How to Run a Successful Business in 2023: Bootstrap or Seek Venture Funding?
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What do growing businesses need? Enough capital to ensure consistent growth. There are two ways to do this: You either bootstrap or seek venture capital (VC) funding.
But how do you determine which option will work best for your business? If there’s someone who knows how to answer this question with confidence, it’s Justin Borgman, chairman and CEO of Starburst.
Justin founded his first company, Hadapt, in 2010, which was acquired by Teradata in 2014. After a stint at Teradata as VP and GM, Center for Hadoop, he founded Starburst. He chose to bootstrap the company but switched funding lanes later.
We recently had the pleasure of hosting Justin on our Run Revenue Show, where he shared his nuggets of wisdom on the bootstrap vs. VC funding conundrum.
Bootstrap or get VC funding: Pros and cons
Bootstrapping gives you a lot more room to be experimental
The initial stages of building a product and finding the right market fit take a lot of iterating. As amazing as it would be, nobody gets these right – or at least completely right – in the very first instance. You have to experiment to determine what works and what doesn’t.
Bootstrapping gives you that freedom to experiment, according to Justin.
“I wanted the space and the patience to be able to explore, iterate, and experiment with no time pressure. The fun thing about building Starburst was that there was no external pressure. It was us just continuously iterating, learning, trying new things. perfecting the value proposition, and the business model required.”
Accelerated growth with VC funding
After bootstrapping for two years, Starburst raised $414 million. The very obvious difference Justin felt was the pace at which the company grew after the cash flow.
”With the cash, we have had accelerated growth, particularly on the go-to-market side. We went from two salespeople to 300 people in the sales organization, if you include everything from customer success to pre-sales and field reps, within a three-year period. So that was a very big change.”
While there are pressures that come with VC funding (which we’ll get to in a bit), it also gives businesses the opportunity to scale quickly. Establishing presence in the industry also becomes easier as you acquire more customers at a rapid pace.
Pressures that come with bootstrapping and VC funding
One of the major potential dangers of VC funding, according to Justin, is the pressure to master product-market fit in the early days of the business. On the other hand, bootstrapping gives you the space to explore the potential of your product and how it can cater to the customer’s needs.
You don’t necessarily have that freedom with VC funding because you have a board to answer to. As Justin puts it, “the moment you take capital, a clock starts ticking.”
Bootstrapping has its own challenges though. A business’s survival, for example, depends on customers. If cash flow dies at any point, you can’t build a sustainable business. While Justin thinks that that made them really appreciative of their customers, it also limits the growth of the company in some way.
Running a successful business in the current macroeconomic environment
2023 has been challenging and there’s no telling how the cards are going to play out in the coming months. Founders and CEOs need to be prepared for anything in such a scenario.
One of the key things Justin emphasizes is questioning the investments that you’re making.
“Ask yourself, is there an ROI to this investment? When you’re rapidly scaling, every leader in the organization is saying, I need this person, I need that person, but do you really need them? Or can you be scrappy and more utilitarian with utility players?”
Apart from paying attention to what investments you make, focusing on customers is important to sustain businesses during tough times. Justin emphasizes that prioritization is important during times like these. While leaders want to own the market (and expectedly so), it might be wise to focus on segments where you perform well and maximize ROI.
Speaking of building lasting businesses, you need a company culture that builds the foundation for long-term success.
How to build an enduring company culture
A company’s culture and values play an important role in determining how successful it can be. For instance, the kind of people you hire matters a lot. If they don’t share the values guiding the company, things can get ugly. This can eventually hurt revenue outcomes of the business as well.
“When you’re just starting out, the culture is a little more organic. But I think once you get to maybe 20 or 30 people, you do need to become more intentional about building the right culture. And I would recommend even codifying it at that stage so that it becomes something you can refer to and refer to often, every chance you get.”
For tough economic situations – and Justin has been through quite a few ups and downs during the span of his career – the values you define matter a lot.
Justin’s advice for leaders to succeed in 2023
For Justin, it’s really just focusing on the fundamentals:
“I think it’s about getting back to basics, the things that are the strongest elements of your business, that you know work, and continue to double down on those. It’s an opportunity to clarify your focus. When you don’t have to be as judicious about where you put your resources, it can actually be a really good thing. Focus generally can create speed for you in a business.”
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