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If you’ve been following the startup scene, you probably stumbled, a little earlier last week, on the Pinboard Investment Co-Prosperity Cloud where you get an incubator funding of $37 (no joke, this) along with what is stated as “additional help in making contacts in computerland and attracting an initial pool of customers.”
Besides a lively albeit sarcastic discussion on HN, the whole thing triggered another look at the present startup-investment scenario. Quite a lot of emphasis has been inadvertently laid on things like incubation, seed funding, Series A etc. It’s true that startup developers should plan ahead and work towards funding but much before that, one has to choose between self- and external-funding.
The Core Idea of Startups
Instapaper is a popular startup that has mushroomed out into a very successful company but Marco Arment doesn’t want to get into the funding mode at all. At a time when the whole of web is littered with all the talk about startups and funding, this is a very good example of a self-funded startup.
The core idea of startups – if you remember the good ol’ days of web startups a few years back – was to hack together a particularly interesting piece of code and build it into a popular app/service. Facebook, for instance. Or Hotmail. Or 37Signals and Instapaper in more recent times. Or Woothemes. Or Shopify. The list, if you happen to delve a little deep, is endless.
I mean that’s the idea of starting up a company based on a collection of beautiful code that does interesting stuff. All this talk about funding comes much later as long as you know that you can sail through – with effort and passion – the initial stages of developing a great product out of nothing (almost).
Self-funding Is In the DNA Of Startups
Unless you’re manufacturing something like an iPod or producing a piece of code that needs supercomputers to handle Big Data, your startup idea could mostly float the initial stage through self- and traditional-funding. Seek these options first and foremost, before you even think about external funding, angel investors and pitching to VCs.
Creating a startup out of design and code is an exercise not just in your programming ability but also in how you can get things done with the least amount of money involved; about how you can maximize the potential of every resource you’ve got.
Is This Feasible?
Amidst all the seed funding and capital investment din, it sounds quite old-fashioned but that’s just the media effect. To this day, more than 3/4ths of startup companies are self-funded (or traditionally funded through loans, borrowed money etc.)
All that tells just one thing: self-funded startups and success stories are very much possible.
How Can This Be Done?
I’m not saying you should shell out every penny from your pocket. There are other options (which have become less conventional):
- pitch your idea to a bank and secure a loan: this way, you don’t have to run into equity-sharing issues later!
- borrow money from friends who are willing to lend; from your spouse if he/she thinks you are crazy enough to change the world
- if in dire need and ready to risk, mortgage but cautiously
- flex scope of what your startup idea can do: reduce the features to meet the available financial resources
- if it’s time vs. money, flex time so it doesn’t demand more money
A Disciplined Approach
A self-funded project is not much unlike an external funding. You have to be accountable in both cases: in the latter, it’s largely overseen so you’re more careful and cautious with the spending and allocation but in the former, you are your own boss so things can get a little out of hand if you’re not cautious enough.
Not to worry though. It all boils down to a disciplined approach in managing the finances. Or in simpler terms: get an accountant. To cut costs, the accountant can be your spouse, kid, friend or dog. Okay, not the dog but you get the idea.
Self-funding is still the greatest way to start up. It’s an uphill task but it’s an exhilarating experience all the way up.
Interesting reads:
- Do Startups Need Funding Anymore?
- Success Stories of Bootstrapped Startups
- Real World Examples of Very Successful “Self-funded” Startups
Image by Flickr user Howard Lake