Unicorns get a lot of attention, and for very good reason. Big numbers make for impressive headlines, after all, so when a previously little-known startup announces that it has reached that 10-digit threshold, people notice—in much the same way they would take notice of an actual unicorn cantering down Bay Street.
Venture capitalists use the word unicorn to describe a privately held startup company with a value of over $1 billion. Aileen Lee, the founder of Cowboy Ventures (a seed-stage venture capital fund based in Palo Alto, California) has been credited with popularizing the term.
In recent years, raising capital has taken on the sheen of an epic quest, with unicorn status seen as a benchmark for which all startups, especially those in tech, ought to be striving. Funding rounds aren’t the only means of growing a business, however, and seeking a major influx of investment isn’t necessarily the right path forward for every startup. For many, the best approach might be good old-fashioned bootstrapping.
Investopedia defines bootstrapping as “building a company from the ground up with nothing but personal savings, and with luck, the cash coming in from the first sales”. This methodology is concerned with scaling sustainably rather than the rapid growth that the unicorn philosophy entails. Because of the focus on resilience, this type of company has also been referred to as a “camel”. Camels may not be fast or alluring, but they sure can survive a drought.
Listen to the customer
One of the keys to the camel approach is understanding what it takes to achieve not only product-market fit but also how to become cash-flow positive. In other words, having monthly cash in-flows that are greater than your expense out-flows. Cash-flow positivity means having the working capital to cover the expenses involved in keeping your business going. That ensures the future of the business, and with the future comes opportunity.
Venture companies often raise substantially ahead of being publicly launched by selling investors on the idea or promise of a product. Bootstrappers don’t have that luxury; their growth depends on generating revenue. This can mean shipping an early version of the product to gauge responsiveness and get a sense of the market, and how much people are willing to pay.
Those early customers will finance further design and development, and they will also provide invaluable feedback that can lead to improvements in future iterations of the product. When your continued existence depends on every dollar from each existing customer, you live and die by those customers’ choices. In a bootstrapped business, you have no choice but to listen to the customer, and your business grows along with that relationship.
The freedom to pivot
Bootstrapping isn’t usually the road to overnight success—and that’s a good thing. It means a company can grow at its own pace, not beholden to someone else’s timeline. It also means having the freedom to pivot and explore new ideas and directions, whereas venture-backed businesses tend to be on a prescribed trajectory from which they dare not stray.
That path tends to have a pre-ordained end point that often benefits investors more than it does the entrepreneurs who pour their heart and soul into a startup only to end up with a small percentage when the company is inevitably sold. Bootstrappers, on the other hand, hold onto control of their company and thus the power to decide to sell—or not—whenever they choose.
You can’t really blame any startup for wanting to pursue unicorn status, though. For venture-backed companies, there’s a real sense of external validation that comes with a large raise. For bootstrappers, the market’s response to a product is the most accurate gauge of success, but they tend to find their validation in internal metrics.
That validation, for bootstrapped companies, comes through being transparent within the company, letting everyone on the team know how products are being used, what’s working (and what isn’t), and which aspects of marketing campaigns have been effective. With transparency around each aspect of the business (from product to marketing to financials) each member of the team can see how their contribution adds to the success of the company as a whole.
Someone outside the company writing a huge cheque can certainly generate buzz, but when everyone on the team is fully engaged and actively excited about the work they are doing, that will ultimately drive growth in an organic and sustainable way.
Long live the camel!
Tobyn Sowden is the CEO of Redbrick, the parent organization to a growing portfolio of companies. Redbrick has been ranked the fifth Fastest-Growing Company in Canada and second in software by PROFIT 500. Tobyn’s extensive professional and personal experiences have given him valuable expertise in building, launching, and growing award-winning companies, and delivering excellent operational management and technology products.