The big question these days in the early-stage startup world is what’s better for you? To be bootstrapped or Unicorn? When all is said and done, the success of a company will always rely on the vision and plan of its founders.
Venture capital has always been a taboo option for financially-savvy business owners. The prospect of starting a business and becoming completely self-reliant is the proverbial entrepreneurial dream. It removes the stress of paying off debt and satisfying a board of financial backers. At the same time, it places the entire financial burdens of development, scaling, and team building on the founder’s shoulders.
On the other hand, not having to worry about money in the early stages of a company can also speed things up rather quickly. While hefty venture backing is alluring and idealized in silicon valley, it has some significant drawbacks as well.
Unicorns: Big Rises and Even Bigger Falls
Unicorn companies have been bastions of influence in silicon valley and have shown the potential for massive success. While this is true, many unicorns have crumbled under the financial pressures these massive investments have placed on their shoulders.
There are a couple of key factors that are causing the unicorn bubble to burst and result in ultimately non-profiting companies.
As a startup, you need to be able to ride out the bad periods and achieve a level of flexibility in the market to achieve long-term profitability. Due to the rigid profit margins they are forced to maintain in order to keep stock prices up, these highly valued companies most often get crushed by bad times. Rather than thinking ahead and maintaining vision, unicorn founders are forced to answer to the whims of VC’s who want to turn profits ASAP.
- Artificial Inflation
Unicorn companies have so much money from their gigantic funding rounds that they feel a pressure to start burning through it. Due to hype and overzealous market projections, these companies often end up spending and spending just to keep their valuation projections up. Most often this sets up a game of catch up that many unicorn companies simply cannot win. As the CEO of the trading giant 24 Option puts it – “It doesn’t take long for the market to discover the truth.”
Bootstrapping: A Story of True Success
There is not a more honorable way of tackling entrepreneurial endeavors than to bootstrap and attempt to fund your new startup independently. Some of the most inspiring, fire-starting stories in history are a result of founders who were able to grind through the early stages of their company with nothing but an idea and a strong mindset for success.
One of the most inspiring stories comes from the founder of the athletic giant Under Armour.
When Kevin Plank began developing the first moisture-absorbing athletic material, he was based out of his grandma’s basement. He had no intention of going into debt that early and ended up selling his prototype himself. Kevin would drive up and down the east coast every day to test and sell his initial prototype, a painstaking process that he kept up with for a full year.
He then used this initial bootstrapped-cash – a respectable $17 thousand – to expand his operations and turn UA into the behemoth it is today.
Another motivating story is that of SaaS giant Basecamp. Founder Jason Fried went through a painstaking process of self-funding and development because he was a big believer in profit over growth initially. According to Jason, he never strayed from the mantra that “No one ever went broke making a profit.” Basecamp was built from the ground up by Jason, and he never once sought funding initially until he began to turn a profit.
What lesson can we get from all of these stories?
Unicorns are not always all that they are cracked up to be. Massive debt is no joke and has left many founders lost and answering to boards of investors for most of their careers. While bootstrapping may seem like an insurmountable task – with the right founder, right market, and great timing, nothing is impossible.
Bootstrapped or Unicorn?