In many cases, entrepreneurs only see the upside of new markets for their current product or service. This may play well in an investor presentation, but for a bootstrapped entity, targeting too many opportunities at once could dilute scarce resources and cost the company far more than the potential returns can pay.
Therefore, CEOs of self-funded ventures will require strong discipline when evaluating opportunities and must focus on how long a new target industry will take to pay dividends. A management team must also agree to what the definition of success or failure is with each market, using quantitative and “gut-feel” answers to the following questions:
- How long will it take to validate the opportunity
- What are the key pain points in the targeted industry
- What are the risk factors involved
- How many resources will it take to serve this market
- When will the company start realizing revenue and, even more important, profit.
Case in point – when I became CEO at DefenseWeb Technologies, we considered expanding into private sector industries to capture what we knew to be sizable opportunities for our products and services. Our concern at the time was that our focus in the U.S. Department of Defense industry was too narrow, and our company was missing out on other lucrative revenue sources.
With that, I gave myself six months to explore the private sector option, with the intent on taking my findings to our board and collectively determining the strategic course of action. While the early response among potential customers was positive, I began to see significant obstacles in serving Corporate America. First, our Web services platform catered to tech-savvy clients, like those found in our own professional services engineers, and would have to be significantly modified for the commercial OEM market. Second, expanding into corporate markets would require staffing a separate sales and marketing team focused in this area, which would be expensive. Lastly, custom software development in the private sector is a much more competitive arena than in the Defense industry, and posed greater risks to us in generating sustainable revenue with acceptable margins. At the end of my six-month exploration, I and the board opted to remain focused in our current DoD market and realize its full potential – to the tune of doubling our revenues each year for the past three years.
This scenario is a classic example of why entrepreneurs should carefully evaluate any new opportunity before executing. While I and others at DefenseWeb remain obsessed with sales, today we focus that obsession solely on the Defense industry.
Focus on the Corporate Culture
For any new business, but especially self-funded ones, focusing on the corporate culture is both a necessity and a non-trivial issue. Employee and work environment dynamics evolve as start-ups do, with the natural breakpoints occurring as companies hire the first five, 20, 50 and 80 team members. Human nature being what it is, entrepreneurs must anticipate the changes and develop ways to ensure that the structural integrity of its corporate values is not compromised.
At DefenseWeb, I and my management team maintained an open and self-starting environment with our employees from day one. People could operate fairly independently in performing tasks, while, at the same time, have the freedom to walk into my office to collaborate on concerns, ideas and initiatives. In turn, I ensured that the executive team operated transparently and kept everyone regularly informed of the company’s progress. These practices worked well without requiring the creation of many processes when we were between five and 20 employees. As we grew, however, my COO and I needed to develop layers of management to support our expanding staff and create a scalable operational structure as well as comprehensive HR programs and policies for our organization. Political and social cliques become normal, unavoidable by-products of these events.
The type of employee we began to seek out and hire also changed as DefenseWeb expanded. With the overriding business concern at the beginning being our very survival, we focused on retaining what I call “special ops” talent; folks that are ideal for early-stage companies because of their high degree of independence, productivity and aggressiveness. We did not have the time or manpower to sit in many consensus-building meetings to make customer or business decisions – we just had to do it. As we expanded, we realized that DefenseWeb needed more “infantry grunts” – those that can take assigned tasks and execute them in more team-oriented environments. These two different types of employee personalities could create tension and misunderstanding in the workplace if not managed correctly.
Changing our corporate culture was not an option at DefenseWeb, nor should it be for any company. Instead, we as managers continually look to create challenges and opportunities that fit each of our employees well; more autonomous rolls for the “special ops” folks and more team-oriented situations for our “infantry grunts,” all under the guise of maintaining a productive, self-satisfying, fun environment.
We also regularly ensure that our HR programs and practices continue to keep all communications lines as open as when we were small to avoid misunderstandings and prevent the company “Rumor Mill” from becoming a credible news outlet. Our weekly, all-hands meeting remains intact, but now we hold one for our
Any executive, but especially those in newly formed bootstrapped ventures, must keep a keen focus on corporate culture and values. The talent base within an organization is its greatest asset and competitive advantage. Compromising it will be costly – too costly for most cash-strapped start-ups.
Focus on Sales
Certainly both bootstrapped and venture-backed companies want to realize revenues as quickly as possible. This becomes paramount for self-funded firms looking at current sales to fuel their business and product roadmap initiatives. However, in developing a sales strategy, many bootstrapped entities fall victim to two myths: (a) Don’t build a sales engine until the product is finished, and (b) The early adopters are good indicators to how others in the market will respond.
By nature, bootstrapped ventures must be sales-focused organizations, and that means management must make vetting the market for its full opportunity and adapting quickly to market dynamics core components of its business plan from day one. Executing this strategy can happen even before a product is fully developed, because the information gathered will help in the final build, and could even stave off competition if conducted correctly. At DefenseWeb, we believe that we sell the vision of the company and the trust of its management as much as our solutions, because the old adage is true; helping people buy from people they trust is the cornerstone of selling.
The bootstrapped company also should not wait to build out its sales engine until it finds a good Vice President of Sales, for this could be a long – and at times frustrating – process. At DefenseWeb, I and others on the management team called on clients and prospects, wrote proposals and crafted contracts as much as anything else we did in the course of the business day. As entrepreneurs, we were very much used to that role, but in our self-funded environment, we had little choice. I still do sales calls at DefenseWeb for our larger prospects and clients, not only because those folks expect it, but also to keep us focused on why the company exists – to make money.
Keep it Simple
Bear in mind, the key drivers for any corporation are its understanding of its business, its ability to stay true to its values and its ability to sell. Oftentimes the key reason for a start-up’s success or failure has to do with its capacity to focus on the tasks at hand. Entrepreneurs who can do this well stand a good chance of succeeding. Those who can’t keep their eyes on their business, their corporate culture and their sales pipeline find themselves looking for the next great venture sooner than they expected.
Douglas W. Burke email@example.com is a serial entrepreneur and currently the CEO of DefenseWeb Technologies, a San Diego-based Web-services company focused in the Defense industry. The company was recently named one of the fastest growing firms in