Member Article

Don’t fail fast, succeed slowly

Airbnb closed a $1.5 billion funding round last month. 3D printing startup, Shapeways, just raised $30 million.

In the startup world, we are told that the companies who are raising funding, are the companies who are leading their industries. Accelerators, incubators, and startup competitions all form part of a burgeoning ecosystem which relies on young startups and the investors who fund them. Last year alone CB Insights recorded $1.33 billion invested by VCs in seed-stage deals, a 16% increase from 2013. This year, we’ll probably see even more.

Founding without funding

Despite all the money being poured into the tech industry, I often hear young people say that they can’t possibly start a company because they don’t have the capital to get started. I think that’s nonsense. When I founded my company from my bedroom in Jalandhar, Punjab at the age of 17, I had no money, no credit card, no investors to approach and my parents thought I was just messing around instead of studying.

But instead of giving up, I spent six months building the first version of the product. When it was ready, I just needed $50 to register for a payment gateway to be able to start selling it, so I found my first customer on a forum. Fortunately they were prepared to register and pay for the payment gateway on my behalf in exchange for a license. I was in business, without any funding at all.

Learn to crawl before you walk

Don’t get me wrong - funding is a great way to accelerate growth. For late stage startups like Airbnb and Uber, who are in highly competitive industries, rapidly accelerating growth is the only way to gain a competitive advantage. But funding doesn’t stop entrepreneurs from making mistakes, it just makes the same mistakes more expensive.

For example, when we first opened an office in 2005, four years after launching, I lacked people management skills, and I had no conflict resolution skills. Basically, I had no idea how to train employees because I was immature, and employees started leaving the company. Looking back, I’m so embarrassed to think that’s how I worked back then, but if we had already taken funding, my mistakes would have been so much more costly. I just don’t think I could have done justice to someone’s money.

Necessity is the mother of invention

In those early days, the lack of funding led to some creative solutions. For example, without money it was impossible for me to buy a domain name. I asked around on the web hosting chatrooms I frequented if anyone had a domain name that they didn’t need anymore. Someone offered me the Kayako domain because he had parked it, and there were only a few months left until it expired. So I not only got a domain, but a name for my company.

Being 100% focussed on generating revenue whilst minimizing burn rate became almost an obsession - we didn’t spend a penny on marketing for the first 10 years. We used social media, SEO, and customer referrals to drive new business, including some clever tricks that I guess would now come under the banner of growth hacking.

Of course, some might argue that such financial restrictions are just too much of a distraction from the process of building a company - but if you speak to an entrepreneur who has just closed a funding round, they will tell you that raising funding is the single biggest distraction they have ever had to face while building their business.

Build on profit – if you can

Ultimately, bootstrapping forces you as an entrepreneur to understand, and be able to operate every area of your business – simply because you don’t have the money to pay someone to do it for you. Developing this broad knowledge base was something that really stood me in good stead later on, when it was time to hand over some responsibilities.

On the other hand, I’m not advocating for extreme frugality – penny pinching can’t last long in startups, especially when you are building an ambitious team who want to grow. Instead, companies must focus on validating ideas early on – and building products that people actually want to pay for is by far the best way of doing that.

This was posted in Bdaily's Members' News section by Varun Shoor .