How long can you survive on bootstrapping?
11 comments
I don't understand how your company works. Your product is free. You've maximally leveraged yourself personally. You have no recourse in negotiations. Your BATNA may be bankruptcy. Your question is, "how long can you survive on bootstrapping". But you haven't booted yet.
Figure out something your team can do that will make money. Then think about the long term.
If you can strike a licensing deal with your technology, you should do it. You can't hurt your valuation any more by creating cash flow than you can by driving your company to the brink.
You can talk to companies that have expressed interest, and set up a contracting arrangement to build things for them. There are tons of mobile dev consultancies. Do that for awhile.
Figure out something your team can do that will make money. Then think about the long term.
If you can strike a licensing deal with your technology, you should do it. You can't hurt your valuation any more by creating cash flow than you can by driving your company to the brink.
You can talk to companies that have expressed interest, and set up a contracting arrangement to build things for them. There are tons of mobile dev consultancies. Do that for awhile.
+1 for "Figure out something your team can do that will make money. Then think about the long term."
I'm in the same boat at the moment, we've raised some seed money and are somewhat in the same boat. In our case, we spent 2-3 weeks of June talking to ~2K of our users on the phone to get some real feedback on how they use the product, what sucks and what else they want to see. At the end of it, we had a pretty solid list of bugfixes and enhancements... but, better yet, we noticed that there were 2-3 specific features that people actually offered to pay for. So, as a final sanity check, I emailed a small sample of those users with a credit card authorization form and asked them to fax it in... I got most of them back (and then shredded them since I don't actually have a way to process them just yet). :)
If your userbase is actively giving you feedback, maybe it's worth spending a little bit of time having in depth conversations to see whether any paid features might emerge?
I'm in the same boat at the moment, we've raised some seed money and are somewhat in the same boat. In our case, we spent 2-3 weeks of June talking to ~2K of our users on the phone to get some real feedback on how they use the product, what sucks and what else they want to see. At the end of it, we had a pretty solid list of bugfixes and enhancements... but, better yet, we noticed that there were 2-3 specific features that people actually offered to pay for. So, as a final sanity check, I emailed a small sample of those users with a credit card authorization form and asked them to fax it in... I got most of them back (and then shredded them since I don't actually have a way to process them just yet). :)
If your userbase is actively giving you feedback, maybe it's worth spending a little bit of time having in depth conversations to see whether any paid features might emerge?
Thanks paul. I think the most immediate answer is: improve the product and keep pumping out features. In the short-term our costs are really under control. I apologize if my initial thread sounded like I was shouting "fire" in a crowded theater. With the recession and downturn in the economic climate, startup logic (understandably) has shifted from the web 2.0/YCombinator preaching of: build, find users, get acquired or profit. The difficulty is that competitors in our space operate on this “free” model and are backed by substantial angel or VC money. In fact, the only widely visible startups that seem to still be operating under this logic were founded and funded pre-recession. What is going on here?
I’m somewhat confused by all the conflicting recommendations I get on early-stage startups. Again, cash is king and we have some ideas for monetization (which, of course requires more $).
In today's economic climate, can startups afford, literally, to avoid realizing a business model after you've scaled? I realize that YC has increased the number of seed investments, but has the angel community also increased the pace at which they invest in these fledgling ideas at the >$100k investment stage? I'm in Boston, so my perception is a little bit warped. Can someone offer their thoughts?
I’m somewhat confused by all the conflicting recommendations I get on early-stage startups. Again, cash is king and we have some ideas for monetization (which, of course requires more $).
In today's economic climate, can startups afford, literally, to avoid realizing a business model after you've scaled? I realize that YC has increased the number of seed investments, but has the angel community also increased the pace at which they invest in these fledgling ideas at the >$100k investment stage? I'm in Boston, so my perception is a little bit warped. Can someone offer their thoughts?
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No apologies necessary, you're asking a good question that I also have been thinking about for some time now. Feel free to email me if you'd like to talk about this in-depth or just need to bounce a few ideas off of someone. :)
I don't have a whole lot of insight into what's going on in the minds of the investment community but, IMHO, I think we all tend to think that there's more investing going on out there than is actually true.
