Glen Rabie
The clock begins ticking on a startup the day the doors open. Regardless of a young company’s struggles or success, sooner or later the question of when, how or whether to sell the enterprise presents itself. It’s possibly the biggest question an entrepreneur will face.
For founders who self-funded (bootstrapped) their startup, a boardroom full of additional factors come into play. Some are the same as for investor-funded firms, but many are unique.
After 18 years of bootstrapping a BI software firm into a business that now serves 28,000 companies and three million users in 75 countries, here’s what I’ve learned about myself, my company, about entrepreneurship and about when to grab for that brass ring.
Profitable or bust
Starting a software company 7,900 miles southwest of Silicon Valley requires some forethought and not a small amount of crazy. When we opened, it didn’t occur to us that one could have an idea and then go knock on someone’s door and ask for money.
Bootstrapping forced us to be a bit more creative about how we would go about building our company. In the early days, it was a distraction to growth, because we were doing other revenue-generating activities like consulting, development work, whatever we could find to keep ourselves afloat while we built Yellowfin. It meant we couldn’t be 100% focused on our idea.
However, it also meant we had to generate income from our new company from Day One — something funded companies don’t have to do. We never got into the mindset that it was okay to burn lots of cash and then cross our fingers and hope that it worked.
As a business, this is probably the core differentiator between a bootstrap and a funded startup: You are building a viable, profitable business as soon as you open the doors. Not necessarily highly profitable, but you’re focused on cash flow and meeting the needs and constraints of the business. If you’re funded, you don’t have those constraints, so you’re not as efficient with capital as you could be, because there’s no reason to.
The price of freedom
There was a point, about a year-and-a-half into operations, when we were tossing up whether to close the business. We had to win one specific deal for us to justify going on, because we were putting our own money into the business. We set a date — if we didn’t do this one deal by October 31, we would just shut the doors.
That was the lowest we’ve ever been, spiritually. And it was winning that deal that put us at the highest we’ve ever been.
Yet, there has been a long-term high: The freedom to drive the business the way we’ve intended. When you bring in outside investors, you lose that freedom. It’s as simple as that. You become an employee again very quickly, just under a different mechanism. The change is justified; it becomes the investors’ financial risk after all.
As founders who wake up every day, go to work and make strategic decisions without really having to confer with any outside bodies, we can pivot our business without having to think too hard about investors. It’s that level of freedom that is the underlying difference between bootstrapping versus taking a lot of capital and working for someone else.
With bootstrapping, of course, you have to be prepared to sacrifice. A lot of people have a great idea for a company, but they want to implement it without personal risk. If you want to live a “corporate executive” lifestyle, buy that big house and go on holidays, you’re going to need to take funding. If, on the other hand, you’re prepared for, and excited by, the challenge of starting your own business from scratch, including doing the hard yards to make a success, bootstrapping is the way to go.
Entrepreneur, know thyself
All journeys come to an end at some point, and some owners exit their business early on for really good reasons. When our company was approached by investors in the first years, we were not prepared to accept the downside that came with the deal. We knew we’d have to become much more aggressive about numbers, and people wouldn’t mean as much. We also realized we’d have to embrace the idea of being a “fast-growth business.” That was not what I envisioned for the company I wanted to build.
Nonetheless, it’s important to examine the idea of selling one’s business. The reality in the software industry is that the vast majority of companies either get scooped up by a strategic buyer at some point or they transition into a private equity firm. Owners have to be mentally prepared for that.
The question to ask oneself as an entrepreneur is whether you can still contribute to the company and drive its growth. It’s a question that requires brutal honesty. Do you have the level of competency required? Can you continue to tolerate the financial risk? Is it time for a lifestyle change? Are you still having fun? The answers to those questions will tell you whether it’s time to sell.
Some owners wait too long to answer those questions, and the moment to sell passes them by. One day their technology becomes too old and difficult to sell. They didn’t embrace the time to sell when things were still frothy and peaking, and now they’re in decline. If you, as a founder, see that decline coming, get out beforehand.
Following bliss
A lot of people have asked me over the years what I’m motivated by. It isn’t money. I don’t wake up every day thinking, “How will I make my fortune greater today?”
I’m more motivated by the challenge of building my business as a strong, independent entity. I get very excited by lots of small wins, whether it’s being in the Gartner Magic Quadrant, as we are, or our first big deal in a new category. It’s all those little things that are exciting versus a simple monetary outcome.
The idea of risk and risk appetite is something that all bootstrap founders share. When we started our company, our goals were significantly smaller than the ones we have today. We see the potential: The more we invest in it, the more we build it, the more value we create and we think, “Nope, we’re staying.”
There will come a day when we may take the money. We’re always open to the idea. But that’s not what we’re here for. We’ve created something very unique in the market, which I’m very proud of. I love what we’ve created. I love the organization we’ve created.
Whichever way an owner decides about selling, happiness counts, in business as well as in life. Entrepreneurs are known for having good instincts. Put happiness at the center of the decision, and let your intuition — the instincts that made you the person you are today — be your guide.
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