The Dangers of Bootstrapping

Bootstrapping may be a sign of a great entrepreneur

A startup I mentor, a promising IT services company, generating nearly $1m in revenues in less than two years of existence, recently received negative feedback from a Silicon Valley investor, saying they were “unfocused.” The startup manages a developer training bootcamp (paid), an IT marketplace, where graduates are placed with global technology companies in need of talented developers, and an incubation platform for graduates looking to become entrepreneurs. One of the companies they incubated recently launched a hot 3D running game, generating tens of thousands of downloads in the first two weeks. Common wisdom from Silicon Valley is to have a laser focus on an essential product or service that solves a critical problem for a small but passionate group of early users. Focusing on solving that singular problem can lead to the creation of a hugely successful product, which will subsequently scale to the masses. The mantra at YC, a leading Silicon Valley investor, is that love is better than like; companies should focus one building one-product customers love. This is only possible, however, in an environment in which there is a liquid private equity market, where entrepreneurs can exchange the value they have created in the form of product validation and the potential for future repeat purchasing for early stage investment capital. Investors in innovation understand that value comes from the willingness to pay of customers continuing for years into the future. Whether or not revenue is sufficient to cover the costs of operation, investors will be willing to make this trade. In environments where there is a shortage of early stage capital, the entrepreneur must have a different mentality. Many of the most talented entrepreneurs in Africa operate businesses across a wide range of revenue streams. To cover the costs of salaries, overheads and in general just to keep the lights on, entrepreneurs cannot afford to have gaps in their revenue streams. Diversifying revenue streams ensures there will always be sufficient cash on hand to operate their businesses. Many entrepreneurs may reach into their own bank accounts to cover costs when revenues fall short. This is can be a costly and perilous exercise for founders. Where outside capital is scarce, entrepreneurs in Africa often look to their customers as a source of capital. The end result is often a breadth of different products and services that can begin to look unwieldy to the outside world. I think of other entrepreneurial companies who have exhibited the same bootstrapping dynamic. There is an eKYC Company in Senegal, who have a robust data analytics platform for banks across French speaking west Africa. After four years of operations they have built a powerful suite of data related programs. They also can build you a website for a few thousand dollars. A Silicon Valley Investor would have told them to focus. Another entrepreneur runs a growing and far reaching media company. Her platform reaches tens of millions of viewers each month across the continent. She also runs events, owns retail and aspires to create a textile company. These types of talented entrepreneurs exist in every country of Africa. Their talent and drive has led them to create successful businesses supporting large teams of employees, who look to their companies as a source of hope and economic stability. Delays in revenues threaten that stability and even the company itself. Entrepreneurs in Africa understand the need to keep the lights on and the salaries paid as a first priority. Growing equity values is secondary. The common wisdom in Silicon Valley correctly identifies these companies as non-scalable lifestyle companies. To reach scale, entrepreneurs do in fact need to hone in on a single innovation and scale that across multiple countries. This leads to the spread of innovation to more people that need it, and can create real equity value. To get to this point, we need investors who are willing to support talented entrepreneurs at the start of their journeys. The first step is recognizing these types of entrepreneurs, that their talent is the reason they have made it this far. They are not unfocused; they are succeeding. Supporting them with equity investment can help them to channel this talent to the singular purpose.