More Money, More Problems: The Case for Bootstrapping Your Startup
When I moved to Silicon Valley, I thought that if I landed a million dollars in funding, I would have made it.
Looking back years later, I know that the dream of raising investment was the wrong dream to chase. Funding shouldn’t be the goal—it’s a means to an end.
I tried like hell to raise investment for my startup, Close, but there were zero takers.
I had no choice but to bootstrap; it was either bootstrap or die.
But I’m glad I was forced to take the self-funded approach. Close has since scaled to $30 million in ARR, proving that bootstrapping can lead to some pretty amazing growth for B2B SaaS startups.
In this article, I’ll share my experience with the practical realities of bootstrapping so founders know what to expect if they choose to self-fund their startup.
What Funding Options Do You Have as a SaaS Founder?
These days, there are more funding options than ever: seed investors, angel investors, an incubator, or a VC firm. You could also take on debt, max out all your credit cards, or if you’re really patient, just wait for an invitation to Shark Tank. (You might be waiting a while.)
There's no one-size-fits-all approach that works for every company, but in my experience in SaaS and B2B, there’s very rarely a reason or need to raise millions right away and invest in a ton of things before you even go to market and validate demand. Instead, you might want to consider the option I took with Close: bootstrapping.
What is bootstrapping exactly? It refers to growing your business by the strength of its revenue and profits and not taking outside investor money to grow the company. People also refer to this as self-funding a startup—maybe to sound cooler and less like a grandpa—but whatever you call the practice, it means no investors are involved.
For this option, you have to create an early, lightweight version of your product that people are willing to pay for, allowing you to fund your business with the revenue from your initial sales. It’s a very practical source of funding a business, even though it might not seem as sexy as venture capital.
The Allure of Raising Millions
Few startup founders can resist the allure of raising a huge sum of money from a brand name investor. For five years, I tried to raise money for my first startup and only managed to cobble together a measly $50,000. I’ve made my peace with the fact that I am the world’s worst fundraiser.
I had better luck once I teamed up with my co-founders, Anthony Nemitz and Tom Steinacher. We were accepted into Y Combinator with our startup SwipeGood and secured a $1.2 million seed round from investors within the first two weeks. “Finally,” I thought. “I’ve made it.”
My celebration was short-lived, however, as growth at SwipeGood stalled. We decided to pivot to a new idea: Elastic Sales. With Elastic, we offered “sales as a service” for tech startups in Silicon Valley.
Unfortunately, the idea for Elastic didn’t resonate with our Y Combinator investors as much as SwipeGood did. VCs were looking for a different kind of startup to invest in and they weren’t interested in our new idea.
At that point, I had a choice: I could keep tweaking the idea for Elastic until it became something that would appeal to investors, or I could go ahead and build it anyway without their money.
My co-founders and I chose the latter. We knew we had something with Elastic—it was my wheelhouse (B2B SaaS sales) and we had already validated the idea and the demand by landing a few early customers. What, exactly, were we waiting for?
It had taken me so long to find investors up to that point, and I was sick of waiting to build something. I wanted to move fast and start generating revenue.
Elastic was so successful, we were able to spin an entirely new business from it, Close. With Close, we sold the CRM software we had built for our own internal sales team. Suddenly, we went from being a “sales-as-a-service” business to being a true “software-as-a-service” company.
I wanted to see how fast we could scale this time, so I tried to fundraise—again—for Close. (What can I say? Old habits die hard.)
When Close didn’t grab the attention of investors either, I decided to keep going full-steam ahead with our bootstrapped business. We were already gaining traction without additional capital, so it just made sense to keep reinvesting our profits back into the business.
As a founder, you need to ask yourself what you’re actually chasing: a business or an investment.
Bootstrapping might require more patience, but it can build a more resilient, sustainable business.
Taking the Long Way Up: Reasons Not to Take On Investors
Imagine the journey to the top of the mountain. You can start at the bottom, hiking switchbacks and climbing, feeling the ache in your legs as you make your way up slowly and finally reach the peak. Or—you could have a helicopter drop you right at the top. After all, the view would be the same, right?
I like to think of bootstrapping your business as taking the long way up. It’s more difficult, sure, but you learn as you go. You build endurance and strength trudging up the rocky terrain. Taking the “simpler” route is enticing and it may feel pretty good at the top, but your sense of accomplishment is artificial, and you haven’t learned or built those muscles.
Similarly, taking on huge investment can lead to a false impression that your business is successful. It can hide (or delay) the answers to very basic questions:
- Is my idea capable of achieving product-market fit?
- Is there enough demand to make this business last long term?
- Can this business ever achieve profitability?
If 75 percent of venture-backed startups fail, that means 75 percent of the time, the answer to these questions is no.
On the other hand, when you bootstrap your startup, you find out the answers to those questions along the way, when there is more time and capacity to learn, pivot, and course-correct. Bootstrapping might require more patience, but it can build a more resilient, sustainable business.
The Tendency to Overspend and Overhire
If an investor gives you millions of dollars, they expect you to spend it. That money isn’t a gift—it’s the gasoline they want you to throw onto the fire.
Your primary job as a founder will be spending this money. It might sound exciting at first, but it gets old fast. It’s like the movie Brewster’s Millions, where the main character (played by Richard Pryor) needs to spend $30 million in 30 days with a complicated set of rules—and the challenge becomes a nightmarish burden on his life. (Hopefully I’m not the only person in the world who has seen Brewster’s Millions.)
