Bank lending to business, or lack of it, is in the news at the moment. But it is possible to bootstrap a business without a ton of cash. I know. I’ve done it: I have started three different businesses without a penny of VC funding or any loans. And the benefits are more control, more flexibility and potentially less risk. Here are three options based on my experience:
1. Organic growth
The first, IG, was a computer games company. I started it when I was 18 and I had nothing to lose. I got a job in my gap year as a programmer and that gave me experience and funds to develop games in my spare time. After I left university I had two games to my credit and I was able to parlay that experience into generous advances from three different games companies, including the creators of SimCity and The Sims. This funded our first hires and the first office. After that and for ten years, we funded growth out of revenues. When I sold it in 2000, we had a turnover in excess of £3m and around 70 staff.
2. Small is beautiful
My second business, Articulate Marketing, is still running well and it takes a very different approach to growth. The company is small and focused on a specific market (multinational technology companies) and specific services (content and social media marketing). Articulate does not have a large number of staff – just three employees and a number of trusted contractors – but the company is growing by increasing the value of the work we do rather than the quantity.
My third business, TurbineHQ.com, takes a different approach again. I was really impressed by the approach of 37Signals to distributed teams (check out their books Rework and Getting Real), Tim Ferris’s idea of radical outsourcing (although his book, the 4-hour Work Week, is a bit silly) and Eric Ries’s book The Lean Startup and his idea of the ‘minimal viable product’. With Turbine, I have team members in Ukraine, Argentina and the UK and the company is growing fast. It’s being funded / incubated with Articulate but the low cost of development is a revelation compared to the epic salary bills at Intelligent Games.
Of course, there are downsides of self-funding, staying small and organic growth. Perhaps the biggest issue is that it can be hard to grow quickly but I describe the VC-funded ‘big bang’ approach to business as running fast without necessarily knowing that you’re running in the right direction. But the big thing I’ve learned is that if you can keep your costs low and the value of your product high, self-financing is viable.