I don't have a whole lot of insight into what's going on in the minds of the investment community but, IMHO, I think we all tend to think that there's more investing going on out there than is actually true.
If my own experience is any guide to answer your last suggestion there is almost no investing going on other than a few proven horses. Risky stuff is way down.
Thanks, tptacek. Actually from a founder's perspective, my BATNA is maintaining the day job and surviving on Ramen noodles. Which in the short-term is a distraction but can keep the project going while controlling the increase in the userbase and minimizing costs. Bootstrapping could continue ad infinitum until a deal is struck.
Actually, you should have named this 'how long can I survive on bootstrapping'. It seems as though your answer is 'not much longer' at your current trajectory.
So you need to change something.
It sounds like you couldn't afford to release a free version, with all the costs involved. So don't. Stop releasing the free version. Think of a price you would be comfortable charging for it.
Now double that price. Chances are you undervalued what people might be willing to pay for your application. You have a growing user base, but most unfortunately if it grows too much you'll just be out of business that much sooner.
Sure, it wouldn't hurt to keep talking about acquisition. The beauty of that is in most cases these talks take forever, so you have plenty of time, and can always back out or tell them you'd like a few more months. The downside to this is they might just wait until you run out of money, and then whatever small amount they were offering you will become surprisingly smaller. When they have a meeting about whether to acquire your product or not one of their strategies is going to be 'let's wait and see what happens in the next couple months'. It's only to their advantage.
And at least give us the link so we can let you know if we would pay for it! Your company is failing, this is not the time to be discreet.
So you need to change something.
It sounds like you couldn't afford to release a free version, with all the costs involved. So don't. Stop releasing the free version. Think of a price you would be comfortable charging for it.
Now double that price. Chances are you undervalued what people might be willing to pay for your application. You have a growing user base, but most unfortunately if it grows too much you'll just be out of business that much sooner.
Sure, it wouldn't hurt to keep talking about acquisition. The beauty of that is in most cases these talks take forever, so you have plenty of time, and can always back out or tell them you'd like a few more months. The downside to this is they might just wait until you run out of money, and then whatever small amount they were offering you will become surprisingly smaller. When they have a meeting about whether to acquire your product or not one of their strategies is going to be 'let's wait and see what happens in the next couple months'. It's only to their advantage.
And at least give us the link so we can let you know if we would pay for it! Your company is failing, this is not the time to be discreet.
+1 to dropping the free version.
It sounds like going the free route was a mistake. Bootstrapped startups have to charge something to somebody, and you-pay-me-for-my-product is a time tested way of doing it.
As for the rest, you need to tamp down your costs. $30/day is extremely high for a bootstrapped, no-revenue startup. Find a way to cut this down. Based on your comments about GAE and SQS, see about moving to a standalone VPS (Slicehost or whatever) and running your own ActiveMQ server, probably on the same machine. It's hard for me to imagine a web app w/ less than 10k users needing more than a single big VPS.
It sounds like going the free route was a mistake. Bootstrapped startups have to charge something to somebody, and you-pay-me-for-my-product is a time tested way of doing it.
As for the rest, you need to tamp down your costs. $30/day is extremely high for a bootstrapped, no-revenue startup. Find a way to cut this down. Based on your comments about GAE and SQS, see about moving to a standalone VPS (Slicehost or whatever) and running your own ActiveMQ server, probably on the same machine. It's hard for me to imagine a web app w/ less than 10k users needing more than a single big VPS.
Thanks Micah. The free version was dropped very quickly...although it was exciting to be in the top 25 free downloads for those few days. It was an experiment to get some sort of quick market validation (for ourselves and potential investors) and it worked in the short-term. The price at cost put the breaks on downloads fairly quickly and we are back keeping things manageble.
Also, we ran into the surprise of discovering our potential userbase: the 12-18 crowd stormed in like bulls in a china shop posting sexually explicit pictures, profanity, etc. which created a whole new slew of headaches. It's a valuable/lucrative audience, but you need a fair amount of policework to prevent things from getting out of control...