When you raise millions of dollars, you become the steward of this money. You’ll use investor money to rent an office in a hip part of town and you’ll paint cool murals on the wall and pack it with amenities to attract the best talent. And, of course, you’ll go on a hiring spree.
HP co-founder David Packard, once said, “More businesses die from indigestion than starvation.” When startup founders hire fast, they can end up overhiring, creating a kind of “business indigestion.”
Hiring will take most of your time and attention. As a founder, if you choose to be heavily involved in vetting every hire because you want to create a strong culture from the get-go, that’s a good instinct—but that’s a huge time commitment if you need to spin up a 50-person team in a year.
If you want to be more hands-off and simply hire fast, you run the risk of making the wrong hires. And the damage from one wrong hire can take months (and tens of thousands of dollars) to undo.
You’ll be forced to hire for roles even if you don’t need them because investors want to see more butts in seats—regardless of the ROI you’re getting out of every role.
Plus, let’s not forget how quickly startups change strategy. One change in a strategy can result in layoffs and firings. Not only is this a painful decision to make as a founder, but it can poison the culture for the broader team.
Any way you slice it, hiring will cost you a lot of this money you fought so hard for.
On the other hand, when you bootstrap a company, you’re forced to be more disciplined with the way you hire. You simply need to ask yourself: “Is the company making enough money right now to justify this hire?”
I’d take a slower, more disciplined approach to hiring over an investor-paid hiring frenzy any day.
Building a Business for Investors, Not Customers
It can be hard to find the balance between raising money and maintaining your vision for the business. It’s much easier to allow yourself to become externally focused, tweaking your idea to seem more enticing to investors (and not always for the better).
It’s important to remember: Your customer in the boardroom may not be the same as your customer in the market.
One investor might be bullish on AI and suggest you add an AI angle to your product, even though you know that’s not the best move. Another investor with an enterprise background might suggest an enterprise model even though you want to target the consumer market.
Your website, your pitch deck, the meetings you take, even the way you think about your idea may be altered to appease potential investors. You might lose sight of what truly matters: the customer, the problem you’re trying to solve, and why you’re passionate about it in the first place.
Your customer in the boardroom may not be the same as your customer in the market.
The Benefits of Bootstrapping a B2B SaaS Company
Close wasn’t an overnight success, but step by step, we were able to build something valuable without having to make too many compromises.
When I think about why I’m glad I bootstrapped Close, the reasons that come to mind are:
- The founders own more of the company.
- We were able to build the business to our own liking, deciding what we think is best for customers, employees, and ourselves without the need to justify our choices to outsiders.
- We were able to make better hiring decisions which has led to better retention. If you're slow and deliberate and really intentional about the people you're hiring, you create a culture that is less subject to chaos and turnover.
If I could sum up the benefits of bootstrapping Close in one word, it would be: freedom.
I’ve seen many of my founder friends who accepted investor funding achieve tremendous success, yet they often felt miserable. It’s hard to be a happy person when you have to make decisions you don’t feel good about or you’re forced to push your company and build your product in a certain way.
It’s like being in a long-term relationship with someone who is only interested in your looks. Every day, you have to dress a certain way to make yourself attractive to them. Years go by and you start wishing you had found someone who was actually interested in you as a person, not just how attractive you are. Hindsight is 20/20.
With bootstrapping, you don’t have the obligation of scaling at a certain speed and building a business to please a board of directors. You have complete control over your destiny.
Tips for Bootstrapping Your Startup
If you decide to bootstrap, just remember: there’s nothing wrong with starting small. Being a small company is not a downside. It’s a plus.
The discipline required to bootstrap is a good thing too. You learn to stay focused and avoid getting easily distracted. You also learn to get creative to acquire customers better than your competitors.
Acquiring Customers on a Limited Budget
One of the hardest things about bootstrapping is acquiring customers on a shoestring budget and trying to compete with the highly funded players in your space. It can be damn near impossible to out-advertise them—but, again, this forces you to get creative.
When bootstrapping Close, we had two major advantages:
- We had a highly differentiated product (a sales-focused CRM built specifically for sales teams, not marketing or customer support).
- We had a distinct point of view about our niche (B2B sales) and we saw an opportunity in content and set our sights on out-educating our competitors. We built a loyal audience through content and authentic advice that resonated.
First, think about what makes you different. Then, send an email, make some cold calls, post on social media. All of that is free. It only requires time and hustle.
Building One Customer at a Time
It’s undeniable that investors accelerate your growth. Scaling quickly is great, but here’s the thing: You don’t have to scale like crazy to be successful.
You don’t have to start with a million customers. Scaling in the early days has a lot more to do with connecting with the right customers. You just need to land one customer at a time to get feedback, innovate, and find your product-market fit. You can build something with the resources you have.
If you’re a SaaS business, you don't need a huge team on day one—Hell, you don't even need one in year 10. Close turns 12 this year, and our team is still under 100 people!
I believe that in the future, SaaS businesses will become billion-dollar companies with tiny teams and the need for investment to scale big, bloated teams will become a thing of the past.
Looking back at our experience with Close, there’s not a single thing we’ve ever wanted to do that we couldn’t do because we didn’t have millions of dollars laying around. We built our company for ourselves, one customer at a time.
I’m willing to bet you can too.
