I grew my business without external funding. Bootstrappers have an advantage over VC-backed startups—especially now
Theranos is a telling story of VC funding gone wrong. The company, which claimed to have developed blood-testing technology, raised nearly $724 million from investors. It was valued at $9 billion before it was liquidated due to the company’s biggest mistake—its product didn’t work. It was all hype, no real benefit. Even if VC-backed founders aren’t scammed, there’s a tendency to prioritize funding and inflate the product in a destructive way.
I founded my company Jotform 18 years ago. With no external funding, it has been slow at times, but today, we have over 25 million users worldwide. I learned a lot about bootstrapping and how it creates the right combination of stress, thrift, and creativity to develop beautiful, profitable products. Here’s a closer look at why VC funding can cause startups to make bad products.
When VC funding goes wrong
People often think that “small business” and “startup” are interchangeable. But ask any founder and they’ll probably tell you their ambitions are big. Bootstrappers are no different. In fact, according to a recent report from startup lender Capchase, software-as-a-service startups are growing as fast as their venture-backed counterparts—despite spending only a quarter of what VC-backed businesses do on each new acquisition. the customer.
In addition, research shows that 64% of the top 100 unicorn startups—those valued at more than $1 billion—are not profitable at all.
As the Capchase report explains, before investing in growth, the most successful startups focus their efforts on nailing product-market fit. That means finding a match between your product and the people who need it. This, in turn, creates happy customers, high demand, and organic, sustainable growth. A staggering 34% of startups fail because they don’t find product market fit. A brilliant idea never ends.
Let’s say you’re a VC-backed startup and you’re not seeing the growth you expected. Maybe you’ll raise money in sales and marketing campaigns, leaving a short runway (when your business can continue to operate on cash reserves alone). And maybe you will achieve the desired result (customer acquisition), but it is risky and the long-term return is uncertain. If you’re a bootstrapper, you don’t have that option.
So, what do you do instead?
What bootstrappers do differently
Bootstrapping may sound simple, but in many respects, it is a luxury. As a bootstrapper, you have the luxury of focusing on your product and not answering to anyone.
When I founded my company, I fell in love with our first product, online forms, because I saw their potential to make people’s lives easier. That aspect—ease of use—was my main concern, which is why our first title is “The Simplest Form Builder.” I loved the product so much, and got so much joy out of seeing people use it, that I gave it away for free (while working my 9-5 day job). From February 2006 to March 2007, we did not have a paid version of our product. Still, this was an important time for the company.
Why? Because I listened to the first users and got valuable feedback on how they were using our product and how I could improve it. I tweaked and iterated before I released the paid version. Because people saw the value of our product, we grew our customer base before spending less on marketing.
If I had investors who required me to meet arbitrary KPIs, I would have spent my early days mastering PR and marketing. I was not an expert in any of these fields, and I did not enjoy them. I am sure that the company would not have taken off if I had been forced to focus only on those aspects of the business.
Your most important stakeholders
Today, as a mentor to several founders, I always share my 50-50 rule: spend half your time on the product, and half your time on growth. And I encourage developers to release their most important features as soon as possible to get them into the hands of users. Then, they can get critical feedback about their product—before asking people to pay for it.
Another takeaway: Don’t stop listening to users—your most important stakeholders. If people are too tied to their product, and don’t care if it meets the needs of their users, they are bound to fail. Growing a business systematically requires letting go of your ego and understanding that even the smartest products fall flat if they don’t meet the specific needs of the target audience.
Another thing that bootstrappers do differently is that they focus their efforts on making an impact. Capchase’s report, for example, found that successful businesses don’t spend a lot of money on sales and marketing, but instead, have a “sharper” understanding of which channels and campaigns have the most impact and show the fastest returns. In the early stages of a startup, perfecting your brand has more impact than flashy marketing campaigns. With tight budgets and small teams, bootstrappers often apply this way of thinking to everything they do. That’s why I tell entrepreneurs and team members automating their busy schedule—giving more time to the “big stuff,” or more meaningful work that moves the needle for your company or career.
Recent reports show that by 2024, VC funding has fallen by six years. This may have sent shudders throughout the startup world, but it shouldn’t. Bootstrapping is the safest, most reliable method. And perhaps most importantly for your company, it creates the perfect environment to develop a better product for your customers.
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