Also, we ran into the surprise of discovering our potential userbase: the 12-18 crowd stormed in like bulls in a china shop posting sexually explicit pictures, profanity, etc. which created a whole new slew of headaches. It's a valuable/lucrative audience, but you need a fair amount of policework to prevent things from getting out of control...
the 12-18 crowd stormed in like bulls in a china shop posting sexually explicit pictures, profanity, etc. which created a whole new slew of headaches. It's a valuable/lucrative audience, but you need a fair amount of policework to prevent things from getting out of control...
One of the fellows at SmugMug has blogged about the "free" question, and pointed out this particular problem with "free". When it's free, you capture a part of the market that most wants anonymity and no recourse for their bad, possibly illegal, behavior. 12-18 year olds exchanging sexually explicit pictures via your service is a problem of epic proportions. Stopping it could very easily become your full-time job (and the full-time job of a dozen more people).
I know you've said you've already halted free distribution. I just wanted to point out that this one is a well-known problem with free, and if you don't have good, automated, methods for dealing with it, it can be a huge resource drain.
One of the fellows at SmugMug has blogged about the "free" question, and pointed out this particular problem with "free". When it's free, you capture a part of the market that most wants anonymity and no recourse for their bad, possibly illegal, behavior. 12-18 year olds exchanging sexually explicit pictures via your service is a problem of epic proportions. Stopping it could very easily become your full-time job (and the full-time job of a dozen more people).
I know you've said you've already halted free distribution. I just wanted to point out that this one is a well-known problem with free, and if you don't have good, automated, methods for dealing with it, it can be a huge resource drain.
> It was an experiment to get some sort of quick market validation
Market validation is once you have the data to say "customers in demographic X will pay Y dollars for this app, I will make a margin of Z percent, and there Q customers willing to pay."
Unless you can survive on your free version (which it sounds like you can't), you haven't validated the market yet. Find the price point where you are profitable (and people will pay!)
Market validation is once you have the data to say "customers in demographic X will pay Y dollars for this app, I will make a margin of Z percent, and there Q customers willing to pay."
Unless you can survive on your free version (which it sounds like you can't), you haven't validated the market yet. Find the price point where you are profitable (and people will pay!)
Thanks, Joe. Again, the behavior of this age group is very concerning to me. I'm 26 and don't remember these problems with AIM when that was in its heyday. Or maybe I'm just clueless. Even with services like Loopt, I've heard complaints that these projects attract this type of lewd behavior.
Thanks for your well thought out comments, cmos. And I apologize for not including the link in the original posting!
http://itunes.apple.com/WebObjects/MZStore.woa/wa/viewSoftwa...
http://itunes.apple.com/WebObjects/MZStore.woa/wa/viewSoftwa...
Location based chat is a feature, not a company (let alone an app). Eventually, location features will be integrated into regular sms, mms, facebook, whatever and they will wipe your clock. Just think about paid email vs. gmail or quicksilver vs. spotlight, list is long.
Do contract work to float yourself. And charge for your app. Integrate with Twitter, Facebook chat, etc. OK, I'm done my rant, sorry.
Do contract work to float yourself. And charge for your app. Integrate with Twitter, Facebook chat, etc. OK, I'm done my rant, sorry.
Can somebody who can actually click on iTunes links where they are tell me what this thing is?
If you've built a successful iPhone application, you're a marketable contracting operation. Stop talking about getting funding.
If you've built a successful iPhone application, you're a marketable contracting operation. Stop talking about getting funding.
It appears to be a chat application.
Which naturally raises the question: "Doesn't the iPhone already have a perfectly usable chat application built in?"
Which naturally raises the question: "Doesn't the iPhone already have a perfectly usable chat application built in?"
Correct: we are a chat message application. You can find friends and exchange messages with online/offline users based on location-based proximity. Offline messaging is available in the next iteration, v.1.2.
You may realize this by now, but you should never "fund" your startup with credit cards. Get that debt out of the way as soon as possible and never do it again. I've been bootstrapping companies for 20++ years and always used what was in my pocket already and/or found investors.
Of course, thanks jhancock. In the end, the total initial capital (pocket money, friends/family round, and credit) was comparable to the amount invested using the YC seed formula of $5000 + $5000n.
first, if your server costs compete in any way with your own living expenses, get them down. Most people massively overpay for servers. what kind of server do you have that is costing you $30-$40 a day? for that kind of scratch you can get a full rack, two circuits and a nice big chunk of bandwidth. that's operating cost for 16 of my dual quad-core opterons with 32GiB ram.
but then $1200 a month isn't much, really. that's what, two, three days of contracting at bay area SysAdmin rates?
