When we become entrepreneurs and launch our own startups, we talk of freedom, and about the relief from the burden of “working for the man.” While we may launch those companies for the money, more often than not, the biggest motivators for doing so is a desire to have more time for family, a flexible work schedule, and the ability to control our own destinies.
But then the first thing advisors tell us to do when we start a business is to look for funding. Since banks don’t make venture loans, that funding – when we can find it – comes from venture capitalists and angel investors. Now all of a sudden, we’re putting in 12 hours a day and “working for the man” again.
Due to a combination of factors that includes both macroeconomic realities and technological innovations that allow us to do more with less, entrepreneurs today are beginning to recapture some of those lofty dreams. Self-funding and bootstrapping, often derided as foolish for all but the very wealthy in some Silicon Valley circles, is more of a reality than it has ever been, and a perfect storm of events is now making it possible to actually build a business with very little money.
Smaller startups don’t need as much
This perfect storm is what Cloudipedia defines as the “dotcloud boom,” or “the emergence of a new class of born-in-the-cloud startups which are driven by an imperative for speed, convenience and personalization on the part of the consumer, and which are built on as-a-service infrastructure, software and development tools that allow a more agile startup cycle with low initial capital requirements.”
Last year startups received significantly less venture funding than in 2015, and that trend is expected to continue through 2017. Political uncertainty aside, there are many reasons companies are not taking on VC money. From alternative fundraising mechanisms such as crowdfunding to out of the box technology solutions, it’s easier than ever to start a business, and grow quickly without significant startup capital.
Newer development-as-a-service platforms, along with cloud-based infrastructure and software, have eliminated much of the “build it from scratch” burden carried by old-school dotcoms, and a gig economy mentality has made it possible for more startups to rely on a broad ecosystem of contractors rather than carry a full on-premise staff. “Today’s startups face a new model,” said Jeev Trika, CEO of CrowdReviews, an early-stage, self-funded startup which delivers a crowd-driven, transparent review platform. “We no longer have to worry so much about getting funding on day one before we can build out the infrastructure. Services in the cloud are readily available, highly secure, and inexpensive. This has allowed me to create a full-featured commercial site, and launch a marketing and PR campaign with minimal full-time staff. With a fully-functioning site, hundreds of clients and coverage in high-profile media outlets, CrowdReviews has already become a proven concept, and we’re looking forward to having Series A discussions this year.”
Trika says that the self-funding route he has chosen has allowed him to build out his company beyond the proof-of-concept stage, to the point where it is now far more attractive to investors.
An eager market emerging for entrepreneurs
While those startups receiving tens of millions in venture money get front-page media attention, statistically they are outliers. Most startups are self-funded, bootstrapped, or launched with minimal funding from an angel investor or incubator program.
Andrew Marcus, co-founder of FitnessTrainer.com, was initially only concerned with generating enough income as a college student when he launched his first company, MyTennisLessons.com, a marketplace that connects students and local tennis instructors. Instead of spending time seeking venture capital, he focused on building a sustainable business. “When we started MyTennisLessons.com, we were just concerned with getting the website off the ground,” said Andrew. “Startup capital requirements were very minimal at first, and our entire buildout consisted of a website, some Craigslist ads, and our own labor. We started generating revenue from day one.”
When the business started to grow, it transformed from a handful of college friends giving tennis lessons, to a full-fledged platform. “We were able to build out the initial site with the revenue we were generating,” said Andrew. “In order to expand MyTennisLessons and scale our second vertical FitnessTrainer.com, we made the decision to join the Capital Factory, an incubator here in Austin, TX, and take on funding from a handful of angel investors. While many companies would welcome a multi-million dollar investment, this route made the most sense for us to initially prove out our business model.”
The conventional Silicon Valley model of fast launch, large rounds of funding and pre-revenue wasn’t ideal to Marcus, who is only now starting to consider venture money for expansion. “The conventional startup model of raising venture capital, growing top line revenue, and exiting quickly via acquisition was not appealing,” said Andrew. “For us, it was important to build a self-sustaining business that was setup for long term success.”
Gig Platforms Creating New Opportunities
“Gig platforms are the foundation of thousands of new entrepreneurial opportunities, for the creators of the platforms as well as for the people who take advantage of them,” said Andrew. “With MyTennisLessons.com and FitnessTrainer.com, we’ve seen a growing desire for people to create their own jobs and enjoy the flexibility of working on their terms, which creates a better work/life balance.”
The popularity of gig platforms has created entrepreneurial opportunities on both sides – for the entrepreneurs who create the platforms, and for the small home-based entrepreneurs who sign up. Another such platform is GreenPal, a marketplace that connects homeowners with local lawn care services.
Three years into their journey, GreenPal CEO Bryan Clayton says he has over 20,000 active customers in seven states. Staying close to his customer base has been Bryan’s key to growth, and it is precisely his self-funded approach that has enabled this close connection. “Necessity is the mother of all invention,” said Bryan. “When entrepreneurs raise outside capital too quickly, it affords them a level of comfort to turn over key internal tasks that really need to be handled by the founding team members. When you raise capital, you can hire customer support agents to handle that pain for you, however a smart entrepreneur still does that every day and lets that guide the product development roadmap.”
Venture capital will continue to play a major role in launching and maintaining startups, but the existence of more funding alternatives, and the emergence of as-a-service development and infrastructure tools that make launching a startup easier and less costly than before will continue to make self-funding a realistic alternative for growth-oriented companies.
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