Hi there -
Here is this week’s “1 principle, 2 strategies, and 3 actionable tactics” for running lean…
1 Universal Principle
“Bootstrapping or Venture Capital is a false choice.”
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People love to pit bootstrapping vs. venture capital, but this suffers from the false choice fallacy because
- Bootstrapping and venture capital don’t have to be mutually exclusive,
- Most ideas shouldn’t pursue venture capital but
- Most (if not all) startups should start with bootstrapping.
2 Underlying Strategies at Play
I. Bootstrapping and venture capital don’t have to be mutually exclusive.
The fallacy here is thinking that once a startup bootstraps, they have to bootstrap all the way.
Companies like Apple, Facebook, and Airbnb bootstrapped to sizable traction and then raised funding, not for survival but to accelerate growth.
A bootstrapper prioritizes customer funding (traction) above everything else.
Investors today prefer to fund traction rather than an idea or intellectual capital.
This brings us to:
II. Most (if not all) startups should start with bootstrapping.
The first reason is out of necessity:
While capital is more freely available today, the number of startups seeking capital has exploded.
Tens of millions of startups start every year, and only 0.05% of them receive VC funding. And you thought a 90% startup failure rate was bad.
The second reason is that traction makes fundraising a choice, not a necessity:
Traction makes recruiting co-founders, acquiring more customers, and securing investment (if needed) easier.
3 Actionable Tactics
I. Define your mission.
Every year, I meet dozens of startup founders with uninvestable ideas in accelerators, some of who have been through multiple accelerators.
Their problem isn’t getting into accelerators but getting out of them.
Joining an accelerator simply because everyone else is doing it is the wrong reason.
Start by getting clear on your mission. There isn’t one way to win at the startup games, and you should start by defining which game you want to play.
II. Validate demand.
Prioritize traction or validating demand above everything else. Use a demo-sell-build approach to sell before you build. Use that to fund product development or secure seed funding.
III. Choose your adventure deliberately.
Don’t automatically assume you’ll need funding because you’re building a capital-intensive business.
Both Apple and Dell bootstrapped at the start. Both are capital-intensive businesses. Apple raised funding a year later. Dell bootstrapped all the way to IPO.
That’s all for today. See you next week.
Ash
Author of Running Lean and creator of Lean Canvas
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P.S.
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