Finding Success Outside of Venture Capital
My Startup, Advice for Bootstrapping Your Company, And Why VC Isn’t Always The Right Choice
Once upon a time, I graduated from Howard University with a degree in computer science and no clue about running a business beyond Paul Graham’s constant exhortation, “Build something people want.”
I did a poor job remembering to call my hairstylist, and since I was graduating with a degree in computer science, I was nicely equipped to solve my own problem. It turned out that lots of other people wanted a better way to schedule time in other kinds of businesses, too. Pencil You In is this better way.
Unfortunately, I had nary an idea of what to do upon building something people wanted. A lot of startup advice is heavily slanted toward just coming up with an idea, or fundraising. Those make sense because actually the idea is the easiest part of starting a startup and of course, the idea of fundraising (for the uninitiated masses) is glamorous. Check out the hashtag #SharkTank on Twitter to see what I mean!
Anywho, I lacked a good sense of marketing, finance, or anything else central to running a business. When Pencil You In began generating revenue, there was no long-term plan around what to do with it. Expenses piled up where they shouldn’t have. Features were built that shouldn’t have been. I entered “partnerships” that mostly ended up lining the pockets of other companies. Even worse, Pencil You In essentially served as research and development for much better funded, yet entirely less creative competitors. Oy.
Wait. Shouldn’t I want this stuff to be my little secret, though? No! Why? Two simple reasons: the learning experience and somebody out there needs to hear this. Entrepreneurs are nothing if they’re not always learning. How does that happen though? Learn from mistakes that you are going to make. Learn from successes. Learn from customers by talking to them. Learn from competitors. Learn from mentors. Learn from industries that have nothing to do with yours. Learn from industries upended by yours. Andy Rachleff, a professor at the Stanford Graduate School of Business, often talks about how entrepreneurs win by having an insight no one else shares. I believe you get that from observing and learning.
Beyond “No” And Getting the Help You Need
In summer 2011, under the lights and lenses of a bevvy of CNN cameras for Black in America 4 with Soledad O’Brien covering blacks in technology, a venture capitalist saw that I had a great business idea. But his feedback was that I wasn’t “business savvy” enough to drive it to success. I didn’t agree with the entirety of his feedback, but point taken.
Either way, the “no” (and subsequent others) stung for a while, but the ensuing conversations were priceless. For what it’s worth, have no shame in getting feedback. As a black woman, I’m used to the idea of not wanting to “look stupid” and confirming low expectations by asking for help because my demographic isn’t often considered technically-inclined in the first place. I get it. Really. We often don’t have the luxury of just saying, “I don’t know,” but I advocate for agency. Ask for help and feedback anyway. This accomplishes two things: you get the help you need and you empower someone else to ask for what they need. Everyone wins.
The truth is, if you’re in a different package than what many people are used to in tech, it’s going to raise some eyebrows. Use that to your advantage. Do not be ruffled by those alarmed by your difference. Instead, be confident that it can be the source of something valuable to contribute – namely, a different perspective. After all, this is what entrepreneurs do: impose a different perspective on the world. As I’ve said before, keep hacking!
Yes, venture capitalists may be distracted by ignorance and bias when a woman or a black person or somebody with an accent steps in front of them, but the market is not so myopic. The market cares about the value your startup creates. Many venture capitalists have an unwavering interest in finding “the next Mark Zuckerberg” (no matter how silly that wild goose chase really is), but my customers couldn’t care any less that I’m not that guy. Ha! And for that matter, they don’t even care that I’m not a guy!
Success Outside of Venture Capital
I often think that startup culture, which I refer to as “startupland,” frequently glorifies the wrong things.
The standard of success in startupland is something I find strange as well. The most prominent example for me is how readily people believe that raising venture capital signifies success. You don’t have to raise venture capital to be successful and in fact, successfully raising venture capital doesn’t mean a startup succeeded (or will succeed). Look at Color, Pets.com, Webvan, the list goes on.
Venture capital is not revenue.
