2016 seemed like a bloodbath for the Indian start-up ecosystem. More than 200 start-ups, including some of the biggest funded ones like AskMe, TinyOwl, Peppertap, FranklyMe and Fashionara, failed to survive the headwinds of competition compared to 140 the previous year, according to data from Tracxn.
The funding for start-ups also dropped by 50% this year to $3.8 billion as compared to $7.6 billion last year as investors turn cautious and keep a hold on the purse strings.
With funding drying up, the Indian startup scene is now looking to consolidate. Even large hedge funds have disappeared from the scene: There have been only 10 deals involving hedge funds in the first three quarters of 2016, compared to 50 deals in the same period last year, according to a study by the tech industry think tank iSPIRT and advisory firm Signal Hill.
But, do start-ups really need to focus on funding to survive or successfully start a business? Most start-ups are launched with $10,000 or less, according to a Wells Fargo/Gallup study.
Some of the most successful companies such as Github, Gawker, Dell, Hewlett-Packard, Apple, Microsoft, TechCrunch, Craigslist, who now reap billions of dollars in revenue started off with $1,000 or less.
With such an A-list of companies, it is a wonder that start-up founders don’t consider bootstrapping as an alternative way of funding, as it helps to focus on profitability and financial discipline along with the freedom to pursue one’s direction while largely maintaining control.
Here are a few key reasons why bootstrapping is a viable alternative
Constant focus on the cash flow: According to a study by CB Insights, 29% of startups failed because they ran out of cash; and how to spend the money they got was a frequent conundrum that the founders grappled with. By bootstrapping, companies are forced to focus on cash flow from Day 1. It will help them properly set targets and achieve them in a sustainable manner. The biggest lesson one can learn in business is how to generate revenue from your products and services, while keeping operations lean. It prevents you from taking anything for granted or being wasteful.
Build your own culture and values: Successful entrepreneurs have a clear vision of what they want their company to be and how the future will unfold. The founders know how they want the company to grow and what it should be known for and strive to drive that through culture from conception to realization. Even while hiring employees, it is important they buy-in to the culture, along with searching for the right profile of experience and skills. Have a no-frills policy. As more stakeholders get added to the company, the vision can get diluted or even worse, get changed. Too many cooks can indeed spoil the broth.
Get control for the long run: Remember the housing.com fiasco that led to the exit of Founder Rahul Yadav from the company? Multiple investors can often bring their own set of rules, not to mention that they are often looking for their investments to bear fruit sooner than usual and the constant interference in all decisions from hiring to making deals. Bootstrapping will provide you with the confidence to deal with difficult decision when it comes to funding or resources.
Get more leverage while fundraising: When you do have to raise external funds, then it becomes easier if you are a bootstrapped company. By this time, your company would have been able to prove its financial viability, thus encouraging investors about the company’s credibility and its ability to grow. The greatest benefit of bootstrapping is when an entrepreneur is successful, he can say no to investment if it does not suit him, instead of being pressured by fund concerns.
Focus will be on consumers than investors: When investors come on board, the founders usually have to focus on getting quick returns for their investments. Bootstrapping will ensure that your focus remains where it should: On the customer. The initial years should be spent on gaining credibility with the customer. Even if the best investors come on board, they will dramatically increase your workload, with daily communication, agreement expectations, and business overheads.
It is time Indian entrepreneurs stop distracting themselves from vanity metrics like valuation or funding raised. Bootstrapping can help start-ups build vibrant and sustainable businesses and follow the ‘fail often, fail cheap and fail fast’ mantra.