Entrepreneur Corner

(Editor’s note: Clate Mask is co-founder and CEO of Infusionsoft. He submitted this story to VentureBeat.)

There are two ways to build a business: Raise a bunch of money or bootstrap. When I was in business school, there wasn’t much attention given to the bootstrapping notion. The “MBA way” of growing a business is to write a business plan, raise money and then execute the business plan. But I think that’s almost always the wrong approach.

We bootstrapped Infusionsoft for several years before ever raising capital. The lessons we learned were, and continue to be, invaluable. Here are the top ten lessons we learned from this method – and why I continue to evangelize bootstrapping to entrepreneurs:

10.  You’ll learn you can keep expenses low. In the early days, we learned that many “necessities” are really luxuries. For a long time, we didn’t have a copy machine. We used our fax machine, went paperless and occasionally borrowed our next-door neighbor’s copier. After a couple years, we bought one of those multi-function machines from Costco for a few hundred bucks. Not until we were doing a couple million bucks in annual revenue did we get a “real” copy machine. You can argue whether the copier is a necessity or a luxury, but you can’t argue that we learned to keep expenses low and still effectively do our work.

9.  You’ll manage cash better once you have it. The discipline you develop when bootstrapping will stay with you so that you don’t blow your cash once you’ve got it.

8.  You’ll develop your Minimum Viable Product. When you don’t have a treasure trove of cash, you get the product to market as fast as you can. Good is good enough. You don’t fret perfection. And you don’t waste resources “guessing” what your customer wants. You get it in the customer’s hands as quickly as possible. Infusionsoft began as a custom software company so we developed our sales and marketing automation software with feedback from our customers. Our R&D came directly from their input and as a result our product, with every release met the customers’ needs more and more.

7.  You’ll know you’ve got a real business… before wasting OPM (Other People’s Money). I’ve just never felt comfortable taking an investor’s money if I don’t know I can multiply it. If you don’t bootstrap, you’re taking a serious risk with someone else’s money.

6.  You’ll employ missionaries instead of mercenaries. You don’t have the big bucks to pay the hired gun. You can only afford to hire passionate people who really believe in the cause – and that’s a great thing. In a startup, passionate employees almost always outperform experienced corporate types who command big bucks.

5.  You’ll stay focused on your core business. Raising capital can take more time than selling and servicing your customers. If you try to raise money too soon, you’re probably going to take your eye off the ball and leave your customers hanging. You might actually bring in more cash by spending your time with prospects and customers. Plus, you’ll raise money faster and easier after bootstrapping. Investors get excited about investing in a business that’s generating a lot of revenue and hasn’t raised any money from investors.

4.  You’ll retain the equity in your business. Once you raise capital, you’re giving up some ownership in your company. The longer you can avoid raising the capital, the bigger the piece of the pie you’ll own down the road. For this reason, if no other, you’ll want to hold off raising capital for as long as you can.

3.  You’ll retain control of your business. Investors have wants, needs and demands. Once you take their money, you need to answer to them. In the best case, they take up some of your time. In the worst case, they force your hand or move you out. Don’t bring on investors until you can multiply their money and thereby keep them happy.

2.  You’ll learn to sell. When you don’t have cash in the bank, you’d better know how to sell. It’s amazing how many entrepreneurs who raise capital are great in academic discussions but terrible on a sales call. The art of persuasion is not what business school is teaching, but it’s what drives the success of the business.

Often when you have raised VC, it’s easy to fall into the “strategy” trap. That’s where the team spends most of its time engaging in relentless discussions on strategy and big ‘game-changing’ things, which is fine, but who’s selling? When you haven’t raised venture capital, you get your butt on the phone and you persuade people to buy your stuff. When you bootstrap, you learn that selling—while it may not be glamorous—is what drives the business.

1.  You’ll listen to your customers. Bootstrapped companies learn from the very beginning that their customers—not their investors—sign the paychecks. They listen, they adjust and they care – because they have to. There is no other way if the bootstrapped company wants to survive. This fundamental concept is at the heart of why bootstrapped companies are stronger companies in the long run. They cultivate from the very beginning, and they ingrain in their DNA, a strong desire to serve the customer.

So, what did I leave out? What have you learned from bootstrapping? And when do you think it’s time to move from the bootstrapping game to the OPM game?

Photo by star5112 via Flickr

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Tags: co:Bootstrap, Venture Capital