Interestingly, I’ve been in situations where because Pencil You In hadn’t raised money, I wasn’t considered a successful founder. As Vice President Joe Biden once said, “Malarkey!”
What’s important to remember is that venture capital is the most expensive startup financing choice and is neither appropriate nor necessary for every business. Nobody mentions this to founders as they’re encouraged to put all their hopes into ever more incubators, pitch workshops, and accelerators, though. That’s bad for those organizations’ businesses. Sure, there’s the momentary ego boost from having your name splashed across tech blogs, but look closely. Many of those posts mention board seats taken, control relinquished, and finally, dilution. Oh no!
What’s that about? To compensate for the risk a startup represents and the opportunity cost of not investing elsewhere, pieces of a startup go to its investors. From there, the startup raises successive rounds of financing (seed, series A, B, etc.) because typically, it never gets more than 18 months of financing in one round (this varies). This serves as both a motivator for the startup and reduces risk for the investors. In each round, however, more pieces of the startup are handed over.
Furthermore, depending on liquidation preferences, should the company exit (it is acquired or goes public), the team won’t even be first in line to benefit from all of its hard work. Funding through customers and revenue, however, prevents this.
Advice for Bootstrapping Your Startup
Bootstrapping is just as viable an option for founders, but requires a different way of operating. If you’re not seeking venture capital investment, there are some important things to keep in mind.
First and foremost, master the finances around your startup.
Understand the ins and outs of your business model. Poke holes and don’t run from the hard questions about the sustainability of your startup. Think things through.
Make sure you have a firm grasp of the unit economics of your startup. This is especially crucial when every dollar counts. Understand the lifetime value of a customer (CLV) and then, learn how to minimize customer acquisition costs (CAC) while maximizing average revenue per user (ARPU). Look for ways to increase the velocity at which you take in revenue. I went as far as taking finance and accounting classes myself and much like when I learned Rails, read everything business-related I could. The effort has definitely helped.
As much as possible, avoid responsibilities that distract from generating revenue and moving the product forward. Without venture capital investment, this is easier said than done, but it can be done. It has to be done.
Third, prioritize building something people want, want to pay for, and continue to want to pay for.
These all require understanding the market and getting exceptionally close to your customers. Those relationships help you find what Warren Buffett calls the moat – namely, your startup’s sustainable competitive advantage. Pencil You In’s earliest customers are now friends and mentors and also became part of the customer advisory panel. Some are older women (who’d only ever worked for themselves) who wanted to help me as a young woman entrepreneur. Again, your difference can be an advantage!
Customer Service for Bootstrapped Companies
Last but not at all least, nail customer service. Your customers are the lifeblood of your bootstrapped startup, so you cannot take them for granted. Until you’ve deepened and widened your moat, they’ve the option to go somewhere else. There were some moments like this with Pencil You In (especially after it appeared on CNN!), but nothing stings as badly as a customer cancelling their account because you didn’t handle their needs well. Bootstrapped startups must prioritize keeping churn as low as possible.
More thoughts on customer service:
- Do a private beta and launch only to a limited number of people to prevent being overwhelmed and ensure a true understanding of their use of your product. Throw up a LaunchRock or a similar landing page to collect email addresses until you’re ready to launch to a wider audience.
- Tune your development and release processes in such a way to deploy releases as quickly as possible. Some of the happiest phone calls I’ve had with Pencil You In customers have come from them suggesting something and then seeing it shortly thereafter. Push!
- When it’s time, make payment as frictionless as possible.
- Use any opportunity and interaction with your customers to reinforce why they chose you. Do that, and they’ll encourage others to choose you.
Is there room for entrepreneurs that aren’t interested in venture capital? Of course.
Can you build a startup without venture capital? Of course.
Anybody that tells you otherwise probably has a pitch workshop for you to attend or a term sheet for you to sign. Dig deep and find problems to solve. Don’t be afraid to charge for your product. Don’t let your difference (you’re a woman, you’re a member of the LGBT community, etc.) prevent you from being a full participant in tech. Everything is possible.