Successful fundraising is no guarantee a startup will succeed. Even "richly funded" startups fail for countless reasons, including customer retention issues, difficulty scaling wisely, or an excessive burn rate.
We've all heard the stat that 90 percent of startups fail. While there's less insight into just how often funded startups fail, it's probably more often than you think. David S. Rose, the "Father of Angel Investing," believes that around 50 percent of startups backed by investors shut down.
Some startup founders are forced to bootstrap, and others choose to approach running their startup by bootstrapping. Bootstrapping allows a company to stay lean, iterate faster, and stay hyper-conscious of burn rate. In a post on bootstrapping for The Harvard Business Review, Qualtrics founder Ryan Smith notes that bootstrapped founders often discover talents they didn't know they had. Smith writes that there's little question, "When you bootstrap, you are forced to get good fast."
For some companies, bootstrapping is a way to shape a core team around people who believe in the greater vision, are resourceful, and ready to work together to create a successful and profitable company from the ground up.
Does Bootstrapping Pay Off?
Here are five inspiring stories of tech startups that bootstrapped their way to the top.
Referred to as an "Un-Silicon Valley Success Story," Atlanta-based marketing software company MailChimp voluntarily revealed 2016 would bring $400 million in revenue and 700 employees. This unconventional decision to share their financials is due to CEO and co-founder Ben Chestnut's firm belief in bootstrapping; he believes that when building a company, founders should, "Run it to serve your customers, and forget about outside investors and growth at any cost."
Founded in 2000, MailChimp's initial funds came from the co-founders' "small" severance checks. For the first six years, email sending was a secondary focus to their primary offering of web design and consulting. Chestnut believes that their existing "proximity" to small businesses, when they decided to focus exclusively on email in 2007, allowed them to have a lean mindset. They were quickly able to add the right features for their customers' needs, and didn't burn through cash with major product mistakes.
With 24 million users and growing, GitHub is an open-source version control system for developers, allowing users to manage and store revisions of projects. As one of the most popular tech repositories, GitHub is used by developers across many different industries.
The company raised $100 million in funding from Andreessen Horowitz in 2012, topping off as the legendary VC firm's largest investment up until that point. The company bootstrapped for four years before raising, and was profitable. For Github, continuing to bootstrap, even when profitable, was a matter of control over vision. CEO Tom Preston-Werner notes that they previously declined funding because, "We never found a partner who shared our vision with us and had a passion for software development."
Github was founded out of necessity — Preston Werner and co-founder Chris Wanstrath built the tool to use themselves, as they needed to "share code with others" in their day jobs. A Beta release of the product resulted in emails from users "asking to pay for the service," with requests for paid accounts providing the option to keep code private. Today, Github offers both freemium and paid options. Even with a large funding round to back them, the company still operates in a lean way, with 598 employees and no official office space.
3. Basecamp (37Signals)
Chances are, you've heard of (or used) Basecamp, the most popular product offered by the company that was known from 1999-2014 as 37Signals. As the first app ever built on Ruby on Rails, Basecamp and founder Jason Fried became icons in the remote work and lean startup movements. Basecamp also originated from a place of frustration and need — Fried wanted a lighter, more flexible SaaS solution for project management.
As a vocal proponent of bootstrapping, Fried believes a lack of funding helped his company focus on profitability instead of getting distracted by "fun projects." This philosophy continues today, even though his company now has a team of 52 employees, Basecamp still hires like a lean startup.
There's no question that Basecamp has achieved product/market fit — companies of all sizes can find use cases for lightweight project management software. However, their marketing is also a major component of their success. Fried worked tirelessly to develop brand authority around bootstrapping and agility, publishing blogs on Medium, and authoring several highly-successful books on remote work and tech startups.
A background in "commission-only credit card service sales" taught Braintree founder Bryan Johnson that business owners want "honesty, education, and reliable service." In fact, they're willing to pay for it. Tech payment platform Braintree was profitable before their platform was launched, thanks to Johnson's existing customer relationships. Not only has this once-bootstrapped startup never offered a freemium model, they comfortably charged much more than their competitors in the beginning. Higher pricing was a deliberate choice to help new clients "self-select" a better customer experience.
Braintree was acquired by PayPal in 2013. With 500+ employees in 7 global locations, you use their service every time you pay for Uber or AirBnB. Despite their incredible success, the company still has a bootstrapped startup culture, and encourages employees to act on ideas, "no matter how pie-in-the-sky."
In 2011, Johnson's company was competing against a proliferation of other startups offering technology for online payment, without funding. It was probably tempting at points to accept VC attention, but staying bootstrapped helped keep their vision in focus. Johnson stated, "I think VC-funded companies are more inclined to throw money and people at opportunities and problems."
A Chicago-based provider of email marketing, marketing automation, customer relationship management (CRM), and sales automation tools for small business, ActiveCampaign spent 13 years bootstrapped from 2003 to 2016. The SaaS marketing tech space is crowded, and CEO Jason VandeBoom believes that many VCs' focus on growth could have damaged their position as a "very product-focused type of company."
ActiveCampaign's first 13 years were spent carefully perfecting their tools and, in fact, narrowing their product offering and customer targets. VandeBoom's next steps are to "aggressively pursue" developing predictive analytics and customer lifecycle innovation for their existing customer base. ActiveCampaign's path to success wasn't perfectly linear, but it's defined by a tireless pursuit of "single focus clarity."
In 2010, ActiveCampaign made the bold decision to ax seven products, go SaaS, and chop their pricing down to $9 a month. While VandeBoom admits low-priced products are a "double-edged sword," this pivot allowed them to focus on the right customer segment in their niche: "tech-fearing people."
With ActiveCampaign now fueled by $20 million in funding, VandeBoom's goal is to continue hiring wisely and hit 150 employees by July 2017.
Currently bootstrapping and still thinking about raising VC funds? Grab our guide: 12 Things You Should Know About Raising a Seed Round.
Lessons on Focus from Successful Bootstrapped Startups
Out of the five stellar tech startup success stories profiled here, two ultimately made the decision to accept outside funding. However, this choice wasn't made quickly, and it certainly wasn't made before their products were wildly profitable. A 2011 interview with Brian Johnson of Braintree, shortly before his company was acquired by PayPal, yielded the statement, “People have a tendency to behave differently when it’s not their money on the line.”
No two bootstrapped or funded startups will have an easy path to success. MailChimp, 37Signals, and ActiveCampaign all survived a massive pivot. However, every successful startup achieves profitability with a seriously solid product and meaningful product-market fit. Sometimes, bootstrapping by choice, or circumstance, can allow entrepreneurs to clarify their vision and focus on building a disruptive product.
RocketSpace offers a unique global network of tech campuses, currently in San Francisco and opening in London soon, designed as a coworking space that provide velocity for the world's top tech startups who are bringing the future to market. With a collaborative community, trend talks, and industry partnerships, RocketSpace's list of alumni include Kit (acquired by Shopify in 2016), HootSuite, and Universe (acquired by Ticketmaster in 2016). To learn whether your startup could be a strong candidate for this closed community, we recommend our free Coworking Kit.