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Theranos is the telltale story of when VC funding goes awry. The company, which claimed it developed a revolutionary blood-testing technology, raised roughly $724 million from investors. It was valued at $9 billion before it imploded because of a fatal flaw in the company\u2014its product didn\u2019t work. It was all hype, no real value. Even when VC-backed founders aren\u2019t fraudulent, there\u2019s a tendency to prioritize funding and scaling to the detriment of the product.\u00a0<\/p>\n
I founded my company Jotform over 18 years ago. With no outside funding, it\u2019s been a slow climb at times, but today, we have over 25 million users worldwide. I learned a lot about bootstrapping and how it creates the right mix of pressure, thrift, and creativity for developing great, profitable products. Here\u2019s a closer look at why VC funding can cause startups to make bad products.\u00a0\u00a0\u00a0<\/p>\n
People often assume \u201csmall business\u201d and \u201cstartup\u201d are interchangeable. But ask any founder and they\u2019ll likely tell you their ambitions are huge. Bootstrappers are no different. In fact, according to a recent report from startup lender Capchase<\/a>, bootstrapped software-as-a-service businesses are growing just as fast as their venture-backed counterparts\u2014despite spending only a quarter of what VC-backed businesses do on acquiring each new customer.<\/p>\n What\u2019s more, studies<\/a> show that 64% of the top 100 unicorn startups\u2014those valued at over $1 billion\u2014aren\u2019t profitable at all.\u00a0<\/p>\n As the Capchase report explains, before investing in growth, top-performing startups focus their efforts on nailing the product-market fit. That means finding a match between your product and the people who need it. This, in turn, creates happy customers, high demand, and organic, sustainable growth. A staggering 34% of startups<\/a> fail because they don\u2019t find the right product-market fit. A brilliant idea doesn\u2019t always cut it.\u00a0\u00a0<\/p>\n Let\u2019s say you\u2019re a VC-backed startup and you\u2019re not seeing the growth you\u2019d hoped for. Maybe you\u2019ll ramp up spending on sales and marketing campaigns, leaving a shorter runway (the amount of time your business can keep afloat with cash reserves alone). And maybe you\u2019ll achieve the desired effect (customer acquisition), but it\u2019s risky and the long-term return is uncertain. If you\u2019re a bootstrapper, you don\u2019t have that option.<\/p>\n So, what do you do instead?<\/p>\n Bootstrapping may sound scrappy, but in many respects, it\u2019s a luxury. As a bootstrapper, you have the luxury of focusing obsessively on your product and answering to no one.\u00a0<\/p>\n When I first founded my company, I loved our initial product, online forms, because I saw its potential to make people\u2019s lives easier. That factor\u2014ease of use\u2014was my principal concern, hence our original tagline \u201cThe Easiest Form Builder.\u201d I loved the product so much, and I got so much joy from seeing people using it, that I gave it away for free (while clocking 9-5 at my day job). From February 2006 to March 2007, we didn\u2019t have a paid version of our product. Nonetheless, this was a pivotal period for the company.\u00a0<\/p>\n Why? Because I listened to early users and received invaluable feedback on how they were using our product and how I could improve it. I refined and iterated before I ever released a paid version. Because people genuinely saw the value in our product, we grew our customer base before spending a dime on marketing.\u00a0<\/p>\n If I had investors who required me to meet arbitrary KPIs, I would have been spending my early days mastering PR and sales. I wasn\u2019t an expert in either of those fields, nor did I enjoy them. I\u2019m certain the company wouldn\u2019t have taken off if I\u2019d been forced to focus exclusively on those aspects of the business.\u00a0<\/p>\n Today, as a mentor to several founders, I always share my rule of 50-50: spend half your time on the product, and half your time on growth. I also encourage founders to release their most important features as soon as possible so they can get them into users\u2019 hands. Then, they can elicit critical feedback on their product\u2014before even asking people to pay for it.\u00a0<\/p>\n That\u2019s another takeaway: Never stop listening to users\u2014your most important stakeholders. When people are too tied to their product, and ignore whether it meets their users\u2019 needs, they\u2019re bound to fail. Organically growing a business requires letting go of your ego and understanding that even smart products fall flat if they don\u2019t meet a target audience\u2019s specific needs.\u00a0<\/p>\n Another thing that bootstrappers do differently is that they focus their efforts on making an impact. The Capchase report, for example, found that the healthiest businesses don\u2019t spend the most on sales and marketing, but rather, have a \u201crazor-sharp\u201d understanding of which channels and campaigns have the biggest impact and show a quicker return. In the early startup stages, perfecting your product has more of an impact than flashy marketing campaigns. With tighter budgets and smaller teams, bootstrappers tend to apply this way of thinking to everything they do. That\u2019s why I tell entrepreneurs and team members <\/strong>to automate their busywork<\/a>\u2014to dedicate more time to \u201cthe big stuff,\u201d or more meaningful work that moves the needle for your company or career.\u00a0<\/p>\nWhat bootstrappers do differently<\/h2>\n
Your most important stakeholders<\/h2>\n