Bootstrapping for Success

Choosing to bootstrap a business can mean walking down a lonely road – you are investing your own money, with little or no outside funding, where growth and precious capital are both dependent on customer revenues. Some see this as a brave step, others perceive it as risky – but when getting initial investment for a business is as difficult as it is in India, bootstrapping may be your only ticket into entrepreneurship.

Some companies however have created a virtue out of necessity – for them, a bootstrapped strategy has delivered the goods, perhaps even better than if they were generously funded at start-up stage.

While bootstrapping doesn’t work for every company, it is a proven strategy for companies that either can’t or don’t want to look for VC or angel funding.

Bootstrapping all the way

Some of these companies that started out with a bootstrapped strategy continue to be funded out of internal accruals a decade or more down the line. Stellar examples include RateGain which provides hospitality and travel technology solutions to global players and Zoho Corporation, best known for its Zoho Suite. A common theme among bootstrappers is the determination to stay independent and not take up investment or acquisition offers. For some entrepreneurs, it is about wanting to make the decisions and not be answerable to an outside financier, while others might have products that aren’t exciting or with potential revenue streams large enough to attract VC interest.

Sridhar Vembu, Zoho’s co-founder, for instance, did not find merit in seeking out a VC partner. He points out that venture capitalists are focused solely on the bottom-line and taking the investee company public compared to the differently incentivized entrepreneur who puts his own money in the business and is focused on growth and development. Raising venture capital is only the beginning of the game. You still have to build the business that makes money, says Vembu, who has since done just that, and even turned down a funding term sheet in 2000, by which time the same VCs who would not fund Zoho in the 1990s, were asking to do just that. Says Bhanu Chopra (CEO, RateGain), the VC and institutional capital market in India was not mature as it is today and the idea of getting VC funding really was not an option for me a decade ago. This market constraint eventually became the cornerstone of RateGain’s growth strategy.

India – an ideal market

India is seen as a great market for an entrepreneur with a bootstrapping-based plan. In fact, both Chopra and Vembu quit lucrative jobs abroad to come back to India and begin their ventures. Why is India so suitable for bootstrapping? Sramana Mitra, founder of 1M/1M, a global virtual accelerator, author of ‘Bootstrapping: Weapon of Mass Reconstruction’ and a strong proponent of bootstrapping, says that most software/internet startups can and need to be bootstrapped. She points out that bootstrapping in India is easier, because of the lower cost-structure, and also the scrappy, frugal mentality of the culture.

This is reflected in the story of RateGain’s early days. Chopra recalls that they worked hard to keep costs down – Initially we did not hire any sales guys, I was going out and selling. RateGain had its start working out of an apartment space belonging to Chopra’s father, which he got to use rent free. We started off small – with about twenty workstations. Bit by bit we furnished it as needed – not in one shot. Eventually we had about 55 people there. The founder of web analytics and optimization tools start-up Wingify, Paras Chopra has a similar story to tell. When he set up Wingify, the company had a Spartan infrastructure – Chopra started out using his laptop and just purchased a $20 web server space and the Wingify domain. In this frugal phase, founders wear many hats – RateGain’s Bhanu Chopra recalls how he multitasked playing multiple roles, including that of salesman and product developer.

De-risking the boot-strap

One way to de-risk a bootstrapping exercise is by engaging in a flanking services strategy, though this is seen as a controversial approach, with detractors saying it leads to loss of focus and delay in getting the product to market. However, Mitra’s take is this: distraction is much better than demise. Flanking services is an option to survive the seed capital gap that exists in the startup industry.  Several start-ups have taken the less risky services path to establish a base revenue line, and later productized their offering.

Accelerating Success

The payback of bootstrapping includes faster progress, accelerated product development, market leadership and better profit margins, according to companies that have bootstrapped their way to success.  What is critically important is being extremely product focused and customer centric – a quality product that is refined along the way and a loyal customer base are essential. Once you get paying customers when you’re bootstrapping, you have to constantly keep in mind that it’s the customers who are paying you money. We were lucky – we got a dozen paying customers in our first year says Bhanu Chopra. Like Vembu, who worked exclusively on getting his idea to market, he too gave his all towards developing the right product, which he sees as a plus.

Strategic partnerships are also vital for success. One of the other things that happened to us that really helped was the strategic alliances with value added resellers who could bundle our products with their offerings to the same market. That gave us a great impetus and drive in moving things forward, says Chopra. RateGain also used a flanking strategy early on, looking at players in the travel and hospitality industry who could help them with market entry. Now, the company focuses on its own direct brand and adding more products. 

Changing for growth

Adaptability and the ability to pivot also help. Chopra’s original idea was to launch a consumer facing price comparison site for a U.S audience. He quickly realized the kind of institutional funding such a venture would require, but he was still determined to build a product that leveraged his core idea. I pivoted and instead made it a B2B price comparison technology that I could license to businesses for their use. Being bootstrapped meant he could adapt his idea quickly, without layers of decision makers. Vembu cites agility and productivity as well, adding that a willingness to experiment has also helped in Zoho’s success.

For entrepreneurs like Chopra and Vembu, bootstrapping offered them the option to develop a product they believed in, and build a business their way. The phenomenal success of both Zoho Corporation and RateGain are testament to the success that a bootstrapping strategy can deliver.

Share This Post

Leave a Reply