Saturday, August 11, 2007 12:40 PM
Financial Stability of a Bootstrapper
This past week the high tech firm GetConnected of Boston suddenly closed their doors after eight years and $20 million in funding. This left over 100 employees unemployed. I'm sure these former employees wont have too much of a problem finding a job in today's economy, but how could this happen in the first place? Atalasoft is a bootstrapped company, and hasn't taken any outside funding. Some clients look at this lack of outside investment as a problem with stability. Why should a client of ours spend tens of thousands of dollars on a company that doesn't have a significant financial backing?
Since the inception of Atalasoft, it was critical from day one to be profitable. How can this be done without a significant boost of capital? This is the tough part, but it can be done! In my case, I continued to work my day job building a small source of revenue for the company on the side that could eventually sustain myself and my family. After a year I left my day job on good terms and with revenue growing at a good clip. It only took a month to hire the first two employees. I only hired them when I had the revenue to support them.
The first few years were tough, no doubt, but we had a good idea, a good team, and better yet, the revenue to support it. I suppose an advantage I had over some starting out is that my standard of living wasn't too high. I had only worked in the engineering field for 5 years and was guaranteed not to get a raise after 9/11. My salary wasn't even close to 6 figures. It didn't take that much to make ends meet.
These first few years really shaped the company. Banks wouldn't finance us because we didn't have a track record or any tangible assets. I didn't have wealthy family or friends. I was also unwilling to give up equity for early stage investment, and quite frankly, at the time I was more interested in developing the product versus meeting with investors. Atalasoft grew organically. We only hired new employees when we could afford them. Did we take risks? Absolutely. But they were measured risks. Not all of them were worthwhile, but because most were, we succeeded. That's because we had to be. If I failed, I'd have to go back to my former job with a LOT of debt and tail between my legs.
Today, our company continues to grow at a rate of about 75% per year in revenue. Most of our profits are invested back into the company which is how we continue to innovate and grow. Unlike some VC backed startups, we have learned to be careful with spending, take measured risks, and manage the company our way. As a result, we have had virtually no turnover, we've outgrown 3 office spaces, I field calls from Venture Capitalists every other day, and now banks are more than willing to extend us financing that suits our immediate needs.
When investigating a company's financial backing as a decision metric (whether it be to work for, or do business with), consider the stability of a company grown to 20 employees without outside investment forced to be profitable to stay in business vs. a company of 100 employees burning through 20 million in multiple rounds of VC funding. This isn't to say that Venture Funding is always a bad idea as there are plenty of examples of successful VC backed companies. Even Atalasoft could take a form of outside investment at some point for the right reasons. However, in the example of GetConnected stated in the first paragraph, the sign on the front door reads "CLOSED. Good-bye ALL." Which basket would you put your eggs in?