Get a dayjob. Yeah, it sucks. But if you bootstrap, that's what you've got to do. I do consulting 3 days a week, and you know what? if prgmr.com revenue stopped tomorrow, I'd go back up to 5 days a week, and I'd have no problem paying for my server space for as long as I cared to do so. (and I have done this... prgmr.com is doing ridiculously well at the moment, but if you look at my history, well, I've been doing this since 2005, and have made my expensive mistakes. All paid for by contracting income. It can be painful, I mean, in 2006, I got a little optimistic and locked myself into a year-long contract for almost two orders of magnitude more bandwidth than I ended up needing. a $15K mistake or so. But eh, it looks like we might have that much revenue this month alone, so I was right to stick with it.)
It sounds like your business is one with low capital requirements, and low monthly overhead. That is the best kind of business to bootstrap, I think; you just need to build your life so that you are OK with supporting the business until someone notices you and the business takes off.
but then $1200 a month isn't much, really. that's what, two, three days of contracting at bay area SysAdmin rates?
Get a dayjob. Yeah, it sucks. But if you bootstrap, that's what you've got to do. I do consulting 3 days a week, and you know what? if prgmr.com revenue stopped tomorrow, I'd go back up to 5 days a week, and I'd have no problem paying for my server space for as long as I cared to do so. (and I have done this... prgmr.com is doing ridiculously well at the moment, but if you look at my history, well, I've been doing this since 2005, and have made my expensive mistakes. All paid for by contracting income. It can be painful, I mean, in 2006, I got a little optimistic and locked myself into a year-long contract for almost two orders of magnitude more bandwidth than I ended up needing. a $15K mistake or so. But eh, it looks like we might have that much revenue this month alone, so I was right to stick with it.)
It sounds like your business is one with low capital requirements, and low monthly overhead. That is the best kind of business to bootstrap, I think; you just need to build your life so that you are OK with supporting the business until someone notices you and the business takes off.
How many requests per day does your server handle? 30-40 dollars per day seems pretty high... I know Hacker News doesn't spend that much serving 10s of thousands of people per day.
And after looking at your app, it doesn't seem like you have nearly enough reviews to justify that high of a cost. I'm no server expert, but it seem like you should be able to cut costs on the back-end.
And after looking at your app, it doesn't seem like you have nearly enough reviews to justify that high of a cost. I'm no server expert, but it seem like you should be able to cut costs on the back-end.
I would strongly consider the licensing or acquisition. Couple reasons for this:
1. Compelling products tend to have willing buyers. If you saw a 20x increase in your user base when it became free, it sounds like people really like the product, but don't see it as a must-have (it's not addressing a serious pain for them). On the flip side, it looks like it could be a great nice-to-have for an existing device/product.
2. You'll be much better-positioned for future endeavors if you're able to realize a positive exit. Past success can give you a lot of credibility. If you can get positive returns, it'll be much easier to raise money for your next venture.
1. Compelling products tend to have willing buyers. If you saw a 20x increase in your user base when it became free, it sounds like people really like the product, but don't see it as a must-have (it's not addressing a serious pain for them). On the flip side, it looks like it could be a great nice-to-have for an existing device/product.
2. You'll be much better-positioned for future endeavors if you're able to realize a positive exit. Past success can give you a lot of credibility. If you can get positive returns, it'll be much easier to raise money for your next venture.
When negotiating you need to be creative with alternatives. From what I understand from your situation, you could consider doing a joint venture rather than selling out or licensing. It appears that you have the skills in creating a product that has "pulling power" but not much expertise in building a business. My definition of "business" is one that makes money. It doesn't take much skill to throw $40 / day at some hosting provider. As many of the posters have commented you need to charge in order to have a business. You probably need to shift your marketing when you start asking for money.
From a product / technical perspective, you also need to look at how many of your "users" continue to use your app after a month or more and how much they use it. That will give you an idea of how many tyre kickers you got and how many switched on, passionate users you got.
