Bootstrapping is a term used in business to refer to the process of using only existing resources, such as personal savings, personal computing equipment, and garage space, to start and grow a company.
Whereas a funded company is selling an idea first in exchange for a future payout before you even create a product.
I’ve done both. My Food Job Rocks is a bootstrapped project that when I put effort into it was ad-driven, and a consulting funnel that in its first year made about $50,000 dollars (according to my tax returns) however, it sent me through a spiraling depression and it was one of the most stressful times in my life. That money was used to pay off the money I lost living a pauper’s life at my first startup. A lot has changed now, but I remember those days fondly.
Better Meat Co (which I cofounded) and Motif Foodworks (which I was an early employee) are both heavily funded companies with millions in the bank even before the product was commercialized.
Both bootstrapping and venture capital is really hard and requires a certain type of skillset to excel in. Not only in how you communicate, but both require a different type of mental fortitude.
If you’re considering either bootstrapping a company or getting funding, consider these realities and perks before you get into it.
Bootstrapping
Money is Your Lifeblood
The biggest crux of bootstrapping is that your money and your venture are tired to the same vein. This means any financial decision that you do directly affects your well-being. I don’t have a very good work life balance but I do have a good understanding that work money is for living and podcast money is for playing. Without a full time job, finances can blend and if bad things happen on either side, you will have to pull either on the business side of your life or the not-business side. Either way, things get personal.
You Have to Do Everything
The more I work in the industry, the more I realize hiring people is really hard. For venture, you can account for people and use your projected budget to get someone. For bootstrapping, you pay yourself whatever’s left.
This is especially hard when you might be used to a six-figure salary and you’re making like $20,000 a year the first year.
Expect a hired person to not work as hard as you, not put in so much effort, not know what they are doing at first, and costs 2-3x more than you expected. Understanding the value as a bootstrapper is extremely hard, especially when you consider that where you’re probably at now won’t even fund a livable wage.
With VC-funding, generally, a salary is set (as VCs pay attention to this). For bootstrappers, you pay yourself last.
Freedom to do Whatever You Want
As long as you have the money, you can do whatever you want. There’s no angel of death hanging over you, watching your every move. If you manage your time and money well, you can work less hours, travel more, or do something completely crazy with your business. Total control over your destiny can be nice for some people.
No one can judge you for spending the money you worked hard on getting. No one can pressure you to exit though I’m sure it’d be nice. With less aspirations brings less pressure which for some, can work out pretty well. For food, this is pretty hard, but not impossible. After all, there are plenty of bakeries who sell literally just bread that do it just fine.
Funding
Your Job is to Fundraise
Most venture-backed CEOs treat fundraising as their number one priority and in every Series, they spend countless hours perfecting a pitch deck to be shown to the world. Not to mention the interviews, the due diligence, the tastings, and putting on a face, this is a necessary evil.
If you truly are taking the funding route, expect funding to be an exhausting, never-ending string of stress, heartache, and putting on a face. You have to extrapolate a vision and show that you will grow to the moon.
If this is the job you want, then that’s a CEO in a venture-backed startup. It’s really hard. Most CEOs are driven people who don’t like getting no for an answer and boy, are they used to getting a lot of “no’s”. What a drag. Sounds boring to be a CEO. It’s not for me.
Burning Other People’s Money
(Inspired by an article by Scott Galloway, who’s good at burning other people’s money)
Startups are designed to scale and burn other people’s money. This detaches the emotional value of money for the sake of growth. This allows you to treat your venture-backed business less personally, which for some, can be a good thing.
Most failed ventures using venture capital leave the entrepreneur unscathed and even worse, some get golden parachutes. VCs never like it when their companies don’t work out, but VCs are designed to essentially place bets and they know that it’s very possible to lose money from one of their bets. I heard a statistic once that in a VC’s portfolio, you only need one success to make it worth it.
In fact, most failed founders will try again and in a cruel twist of skillset, investors actually like it when failed entrepreneurs try again. There is literally more upside to raising money after a failed venture than there is downside. Well, if you’re a straight, white male that is more so. Meanwhile, a bootstrapper can leverage their house and if that fails, well, no house.
Yea I’m mainly ranting that Adam Neuman got a golden parachute from WeWork and is starting another company with a $1 billion dollar valuation with no product.
Selling a Dreams
Venture funding is interesting because you are selling someone a dream that may one day become a reality.
Selling dreams is ambitious and vertigo-inducing but it’s necessary to gather venture. This also goes hand-in-hand with more pressure, and the push to grow grow grow.
If you have big dreams, you need venture funding to speed up your business. The upfront cost of companies, especially in the food industry is too great for someone to do alone. With increasing costs and expectations on R+D, manufacturing, and distribution, to get your product on every shelf, you will need to dream big, and convince everyone else to fund your dream, and then everyone else to buy your dream.
Common Threads
You’ll have to raise eventually
Even when bootstrapping at first, you have to fundraise eventually. Food growth is a step-change industry which basically means it’s very difficult to scale exponentially. You have to go step by step. From your own kitchen to communal kitchen, to copacker, to mega-copacker. With that, also increases the distribution and marketing costs as you scale. You do have an advantage in that you’ve already built a pretty formidable buisness.
However, it’s hard to say if a bootstrapper has more of an advantage in terms of asking for funding in the later stage. Though they are farther along when they ask for funding, they may not get a better return. Why? Because VCs are good negotiators. It’s important to learn to leverage your accomplishments and not get bullied by VCs when asking for money.
There are so many options to raise capital such as bank loans if you are worried about equity dilution but there’s a different kind of risk associated with bank loans.
I built My Food Job Rocks and Better Meat Co at the same time. Though I was a founder of Better Meat Co, I felt like it was sort of like another job (of course, I did much more than the average employee and it did feel like I worked hard on it). I got a salary, and responsibilities, and had to go through an approval process if I suggested something I wanted to pursue. With a million bucks funding, I didn’t have to worry about my next paycheck as much. However, the pressure was on me to make the product, sell it, nurture the relationship with Perdue Farms, and screw up other relationships with other potential clients…
As opposed to My Food Job Rocks, where I had to do everything, it was a lot harder to grow. Imagine if I had someone post for me, the market for me, agressively sell paid ads for me, and not feel like I’m outsourcing my lifeblood (personal money) I could grow this thing sky high!
But I choose not to make My Food Job Rocks huge. I’m perfectly comfortable with the direction it’s going now.
So both are viable options, and you can take it either way. When it comes to building a business, every decision has a nuance because no two businesses are a like. There’s no playbook really and most of it is dumb luck. But I hope this helps you understand what it’s like from someone who’s done both.