13/11/2013

By Guy Mucklow, CEO of technology company, Postcode Anywhere

As an entrepreneur who has invested significantly in my own company, I believe that bootstrapping is the best option when starting a business. It’s never easy, and it’s not always glamorous, but bootstrapping will encourage you to become a better, stronger entrepreneur and ultimately incentivise you to intelligently grow your business.

When my business partner, Jamie Turner and I first established Postcode Anywhere back in 2001, we originally considered funding and went to meet a number of venture capitalists (VCs) including Barclays Capital and Elderstreet Investment.

I naively thought that it was a necessary part of the process in getting a start-up going. Luckily, from my point of view, we went to market as the dot-com bubble burst and received rejections at every point.

While I could understand their point of view, which was that our timing was poor and we didn’t have a track record, as a former City-based investment manager I know that there’s no reward without a degree of risk. They seemed to want to have their cake and eat it!

Best thing I never had

I often refer to the rejection process as being the best thing that never happened to us as I ended up funding the business myself and own a large share of the equity and still have a job in the thing I helped to create, which I doubt would be the case if we had taken VC funding.

In fact one of my biggest motivators in this period was receiving a flippant email from a Barclays VC who told me that we were doomed as the ‘gorilla’ in our market would eat us for breakfast.

I believed that he was ignorant and didn’t realise how disruptive our model would be — which is exactly as it’s turned out!

Getting started

Getting the business off the ground was initially a struggle. I had to put my hand in my own pocket as we bootstrapped the business. Jamie invested his life savings at the time and I invested a considerable amount too.

While you might view starting a business with a tight budget as a disadvantage, I believe it can prove incredibly beneficial further down the line, particularly if it’s your first venture into entrepreneurialism. Bootstrapping help us to foster a culture of self-sufficiency which is so important in a small business.

When cash is tight, you’re forced to start small, test your assumptions carefully, and then scale up. Along the way, you learn about your products and customers far more intimately. Bootstrapped companies learn from the beginning that their customers, not their investors, sign the paycheck which is why this becomes so important.

When we first started, I remember looking at everything in relation to opportunity cost. For example, our leased line cost over £20,000, a necessary expense at the time, but I saw it as having to forego an extra pair of hands in the office. These days my mindset, along with that of our CTO, is that we need to employ more machines as they are less trouble. How things change!

Bootstrapping a business makes you far more sensitive to what you’re spending your money on.
With less capital to work with, you’re forced to search for the lowest cost options available on the market – driving a hard bargain from the outset, thus improving your margins.

For example, I ditched a local firm of auditors over a £500 bill that I wasn’t expecting as I didn’t feel that they understood us and weren’t prepared to work with us in what was a difficult period.

Self-funding also helps to cement trust, if you can see it through, as well as strengthening your convictions.

In short if you’re laying half a million of your own cash on the line you need to be pretty certain that you’re doing the right thing as it will place unimaginable strains on all of your relationships if it doesn’t work out!

Of course, every entrepreneurial venture is different. But learning how to do more with less is one of the most important skills bootstrapping has taught me — and a key principle for any 21st century business.