With the insatiable need for new ideas in anything and everything we do just to keep pace with the continual onslaught of change we face every day (aka the Red Queen Effect)

I’m always surprised by how many people come to meetings, events, or presentations and fail bring a notebook or some other means to capture / record / diarize whatever comes up, including but not limited to:

• stuff that struck you at any point

• anything to do with what was or was not discussed

• stuff you plan to do afterward

• stuff you plan to stop doing

• suggestions

• questions

• useful resources 

• stories shared or remembered afterward

• doodles / diagrams / maps / etc.

• random scribbles made for processing purposes

• or any of the random elusive thoughts about unrelated topics that float by as they so often do.
  

In my view, it is absolutely essential to capture whatever you can before it’s forced out of your mind by subsequent events, such as life, coffee, lunch, traffic bottlenecks, etc.

Why? Because these captured fragments introduce new patterns into the kaleidoscope showing your path forward,

And, when viewed in the right light, the new may picture indeed hold the keys to your next step(s).

Photo by Green Chameleon on Unsplash

Everywhere you look in the tech press, companies and entrepreneurs are seeking investment. In fact, many seem to believe that investment equals success, and if they fail at that, then they’ve failed.

Often, during my initial meetings with entrepreneurs, after they’ve finished telling me all about their idea(s), they conclude by asking, so do you know any investors I can contact?

I’m here to point you to another way. Bootstrapping.

Bootstrapping does not mean that you drain your savings to build a company, or wear your shoes out chasing investors. Instead, it refers to building your company using money from CUSTOMERS.

I was in a hard tech company that was bootstrapped from 0 to $120M—customer funded all the way.

The main founder often talked of putting $4,000 on his credit card in the first month of the company’s life, and paying it off from revenue before it came due. He was very proud of that.

I joined as the fifth employee and stayed until there were 900+.

In the early days, the company did contract or work-for-hire projects to pay the bills, while taking full advantage of government programs that funded R&D, investment tax credits, and the like.

As soon as possible, the company began to develop its own products. In the beginning, the products were simple. But they got more complex as time passed.

As it turned out, we built several products that enabled the first cable modem networks in the late 1990’s. We became an OEM supplier to Cisco, and helped them grow their Cable BU from $0 to $big.  At one point, our CFO liked to tell investors that 60% of the traffic on the Internet flowed through our gear.

By our peak, we had become adept at delivering product in the telecom, cable, government, and consumer sectors…to a range of demanding customers from small to Cisco to government.

Our products included RF (0–48 GHz), digital, analog, MPEG, FPGA, network processing, Ethernet/GbE, Fiber, CATV, software…I could go on and on. All hard tech through and through. It was often the case where we didn’t know if we could do what we said we would do. But we stuck to it and succeeded more often than not.

Midway through the ride, there was an IPO for various reasons…but I digress.

What were the keys to bootstrapping success?

1. The CEO watched the cash balance like a hawk. He looked at it daily, if not more often. He always said, business is not complicated. You just have to keep more cash coming in than is going out.

2. The CEO doggedly pursued POs, and often received them even before the products were built and/or finished.

3. The CEO refused to chase rainbows. A PO or other commitment from customers was (often) required before real money was spent on product development.

4. The CEO stayed close to customers, and never let go. He still had in his Rolodex people he had met years before.  And, when times were lean, he’d call them up and ask for more business, no matter how much time had passed.

5. The company really understood its core competence…the black magic of RF all the way up to 48 GHz. Later, we built a lot of products based on IP, Ethernet, and MPEG, but they were always wrapped around our core RF expertise.

6. The company retained its IP. Sometimes, the company took NRE to customize an existing product or design a new product to meet specific customer needs.But, the NRE only gave the customer ownership of the customizations, and rarely if ever the core IP.

7. The sales strategy was to go where the key prospects were going to be. In our case, this meant attending a lot of tradeshows. By constantly being visible and present and by doing good solid work, our reputation began to spread and one thing led to another.

8. Luck and timing. As I mentioned, we built some the key products that enabled the cable modem revolution. We didn’t know cable modems were going to happen just then. But they did, and we grew. Sometime later, we build other products to support Verizon’s multi-billion $$ FTTH rollout, and we grew some more. I could go on.

