Bootstrapping Your Startup: Do You Really Need Early Investment?
We couldn't get anyone to invest in WooRank when we got started, and despite this seeming like the hardest path at the beginning, it might well be the best thing that could have happened to us.
After WooRank was born in 2010 we didn't wait long before starting conversations with professional investors (both business angels and VC firms) with the goal of raising roughly 300,000 euros to kick-start the business. To our disappointment, none of them were interested in investing in the company, which severely slowed down our projected growth and resulted in us having to make some difficult decisions very early on.
And yet, now we realize we were very lucky that we couldn't talk any of these investors into backing us financially in the beginning of our company. Let me explain why.
Why did we need a capital injection in the first place?
There are many reasons why a company would raise funding, but it's especially useful when you're already on a growth trajectory and need more cash to accelerate that growth. In WooRank's case, we wanted to make the product more robust, more quickly, which meant we needed more people and resources to add new features and improve the ones that we already had.
Another reason was that we really wanted the ability to adequately compensate the people who were working hard to turn WooRank into a successful business, and be able to hire more highly-specialized profiles to keep pushing for growth. Money is just one way to motivate and attract people, but it's a crucial one nonetheless.
There were more reasons for raising capital for WooRank at the start of the company, such as marketing so we could promote our services in the right places, and to the right audience.
Our Early Bootstrapping Days
Our first year of operations was, well, very tough.
We weren't able to convince investors to financially back us, so in the beginning we were ultimately a startup with no demonstrable revenues or traction. This resulted in a few things:
- Night-time work: Before WooRank became a sustainable business, both co-founders worked as freelancers during the day and pumped the income from that into the venture.
- Slow growth: Once the free WooRank website analysis tool was launched, WooRank still didn't generate any revenue until after the first 15 months.
- Recruitment barriers: It's difficult and frustrating to not be able to hire talent because of lack of funds. Although money is not the only motivation talented developers, engineers and designers need, it certainly helps!
During this time we also learned that:
- It's not easy to do everything on your own.
- It's better to start a company with a partner (or several) with the same determination and motivation, who complements you and shares the same values and vision.
- You need a lot of support from your significant other or family.
- You need a plan of action to avoid losing your vision to tedious day-to-day tasks.
- You need to focus on the business and keep distractions to a minimum.
- It's better to recruit one extremely smart professional than to hire too many people, too fast.
- Cash is important, and setting it aside as much as you can to serve as a buffer can make all the difference. You need to be careful not to spend your early money on 'nice-to-have' things that are not really necessary for operation at the beginning.
- Communication with your co-founder(s) and your team is extremely crucial.
Our Future Looks Bright
Nonetheless, bootstrapping the WooRank business has also had advantages that we've clearly benefited from in the long run.
The first benefit is that there weren't external pressures on us (from investors) to achieve specific levels of profits, or to develop WooRank in a way that was not necessarily in our customers' or our own long-term best interests.
Although it was difficult at the start, we decided to, and were able to, keep the tool free for a long time. This allowed us to build up traffic and a sizeable user base, and learn from their feedback and usage. We understood their needs and were able to adapt to them more swiftly than would have possible otherwise.
Another consequence of not having early investment is that we've had the flexibility to cultivate the company culture as we ideally envisioned it. This includes giving team members additional incentives and a great work environment – and despite long working hours at the beginning, to give the team the necessary professional freedom to maintain a healthy work/life balance. Who knows if this would have been possible with the pressure of measuring up to our investors' wishes weighing us down?
After the launch of WooRank it took 15 months before we started bringing in revenue. Three months after the first sales, WooRank became a company rather than a project.
We have been profitable since March 2012 when we switched to a freemium model and today we're a team of 19 people and counting.
We are proud of what we've accomplished so far, especially after bootstrapping the business, and we're excited about what we're working on now and our plans for the future of WooRank. And although it hasn't always been easy, looking back, we're very happy that we didn't manage to convince investors to back us early on.