Why bootstrappers need to raise money?
Two main things that fails a SaaS :
- Not creating something people actually want
- Not enough money to scale
The SaaS game is all about money and competition, it’s a race and even if your idea is original, what would stop a copycat that has the money and the audience and probably the experience to do the same thing? 🙃
You just can't scale your business all "alone".
When you need to raise money as a bootstrapper ?
How much money can you raise ?
This is the first part of the Series Bootstrapper Financing 101
I recently watched a YCombinator talk on this topic and one of the best reasons they felt to raise money was because you are having trouble keeping up with customer service. I thought that was an interesting point.
That’s true but not really accurate. YC says that if you “can” raise money, you probably should do it. But i feel that this statement is a bit vague and this is why i broke it down in the article into different scenarios.
What is not accurate?
While bootstrapping can work well for businesses with slow and steady growth plans, some businesses may want to grow faster than their cash flow allows. Raising funds from investors can provide the capital needed to invest in new products, services, or markets, and accelerate growth.
Nice one!
Glad you liked it, part 2 and 3 are also comming, where we break down what product/market fit means, financing options, how to negotiate with investors, what not to do (After raising money) etc.
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I firmly believe, depending on the business, bootstrapping is perfectly fine and some businesses can begin generating income right away and use that to grow. (I also feel there has never been a better time to build and scale your own business with your own money.) That being said--if the business is something that can scale, bootstrappers should be the most ideal candidates to raise funding. Why? Well, because they were willing to put their skin in the game first. You have to believe in your own product enough to spend your own money on it..otherwise, why would anyone else? I think as an entrepreneur you truly have to have your thumb on the pulse and you will know when your money isn't going to cut it anymore. Now--did you leave yourself enough runway to actually get funding? That may be the question. ;) ha
I agree, that means that bootstrapping is perfectly fine until it isn't.
Bootstrappers should be aware of this. cuz hitting a wall could be unpredictable and
one should not miss the signal of getting funds at the right time. Cuz yeah bootstrappers are the best candidate for money raising and they deserve to have some security at one point.
I agree completely. Successful bootstrappers who raise funding will know how to take business along even during difficult financial times. Raising funding speeds up their reach towards their goal.
Bootstrappers will only raise money to scale fast and investors already know that it’s a win. Others will try to raise money only by having an idea and they will spend months pitching.
Having the right resources will get you faster to the summit
I agree a lot of bootstrappers struggle with money and they stick to the "bootstrapper" status more than making money.
Yes, raising money is about “Making more money”. But there is some ways to do it. The when, the why and the how are really important.
TBH, i never thought about raising money before. I need money to scale but i always had the feeling that it‘s for other people and not me. Nice article 🙏
I really think that bootstrappers are the best candidates to raise money, because they are bringing more than an idea to the table. You are bringing: validation, market and numbers with. So it’s much more easier for you and the investor to do a valuation of your business. Much more insights will be presented in the next article.
I agree with that! When you have a business that you built reinvesting, it is a great indicator that your business is scalable, so the possibilities of receiving external investment are greater.
totally agree % but many IH tend to miss that signal !
As we stated in the article:
You can’t learn all skills, you are not a developer anymore, you are w business owner and you need to run your business.. you can’t take 6 months to learn SEO and 6 months for content creation in Linkedin and a couple of months for UI/UX and fixing bugs and customer support and buy a cheap domain name etc ..
By the time you were able to do all of that, the competition is already saturating the market and gaining much more experience than you are.
You should instead, buy an SEO, buy a good domain name and invest in a content strategy and you can do all of these in 3-4 weeks.
Real reason: they don't understand what bootstrapping means.
You should give this a read.
https://www.investopedia.com/articles/investing/082814/companies-succeeded-bootstrapping.asp#toc-successful-bootstrapped-companies
Firstly, creating a product that does not solve a real problem or fulfill a need that customers have. This can be a result of insufficient market research or not understanding the target audience's pain points and requirements.
and, failing to secure enough funding to scale the product effectively can also lead to failure. Even if the product is desirable and in demand, without the necessary resources to expand and improve it, the company can fall behind competitors and fail to grow
Michael Siebel from Justin TV, raised money before finding product/market fit. His goal was to find product/market fit for a whole year and then raise money again to scale.
But that's just the path of a well connected person.
the first point is really the one that matters.
if you have product/market fit people will offer you money, full stop.
it is the point that matters at first. When growth hits its limit and scaling need more resources, that when one could hit a wall
Well, you're right. People with more time and money might choose to do the same thing as you. Which is why three things are exceptionally important for a bootstrapper (I've been one myself!): 1) Timing and luck!! You must be launching at the right time to the right people. 2) Product. The product must have exceptional value and actually solve a problem people are having. 3) Customer service. If you have better customer service, you have a better chance of winning out.
Time is crucial and Luck is a factor that no one wants to mention, manakon talked about this in a previous issue (https://friendsofsaas.substack.com/p/only-one-said-luck).
It is hard to motivate the whole team just on the bootstrapped funding
Definitely, Financing, in its whole, leads to an increased credibility factor. It also results in businesses gaining more clients, better loan rates, and recruiting help.