Bootstrapping is a viable option.

Does this give you some ideas?

*I use ‘hard tech’ to mean a company where there is doubt that the technology can be built at all. It often involves some mashup of software, firmware, hardware, and the like. But when physics and the laws of nature get involved, that’s ‘hard science’.

*Photo by Oziel Gómez on Unsplash

The story of Alibaba as told by Jack Ma is amazing!

It was in Seattle where Ma said his friend encouraged him to try searching the Internet for the first time. Initially, he hesitated since he knew that computers were expensive, and if he broke it, he wouldn’t be able to afford to replace it.

“He said ‘just search it,’ so I searched the first word ‘beer,” he said. “I don’t know why, but maybe because it was easy to spell? I see beers from Germany, U.S.A. and Japan, but I don’t see any from China, so I searched for the second word ‘China,’ and there was nothing.”

So, he recalls that they made a small, “ugly-looking” page, and three hours after launching it, “I got a phone call from my friend who said, “Jack, you have five emails, and I said ‘What is email?”

Based on the number of responses, he said, “This is something interesting, so we should do it.”

Starting from this “ugly-looking” page, the business grew into Alibaba where Jack Ma recently hosted the largest IPO ever at $25 billion.

Why didn’t I start it?

I think there is one big reason … I don’t REALLY know how to notice what’s not there!

When I type some words into a search engine and get no results, I type different words until I get results.  And then I settle for whatever I eventually find.

Jack Ma had no preconceptions of what was normal or possible, or even what he was doing. He typed some words into the search engine, got no results, noticed a gap, and then he and his friend built something to fill it.  Even if it was ugly.

He created a site to give him (and others like him) the results he wanted … not the ones he had to settle for.

I can learn a lot from that approach.

So can you.

I found myself talking about “dumb money” today with an entrepreneurial friend. In our conversation, “dumb money” referred to money that came with hidden harm.

We could each tell stories of companies that were seriously affected as a result of taking “dumb money”. This one blew up (think detonation, not acceleration). That one imploded (think black hole). Another one sold for pennies (what’s the ROI on that?). And on and on.

As this article observed, entrepreneurs tie themselves with alarming frequency to investors who are actively harmful to their company. Just as the body can have a malignant tumour, companies can have malignant lines on their cap table. Start-up investors typically have tremendous power over their portfolio companies, generally over a period of many years.

So, how should an aspiring entrepreneur avoid the pitfalls of “dumb money”?

They need to know what to look for … (taken from here and here and here)

• Smart Money is money plus the promise of help that’s worth paying for. This type of money is not damaging to the entrepreneur.
• Mostly Money is mostly money. This can be called benign money and is not damaging to the entrepreneur.
• Dumb Money is money plus hidden harm. This can be referred to as Malignant Money or Cancerous money. This type of money is certainly damaging to the entrepreneur

Then they need to do their due diligence on any potential investor. Don’t assume any investor won’t be harmful. Do the diligence to prove otherwise:

• Do you trust him?
• Is he going to waste your time?
• Will he provide his pro rata in the next round? (Not so important for seed funds and angels.)
• Are his financing plans aligned with yours?
• Are his hopes for top line growth aligned with yours?
• Will he support you if the company is going sideways?
• Does he have impeccable references?
• Does he want control?
• When it comes time to sell the company, will he let you?
• Will he let you expand the option pool to hire someone great?
• Does he want to replace you as CEO?
• Will he try to merge you with a dying company from his portfolio?
• Do you want to marry him for the life of the company?
• Would he make the wrong board member?
• Is he committed to investing in startups and does he have a reputation to protect in the startup world?
• et cetera…

With all that said, I really like this advice from Venture Hacks.

Whether you raise Smart Money or Mostly Money, you should raise money as if your investors were Mostly Money. In other words, unbundle money and value-add.  Get money on the best terms possible and get value-add on the best terms possible.

You can buy advice and introductions for 1/10th of the price that most investors charge. An investor will buy 15–30% of your company. An advisor or independent director will require 0.25–2.5% of your company with a vesting schedule of 2–4 years.

Happy Hunting!