Most entrepreneurs bootstrap their new businesses but they still fail.For many startups, raising a round of funding is a day of celebration, but if not managed well, they can still fail. Funding is no guarantee for success. Raising a round, though, doesn’t mean that a startup has “made it” or that the entrepreneurs behind the venture are on their way to tech stardom.
In the words of Christian Chabot, CEO and co-founder of Tableau Software, (a software company that helps people see and understand data) taking venture capital is like having a loan. “Do you feel brilliant and motivated after you take out a big loan?” he asks rhetorically. He and his co-founders avoided venture capital at all costs during their early days and managed to break through the $100 million revenue milestone and now has more than 700 employees after nearly eleven years of doing business.
Founded in January 2003 by Chabot and two Stanford computer scientists — Chris Stolte and Pat Hanrahan — Tableau was born when “the dot-com bomb was still exploding, and the stock market was hitting a five-year low,” says Chabot.
Having just completed a two-year stint as an associate partner at Softbank Venture Capital, Chabot says he had seen firsthand what happens to young companies that raise too much money too fast. “I also saw what happens when venture capitalists get too much control of a missionary technology venture – and it’s generally not good.”
While the company did eventually raise a $5 million Series A in 2004 and a $10 million Series B in 2008, it all begin with three entrepreneurs who brought a few thousand dollars each to the table.
Chabot spoke with Forbes about how Tableau managed to grow its $100 million business without spending any venture capital. He provided a few key nuggets of advice for entrepreneurs looking to bootstrap to success.
1. “I believe it’s a myth that you need to bring a lot of capital to the table in order to be able to bootstrap,” says Chabot. “Frankly, I don’t think most people are willing to make the sacrifices that you need to make to be an entrepreneur and to bootstrap a company from nothing.”
2. “The hardest thing you have to do when you bootstrap is to work for free. There’s no income. It’s not that you have to be cutting big checks necessarily – there’s just no income. So you have to be able to adjust your lifestyle for some period of time, maybe a year or year-and-a-half.”
3. “Most people wait way too long before they go try to sell what they have.” Stay away from these common excuses, he advises:
- “We’re still building it.”
- “We haven’t tested it.”
- “It’s not going to ship until the end of the year.”
4. “One of the great advantages as a software company is that you have a product that has a price tag. From the first days of forming the company, we would get in our cars, put our laptops in the backseat, and drive around trying to sell our idea.”
5. “The most important part of a bootstrapped company’s culture is a sense of mission and purpose. A sense that you are a secret, Manhattan Project-style team, quietly working on something that is going to be really, really important. There is a certain kind of personality that literally is so excited about that, they cannot imagine working anywhere else.”
6. “Our first employees reported to work in my bedroom, which was our first Seattle space. Our second Seattle space was my basement. That was the big company move because the basement was a lot bigger than my bedroom. And our third office space was a low-cost corporate office space in a so-so commercial building in Seattle with dirty carpet and in desperate need of a paint job.”
7. “Our philosophy was to ‘raise customers before raising capital.’ We wanted to build a little company with a product, customers and positive cash flow before raising venture capital. This required several years of bootstrapping. But there are good reasons to raise capital at some point in a company’s life. We ultimately decided to take that step — we just didn’t want to do it too early. One of the important reasons to bootstrap before raising capital is that you can raise money on more attractive terms and maintain control of the company.”
Original interview published on Forbes