How much money do you *really* need to start your company?

23 Sep

I keep hearing startup entrepreneurs tell me “We need funding. If we just had $XXXk of investment, we’d be killing it right now.” I press them with one question: what would you do with the money if you had it? Inevitably the question is met with a blank stare. Most of the time people haven’t thought about it. The answers that do come feel a little half-baked:

  • “Buy a bunch of ad words to get people to our site – that’s all we need”
  • “Build the product”
  • “Finish the product”
  • “Hire a bunch of sales guys”

Sure you have an idea and investment is flowing right now. Unfortunately, your idea is totally worthless. I repeat: your idea is totally worthless. If you can turn your idea into a product that people want to pay for, that’s a different story.

Having started my last two business with my own money or debt I’ve learned one thing:

Bootstrapping is the only way to build your business.

Bootstrapping means you REALLY have to want it. Quit your job and use your own money to start a business? You have to be insane. It’s why only crazy people start companies. Yes, I’m a little crazy; my closest friends know this well.

While Urban Airship may have raised a few rounds of funding, we bootstrapped the business for the first 9 months. Adam, Michael, Steven and I got together in May 2009 and had a minimum viable product (MVP) in the market just 30 days later. I used some of my savings, took out a few no interest credit cards to buy laptops and the rest of the guys took little or no pay. We had to scrap for every single thing we need to build the business.

The first version of the Urban Airship platform was really simple. We had a rudimentary SDK, a working, well-thought-out API and documentation. Lots of great documentation that we iterated on constantly. We also had what was quite possibly the simplest website in the world. However, we had product that worked and was (relatively) easy to use and we were hyper responsive to users of our platform. It was this formula the ultimately led to our growth and early success.

9 months later we had revenue that was well into the 5 figures a month and we had a clear roadmap of features (even if it was just scrawled on the whiteboard) for the platform that people wanted to buy. How did we know? They were already paying us and told us what they wanted. When we raised our first round of funding in January 2010 we knew exactly what we’d do with the money to grow the product and build the business.

An interesting side effect of all of this is that its led to setting a tone for the company. When we build product at Urban Airship we ask ourselves if it 1) helps drive and understand engagement or 2) helps monetize mobile apps. If we can answer yes to either of those questions, its something we should be working on. Is it cool technically but irrelevant to 1) and 2)? We won’t do it.

Looking back a couple of years ago when I started Bac’n with Jason Glaspey and Michael Richardson, we did a lot of the same things. How can we get to market quickly? Took about 21 days. What features can we add to the site that will get people buying more product? Help them share their love of bacon? Again, it was a bootstrapped business so we had to be capital and time efficient failing quickly and iterating even faster.

My advice to entrepreneurs is simple; burn the ships, bootstrap your business to an MVP, tweak until you find a formula people will pay for and THEN go fundraise. It’ll be a lot easier than you think when you have traction, revenue and a clear path. While it might not be the right path, it will show potential investors you know how to find-your-way through the toughest situations and build a product people want to pay for.

About these ads

9 Responses to “How much money do you *really* need to start your company?”

  1. Amber Case September 23, 2011 at 10:23 am #

    Great story, Kveton! Thanks for sharing.

  2. Robert Ross (@Robertoross) September 23, 2011 at 10:56 am #

    Straight to point. Thanks for sharing.

    http://www.github.com is the same way. Little if not no funding at all.

  3. Porter Haney (@PorterHaney) September 23, 2011 at 11:12 am #

    Boss post.

    This is what entrepreneurs need to be told: buckle down until you can actually put the money to work. Suffer through building a product someone will pay for, then put the money into making the product better and finding MORE customers.

    Good writing, Scott.

  4. newtechiepradeep September 23, 2011 at 11:22 am #

    Awesome article, its hepl to startup to anyone..

  5. Brant Tedeschi (@BrantTedeschi) September 23, 2011 at 11:58 am #

    Could not agree more. It amazes me that people think they NEED investors to even start. I bootstrapped my fantasy sports startup. I still have mountains to climb, but its at least making me a few thousand per month. Even if it doesn’t work out, you learn A LOT in the process. If your not used to making business decisions then you become forced to. Not used to coding? You have no choice.

    I highly recommend it to anyone who doesn’t feel fulfilled at their current job.

    For reference, my startup: http://www.fantasysp.com

  6. Marshall King September 23, 2011 at 2:02 pm #

    This is good Scott. I already have pointed a couple of PIE people to it. Before we talk fundraising, read this…

  7. zmitri September 23, 2011 at 2:12 pm #

    Totally agree with you. My problem is that I’m not American and need a job to stay in the country!

  8. bray.liu September 26, 2011 at 5:33 pm #

    Benefit a lot ! thanks a lot ,Scott.

  9. Adi (@vemuruadi) September 27, 2011 at 8:07 am #

    Thanks, excellent read ! really helped me to plan my venture.

Comments are closed.

Follow

Get every new post delivered to your Inbox.

Join 3,934 other followers