Do do a joint venture, you decide on split of revenue, a buy-in value that gets you off stressing about where your next Ramen meal is coming from. Heck, I'd even put the word out to your user base and invite applications for a venture partner. You can't get a better marketer than a passionate user with sales, marketing and business expertise.
From a product / technical perspective, you also need to look at how many of your "users" continue to use your app after a month or more and how much they use it. That will give you an idea of how many tyre kickers you got and how many switched on, passionate users you got.
Do do a joint venture, you decide on split of revenue, a buy-in value that gets you off stressing about where your next Ramen meal is coming from. Heck, I'd even put the word out to your user base and invite applications for a venture partner. You can't get a better marketer than a passionate user with sales, marketing and business expertise.
So we're bootstrapping, also in Boston, and also use GAE.
We've been able to manage to stay afloat by keeping day jobs. One of us works full-time and the other part-time, while working on the startup all nights and all weekends. Obviously, it takes a toll on you, and isn't very sustainable in the long term. But we've also learned to delegate: we hired two excellent interns, and we pay them in munchies and free lunches.
$30-$40 in CPU costs seems very high. I'm not sure if you have a technical background, but there might be room for optimization, especially in datastore entity structures and queries. Just the other day, we refactored the way we were storing a certain entity to be able to compute a list of key_names and then fetch them from memcache or the datastore in parallel rather than seriallly. That resulted in a 16x performance boost (measured by response time and CPU cycles). There are some other tricks, like "relational" index entities to speed up datastore lookups so that you're not doing too much processing in Python code.
I would be happy to chat more about our experience with GAE. mahmoud [at] thesponty
We've been able to manage to stay afloat by keeping day jobs. One of us works full-time and the other part-time, while working on the startup all nights and all weekends. Obviously, it takes a toll on you, and isn't very sustainable in the long term. But we've also learned to delegate: we hired two excellent interns, and we pay them in munchies and free lunches.
$30-$40 in CPU costs seems very high. I'm not sure if you have a technical background, but there might be room for optimization, especially in datastore entity structures and queries. Just the other day, we refactored the way we were storing a certain entity to be able to compute a list of key_names and then fetch them from memcache or the datastore in parallel rather than seriallly. That resulted in a 16x performance boost (measured by response time and CPU cycles). There are some other tricks, like "relational" index entities to speed up datastore lookups so that you're not doing too much processing in Python code.
I would be happy to chat more about our experience with GAE. mahmoud [at] thesponty
What is your current cash flow? That is all that matters. At a minimum your cash flow needs to be enough to service your debt and living expenses. Then, you can all work for equity and make a go of this.
Figure out what this number is, and then ask yourself how you can earn that money. You may need to do a part time job in order to get that money. Yes, your ability to focus on this company will be hindered. But imagine how much of a bottleneck being absolutely broke and potentially bankrupt will be to the progress of your company.
EDIT: You may as well call up your credit card issuers and ask them to drop your interest rate. I've had about a 50/50 success with this approach. Both times I was successful I went from an 18% interest rate on an account down to 12%.
Figure out what this number is, and then ask yourself how you can earn that money. You may need to do a part time job in order to get that money. Yes, your ability to focus on this company will be hindered. But imagine how much of a bottleneck being absolutely broke and potentially bankrupt will be to the progress of your company.
EDIT: You may as well call up your credit card issuers and ask them to drop your interest rate. I've had about a 50/50 success with this approach. Both times I was successful I went from an 18% interest rate on an account down to 12%.
IMO, you need to do 2 things to be successful with this app:
1. Integrate with major IM services, AIM, Jabber etc, and have your own "Say Hi service" in there for LBS chat.
2. Put something around the app, as in make it do more than just chat. Explore making it a dating app, so that you can chat/"quick date"/"lunch date" people around you that are signed up with your service. Companies like match.com etc have just stopped innovating in this space and you may be able to get traction.
I haven't done the research to see who else is doing this but it seems like for your app these two things look like an obvious steps.
1. Integrate with major IM services, AIM, Jabber etc, and have your own "Say Hi service" in there for LBS chat.
2. Put something around the app, as in make it do more than just chat. Explore making it a dating app, so that you can chat/"quick date"/"lunch date" people around you that are signed up with your service. Companies like match.com etc have just stopped innovating in this space and you may be able to get traction.
