June 28, 2019 · work

Balancing Risk as a Bootstrap Company

On the TJ Muehleman Risk-o-meter™, starting a company is a solid 7. Where 1 is sitting on your couch reading a John Grisham novel while you eat vanilla ice cream and a 10 is Alex Honnold climbing El Capitan without a damn rope, a 7 is ya know, pretty risky. Especially now-a-days where you need health insurance and a hefty salary just to survive in these freakishly expensive cities we live in, 7 feels like it’s about right (maybe it’s more like a 6 and a risk level 7 move is getting a tattoo on your lower back. Either way).

What happens with the risk after you start the company is another matter entirely. For the purposes of this article, I’ll stick with what I know: software companies (my dad did restaurants his whole career which is a completely different level of risk that I’m not prepared to contemplate right now).

Venture Risk Tolerance

Risk is never something that has bewitched venture backed software companies. The founders of those kinds of companies often have lofty, world dominating plans in mind. And they usually have a shitpot of money to make big bets — they’re typically the sort to “go big or go home”. They maximize risk so they can maximize returns. It’s sort of like playing roulette; venture backed companies are betting on one or a few numbers. Their odds of hitting might be 1-in-35 if they bet on a single number. This is maximum risk. Or it might be 1-in-8 if they bet on 4 numbers. This is reduced risk but still pretty damn risky. I'm definitely not condemning this approach. The world needs it. It's just not for me.

Bootstrap Risk Tolerance

On flip side of this metaphor is the bootstrapped founder. A bootstrapped founder would be betting on evens/odds or red/black. These odds are 1-in-2. Risk has been mitigated but so has the payout. You put $5 down and you have a 50-50 chance of doubling your money. Not bad but you ain't gonna make a dent in the universe this way.

Why is there a difference in mentalities? It’s simple: for one of these aforementioned founder types, there’s a sort of safety net in not playing with your own money. It frees you up to take bigger swings. You’re encouraged to make bold moves. The other founder type is playing with their own money. On top of that, their bankroll is significantly smaller meaning the bets they take have to be more strategic and purposeful.

The challenge I’m personally dealing with being a bootstrapped founder is that I’ve been playing it so safe that not only am I not playing roulette, I’m not even in the casino. I’m standing outside holding a bud light wondering if they’re going to card me as I walk in.

Now, this has worked to our advantage. We’re a small but scrappy team. We’ve built up an impressive client roster. We’ve been fairly purposeful with how we deploy our resources. But we haven’t taken very many big bets — actually, we’ve taken zero big bets. The net takeaway is it’s probably taken us twice as long to build a lot of value with our clients (“move slow and build value”). But now I sit back and look at our organization, having raised zero dollars and stayed profitable our entire time, I’m ready to play a little bit of roulette. I think there have been a few markers in recent months that the time is right to expand our team and start moving with a bit more pace:

  1. Demand for what you do outpaces your ability to deliver it: in the early days, you have way more capacity and very little demand (usually). But if you’re doing things right, and you’re not paying for customers, over time people will start to find you and they will start to knock on your door. If no one starts to knock on your door, you’re not compelling enough.
  2. You know the ins and outs of your market: I’m a *firm* believer that attempting to accelerate growth before you know all the ins and outs of a space is like trying to get swole by pumping your body full of steroids. Sure you might get huge but you will crash back to reality fast and hard.
  3. Your platform starts to show signs of organic growth: While revenue, prospects, sales funnels, etc are my new gospel I’m still an engineer at heart. And for us, overall usage has doubled in the past 12 months and customer activity has tripled in the same time span. This means we’re clearing delivering something people want. And they’re using it. I’ve never in my 20 years of build things seen such rapid growth in a platform I’ve helped build (or manage). Clearly we’ve tapped into something.
Hey we're growing!

So what does this mean for us? We’re still sorting it out. But I think we’ll be investing more into our team and platform over the next 12-18 months then we ever have. Wish us luck!