How long can you survive on bootstrapping?
Hi everyone. I'm looking for some advice from fellow startup founders/alums about taking the leap from releasing your prototype into the wild to scaling your userbase and product. I'm a single founder of a Boston-based mobile app startup – the product is released, we continue to iterate and build further enhancements, our userbase is excited and giving constructive feedback, etc. We've reached the point where we are receiving interest from companies to buy the app or discuss licensing deals, but interest from local angels is basically non-existent at this point. I quote from one VC: "idea is a feature, not a company".
Here's the problem: I'm completely broke. For this startup, I chose the bootstrapping route. I plunged most of my savings and used credit cards to work with an offshore team and received investment from friends and family to make it past the prototype stage. My development team is willing to take an equity stake to improve the product, but server costs are expensive. Our userbase increased 20x when I dropped the app to free 1 week ago. I cannot afford to pump in $30-40 a day to pay for server costs.
The acquisition talks are positive (it would be a very small exit), but I'd really like to work on building out a company here. Is there any option other than an angel round to make it to the next stage? Would licensing the app to other companies be a detriment in future financing rounds, if we ever make it to that point?
Published in 2009, this chronicle by @rcmorin details the mechanics of building a profitable, self-funded business without venture backing.
The community focused on B2B customer acquisition channels, cold email vs SEO distribution, and balancing full-time employment with side-project development.
first, if your server costs compete in any way with your own living expenses, get them down. Most people massively overpay for servers. what kind of server do you have that is costing you $30-$40 a day? for that kind of scratch you can get a full rack, two circuits and a nice big chunk of bandwidth. that's operating cost for 16 of my dual quad-core opterons with 32GiB ram.
but then $1200 a month isn't much, really. that's what, two, three days of contracting at bay area SysAdmin rates?
Get a dayjob. Yeah, it sucks. But if you bootstrap, that's what you've got to do. I do consulting 3 days a week, and you know what? if prgmr.com revenue stopped tomorrow, I'd go back up to 5 days a week, and I'd have no problem paying for my server space for as long as I cared to do so. (and I have done this... prgmr.com is doing ridiculously well at the moment, but if you look at my history, well, I've been doing this since 2005, and have made my expensive mistakes. All paid for by contracting income. It can be painful, I mean, in 2006, I got a little optimistic and locked myself into a year-long contract for almost two orders of magnitude more bandwidth than I ended up needing. a $15K mistake or so. But eh, it looks like we might have that much revenue this month alone, so I was right to stick with it.)
It sounds like your business is one with low capital requirements, and low monthly overhead. That is the best kind of business to bootstrap, I think; you just need to build your life so that you are OK with supporting the business until someone notices you and the business takes off.
Actually, you should have named this 'how long can I survive on bootstrapping'. It seems as though your answer is 'not much longer' at your current trajectory.
So you need to change something.
It sounds like you couldn't afford to release a free version, with all the costs involved. So don't. Stop releasing the free version. Think of a price you would be comfortable charging for it.
Now double that price. Chances are you undervalued what people might be willing to pay for your application. You have a growing user base, but most unfortunately if it grows too much you'll just be out of business that much sooner.
Sure, it wouldn't hurt to keep talking about acquisition. The beauty of that is in most cases these talks take forever, so you have plenty of time, and can always back out or tell them you'd like a few more months. The downside to this is they might just wait until you run out of money, and then whatever small amount they were offering you will become surprisingly smaller. When they have a meeting about whether to acquire your product or not one of their strategies is going to be 'let's wait and see what happens in the next couple months'. It's only to their advantage.
And at least give us the link so we can let you know if we would pay for it! Your company is failing, this is not the time to be discreet.
When negotiating you need to be creative with alternatives. From what I understand from your situation, you could consider doing a joint venture rather than selling out or licensing. It appears that you have the skills in creating a product that has "pulling power" but not much expertise in building a business. My definition of "business" is one that makes money. It doesn't take much skill to throw $40 / day at some hosting provider. As many of the posters have commented you need to charge in order to have a business. You probably need to shift your marketing when you start asking for money.
From a product / technical perspective, you also need to look at how many of your "users" continue to use your app after a month or more and how much they use it. That will give you an idea of how many tyre kickers you got and how many switched on, passionate users you got.
Do do a joint venture, you decide on split of revenue, a buy-in value that gets you off stressing about where your next Ramen meal is coming from. Heck, I'd even put the word out to your user base and invite applications for a venture partner. You can't get a better marketer than a passionate user with sales, marketing and business expertise.
So we're bootstrapping, also in Boston, and also use GAE.
We've been able to manage to stay afloat by keeping day jobs. One of us works full-time and the other part-time, while working on the startup all nights and all weekends. Obviously, it takes a toll on you, and isn't very sustainable in the long term. But we've also learned to delegate: we hired two excellent interns, and we pay them in munchies and free lunches.
$30-$40 in CPU costs seems very high. I'm not sure if you have a technical background, but there might be room for optimization, especially in datastore entity structures and queries. Just the other day, we refactored the way we were storing a certain entity to be able to compute a list of key_names and then fetch them from memcache or the datastore in parallel rather than seriallly. That resulted in a 16x performance boost (measured by response time and CPU cycles). There are some other tricks, like "relational" index entities to speed up datastore lookups so that you're not doing too much processing in Python code.
I would be happy to chat more about our experience with GAE. mahmoud [at] thesponty
What is your current cash flow? That is all that matters. At a minimum your cash flow needs to be enough to service your debt and living expenses. Then, you can all work for equity and make a go of this.
Figure out what this number is, and then ask yourself how you can earn that money. You may need to do a part time job in order to get that money. Yes, your ability to focus on this company will be hindered. But imagine how much of a bottleneck being absolutely broke and potentially bankrupt will be to the progress of your company.
EDIT: You may as well call up your credit card issuers and ask them to drop your interest rate. I've had about a 50/50 success with this approach. Both times I was successful I went from an 18% interest rate on an account down to 12%.