I haven't done the research to see who else is doing this but it seems like for your app these two things look like an obvious steps.
It looks like you need a business angel NOT a VC, they are two completely different things (and from your description above it doesn't look like the distinction is clear).
Find someone that is already fairly wealthy from being in business for themselves and pitch your idea to them, make it a partnership and not an outright investment, that would help to get some interest going.
How much money are you looking for ?
30/40 per day for server costs seems to be outrageously high for any mobile startup, why is it that expensive ?
Find someone that is already fairly wealthy from being in business for themselves and pitch your idea to them, make it a partnership and not an outright investment, that would help to get some interest going.
How much money are you looking for ?
30/40 per day for server costs seems to be outrageously high for any mobile startup, why is it that expensive ?
Thanks for your reply, Jacques. This was helpful.
We released on GAE and we're also using Amazon SQS. At our peak load, we were getting over 1.5-2k users streaming in during the initial price drop. CPU Time was our biggest drain: we've combined instant messaging with a local and global search option which eats up resources fairly quickly. I was very surprised at GAE server costs given a userbase that is <10k at this point (given the costs I had to put the breaks on growth very quickly).
The VC approach was for seed-stage capital (~100k) - I found a few "programs"/funds targeting early stage companies. Basically, I'm looking for a business angel that could assume a mentorship role and provide some "smart capital" at this point to scale.
We released on GAE and we're also using Amazon SQS. At our peak load, we were getting over 1.5-2k users streaming in during the initial price drop. CPU Time was our biggest drain: we've combined instant messaging with a local and global search option which eats up resources fairly quickly. I was very surprised at GAE server costs given a userbase that is <10k at this point (given the costs I had to put the breaks on growth very quickly).
The VC approach was for seed-stage capital (~100k) - I found a few "programs"/funds targeting early stage companies. Basically, I'm looking for a business angel that could assume a mentorship role and provide some "smart capital" at this point to scale.
How hard would it be to port away from GAE and get your costs under control ? The 'cloud' is a great place to be when you want to scale but it can also be quite expensive.
So far for the projects that I'm involved in I have yet to find a single case where I can make a case for a cloud solution vs hosting the stuff directly. (but there are other reasons than financial ones to use a cloud).
Where are you located ?
So far for the projects that I'm involved in I have yet to find a single case where I can make a case for a cloud solution vs hosting the stuff directly. (but there are other reasons than financial ones to use a cloud).
Where are you located ?
Wow, that's rough. I noticed on my brief foray into AppEngine that it is really easy to run up against their CPU limitations (as in, four trivial queries on a single pageload will do it), but it's amazing that you've managed to run up a $1,000/mo bill with them.
Or are you really burning through SQS requests fast enough to make it cost cash money?
Either way, it sounds like you've painted yourself into a corner it will be hard to get out of. AppEngine is probably the most difficult platform imaginable in terms of how hard it is to migrate off of. You'll have a ton of work to do just to get out of BigTable, and then you're left with a Django app.
I guess the best you can do is start charging money, and start developing a new version as quickly as possible to stop the bleeding.
Good luck!
Or are you really burning through SQS requests fast enough to make it cost cash money?
Either way, it sounds like you've painted yourself into a corner it will be hard to get out of. AppEngine is probably the most difficult platform imaginable in terms of how hard it is to migrate off of. You'll have a ton of work to do just to get out of BigTable, and then you're left with a Django app.
I guess the best you can do is start charging money, and start developing a new version as quickly as possible to stop the bleeding.
Good luck!
Here's the problem: I'm completely broke. For this startup, I chose the bootstrapping route. I plunged most of my savings and used credit cards to work with an offshore team and received investment from friends and family to make it past the prototype stage. My development team is willing to take an equity stake to improve the product, but server costs are expensive. Our userbase increased 20x when I dropped the app to free 1 week ago. I cannot afford to pump in $30-40 a day to pay for server costs.
The acquisition talks are positive (it would be a very small exit), but I'd really like to work on building out a company here. Is there any option other than an angel round to make it to the next stage? Would licensing the app to other companies be a detriment in future financing rounds, if we ever make it to that point?