Longtime readers of this blog will know that I’m a big fan of bootstrapping. Instead of putting together a pretty pitch deck and hitting Sand Hill Road (or 300 W. Sixth Street, as the case may be) I’ve long preferred the model where you open up the IDE, build something valuable, find a few people who’ll pay you money for it, and iterate. Growth may be slower, but it’s real and you’re beholden unto no one.
When we built Spanning Sync, we invested months of nights and weekend writing the code. Before we launched, we worked our a great deal with a key supplier that allowed us to scale up while paying only for what we needed, which allowed us to spend only $2,500 before we started selling our product. I put that amount on my credit card, and before the bill was due was had brought in more than that in revenue. We were cash-flow positive literally from day one, and went on to make millions. Bootstrapping was perfect for that business, and made me a champion the model.
So why did Spanning Cloud Apps take $2M in venture funding last week? The answer is simple: opportunity cost.
Before we even started building Spanning Backup, we knew it would be valuable to a lot of people. We had been operating Spanning Sync for several years, and despite endless admonitions to users to back up their data, had seen one user after another lose data, usually due to a botched sync with some badly-behaved application or device. When OS X 10.5 Leopard was released, the first thing it did after installation was instruct all Sync Services clients to delete everything. Doh!
We also heard from lots of people who had accidentally deleted their calendars, corrupted their contacts, or otherwise goofed up their Google data, and were in desperate need of help.
Based on this experience, several years’ worth of real-world data, and some educated guesses at how the backup market would be different than sync, we made some projections. Then we plotted the growth we’d be able to manage by bootstrapping against the projected opportunity and saw a mismatch. In the time it would take us to grow organically to scale, we’d leave a ton of opportunity on the table. In order to capitalize on the opportunity, we’d need to grow faster than that. Which meant outside investment.
I’ve been down the VC-funded road a few times before. I’ve seen it work spectacularly well, middlingly, and terribly. I’ve dealt with bad VC’s, mediocre VC’s, and awesome VC’s. I knew that if I were going to sell a significant part of my young company, I would only work with investors whom I respect, with whom I’d worked before, and who have significant experience and presence in our industry. So I called the guys at Foundry. Happily, they liked what they saw and now we’re partners in this business.
I’m still a huge fan of bootstrapping, and I believe that every entrepreneur should build a profitable business from scratch at least once before trying to do it with outside investors. There are lessons there you can only learn by doing. But it’s not the best model for every situation, and knowing which funding model is appropriate at what time is, I believe, necessary to maximize success.
(Cross-posted @ Moonwatcher)