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Written by Joaquin Cuenca Abela, Founder and CEO, Freepik Company
Businesses are shaped by their founders. Their strategy, or lack of it, aligns with their founders’ passions. They attract brilliant people with their specialties, and often they struggle to grow the team through their weaknesses. There is no strategic decision more important than how the company will be funded, so it’s no surprise that the optimal way to fund a company also depends on its founders.
Some founders can communicate easily. Some can put together a working prototype. Some have a clear vision of what they want to execute. And some don’t. We are all different.
Have you seen Twitter threads stating that a founder or CEO must be a communicator, or seller, or do customer support? Pin it. Print it. And then burn it. It’s not strictly necessary but it will make you feel better. I’ve seen founders with fantastic selling abilities fail spectacularly. And some introverts that stay silent in the background make a killing.
Embrace the diversity of funding.
This diversity among founders also means that some people will be comfortable raising capital from VCs and some won’t be. When growing a business, there are multiple funding options available. For aspiring or existing early-stage entrepreneurs, however, bootstrapping a business could be the answer to long-term success and impact.
While the global funding market has slowed in recent months, VCs are still investing but much more carefully. Despite record funding into European startups in the last few years, pre-seed investment declined by almost 50 percent between 2016 and 2020.
Rather than relying on external sources, bootstrapped companies eschew these forms of capital and instead are funded through their own revenue or existing cashflow. Success stories include Mailchimp, which sold last year to sold to Intuit for a staggering $12 billion. In Europe, tech-for-good company Ecosia and Mojang Studios – the creator of Minecraft – are standout highlights.
When I started I had absolutely no contacts, no track record and I could not articulate what we were trying to do. I was playing with computers, like I’ve been doing since I was a kid. I hacked the newly released Google Maps and put photos on top of it. I created a site where everyone could add their own photos. Soon everyone could see the whole world from other people’s lenses. Our revenues came from adding ads to the site.
Years of progress made it possible for a couple of 20-somethings to build something by ourselves, generate revenues to self-fund the cost of servers and very soon turn a profit. Today, it’s even easier to build, launch and monetise new products. The time for bootstrapping is now.
How to get started.
If you decide to bootstrap your business, you will not need to define a strategy. You will not need to convince investors. Here’s what you will need to do.
Aim to be profitable from out of the gate, or soon after: You absolutely will need to turn a profit in weeks, or in a few short months. If you are in a comfortable position and can self-sustain for a long period, you will fail. You need the pressure of turning a profit quickly. Embrace the restriction. You need to make something that people want, and you need to grow. If only a part of your product receives significant demand, focus on that. Follow your growth.
Stay focused: A common mistake is to shift focus from revenue and growth to something that can be conveniently controlled without improving your product for your users, like scalability or robustness. Fight this temptation. You don’t know yet what’s scalable, and you may need to throw away what you’ve been doing multiple times, so don’t stress too much about robustness.
In turn, reduce your expenses: In the early days of Freepik, I got back to the office after lunch and found my co-founder Alejandro cleaning a huge computer case with a vacuum on the middle of the street. It was too dusty to do it inside the office. He ordered eight hard drives, and he was reusing an old case to build a server to host the drives. The ‘scalable’ way of doing it was to use Amazon S3. If this server failed, we would lose all our images. What could we do?
My other co-founder Pablo just started doing backups on CDs every Friday evening. That server worked like a champ for years until we outgrew it. Eventually we moved to S3, but until then our expenses were a tiny fraction of what anyone else was paying for this storage, and we stayed profitable since our first month. Be frugal – every euro counts.
Move with conviction.
Once you have a profitable, growing business, it will be much easier to sell a stake of the company or to raise capital if you wish to go down that route. The best strategy with VCs is to build something so good that they want to call you. Or you can just keep working on your passion. Not everyone has that luxury, though.
You are in charge, and you decide. I once received some advice from a wine connoisseur: the trick to becoming good at wine tasting is to try new things and to respect your taste. It’s your DNA. Respect yourself. Over the years I found this applies to more than just wine tasting. Whatever you do with your company, do it with conviction. It will be the right decision.