Does Bootstrapping work for hard tech? My story.
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?
- 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.
- The CEO doggedly pursued POs, and often received them even before the products were built and/or finished.
- The CEO refused to chase rainbows. A PO or other commitment from customers was (often) required before real money was spent on product development.
- 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.
- 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.
- 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.
- 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.
- 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