So Tim Bray is a trouble maker. We all knew that, but in this case it's because pinged me last night and sent me some links to review before I get too much further:
- Mark Cuban: Rules of Success. #1: Sweat Equity is the best equity!
- Joel Spolsky: Fixing Venture Capital
- Tim Bray: Bouncing Termsheets
Okay, so in general the idea is "don't take investor money" and it obviously makes a lot of sense. There's less pressure on you to mess with the investors and the efforts you need to go through to get the money, manage the process, etc. can be spent on actually building a business. There's some practical limits to this since it takes time and many times hardware to get to the point where you can start selling a product, but in general I think it's a sound principal.
Now let's just think about the basic necessities of life for me right now. I need about $3500 (after taxes) a month to pay the rent, car, insurance, other bills, food etc. I live in San Francisco so it's a bit on the expensive side, but nothing too out of the ordinary for a guy with a wife and kid. That's just the basics - no savings, but no debt either.
Say I had a product finished and ready to launch tomorrow. I'd need to find a way to earn that much (plus taxes) per month. This isn't as hard as it seems - you figure the guy who owns the local convenience store is making that much money (and most likely a lot more) selling items that average around $1 apiece, right? Follow me on this. But unlike that guy, I'm developing software or a service and have no real rent (except to my colo - which is currently being covered by Google Adsense), and no overhead when it comes to buying things to sell. It's all upside for me once I get that product done and to market. Yes, this is a simplistic take on things - I understand the costs of support, etc. but let's stay focused!
$3500 a month. If I charged $35 for whatever it is I develop, I would need to get 100 people to buy my product. My focus, as you know, is focused on mobiles... so I would probably need to charge a 10th of that price or less, and rely on the vast numbers of mobile users out there to make up the difference. So $3.50 would need 1000 purchasers. It sounds like a lot, but if you consider that this smallish weblog gets 60,000 unique visitors a month, I only need to sell a product or service (at the small price of around $3) to 1/60th of them. Now suddenly it becomes reasonable...
And here's where the obvious parallels starts to set in. If I'm going to go to investors and say "give me xxx amount of money and I'll develop a product which returns you xx% on top of that" where that xx% is some massive Googlesque number, I better have a product that's good enough to sell to at least 1000 people a month, no? In fact to take advantage of the scale of the mobile market it would need to start selling loads more than that. If I *can't* get to that point, any sort of due dilligence on an investor's part would sniff that out pretty quickly anyways.
So it seems that if I can't bootstrap the business, I shouldn't look for investment.
Pretty straight forward it seems. If you do bootstrap the business and start making cash, after that you can decide whether you go for outside investment and the advantages captial brings you (hiring more people, marketing, etc.) or do the "software takes 10 years" route of Joel and continue growing at a normal pace. Personally, I see that Google had investors and they grew to however many billions in five years and like that idea. I like the idea of swinging for the fences. That's the fun stuff.
Now what about a shortcut? I really wonder if there is a shortcut? This isn't 1999 any more... Even with all the money that's supposedly floating around out there nowadays, I can't imagine that I can expound my grand theories, get excited, wave my hands and - yes - write on a napkin and instantly get funding. It'd be nice, but it's *such* a low chance of actually happening. It seems to be a better bet to develop a product customers actually want (remembering the lessons from Avedia), then hit a natural wall where funding would make sense. "Hey, we're seeing x amount of growth, but we can't take advantage of it. We need cash to grow!"
But what about the Google example? This is a company that had technology and a different strategy all together (Google Boxes?) before they discovered the power of contextual text ads. Bootstrapping that sort of company would've been impossible... In fact, I'd make a bet that it's a good thing Google started exactly when they did, otherwise they just wouldn't exist. In 2001, who would've invested in a non-portal web service with no advertisements? This is where early stage investment allowed the company to build a world-class product and get it out there, eventually getting to the point where it could generate revenue.
Actually, this brings around to advertising. Having lived through the bubble, I just don't want to think about advertising. Yes, it generates real money. Google Ads on this relatively low-traffic blog have brought in $500 in the past month or so since I turned them on again and I know owners of more popular websites who's earnings climb into the thousands. But the whole idea of "eyeballs" and "click-throughs" gives me the willies. Unless there is some new and interesting avenue for advertising (and admittedly, mobiles might be that space - as long as it's not push advertising - i.e. mobile spam) I'd rather find some other way of generating cash. I go back and forth on this... I just remember when every startup's answer to step 3 was "banner ads" and I knee-jerk in the other direction. Then again, Google wouldn't be Google without text ads... hmm...
Of course all this thought and words and reading is taking time away from coding... but it helps my mind to get it all out there. This is where an MBA would really come in handy (the education, not the person - unless that person wanted to educate me... ;-) )