First Class Founders: Creators | Solopreneurs | Personal HoldCo - The Pros and Cons of Bootstrapping vs. Fundraising

The Pros and Cons of Bootstrapping vs. Fundraising

11/16/22 • 11 min

First Class Founders: Creators | Solopreneurs | Personal HoldCo

E5: When does it make sense for you to bootstrap your business? And when should you raise funding? We're talking about the classic question of bootstrapping vs. fundraising. After making this important decision myself, these are the main considerations that you need to know and they may not be what you think.
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TOPICS:
Stakeholders Deciding Your Company's Future (1:22)
Who are the decision-makers in your business? If you want full control over the future direction of your company, bootstrapping is the way to go.
Ty Haney & Outdoor Voices (2:46)
Outdoor Voices, an athleisure apparel brand, was one of the hottest direct-to-consumer startups at one point. At one point, Outdoor Voices had 130 employees with 11 brick-and-mortar stores nationwide. Outdoor Voices had raised more than $60 million in VC funding. Mickey Drexler, famous for building both the Gap and J. Crew into retail icons, invested in the company and served as chairman of its Board of Directors. Haney and Drexler had conflicting views on the company's future. Eventually, this divide drove Haney out of her own company.
Lifestyle Business (5:05)
If you're bootstrapped, you decide how you want to design your own life and how your business fits within it. As the primary decision maker, you choose how fast you want to grow.
Type of Business You Are Building (7:03)
If you are starting a company in a market that’s already well-established, it's better to bootstrap. If your company is changing or completely reshaping an industry, you may need to raise VC funding so that you can deploy as much leverage as possible.
Blitzscaling (8:42)
According to Reid Hoffman, Co-Founder of LinkedIn and Partner at venture capital firm Greylock, blitzscaling is what you do when you need to grow quickly.
Optimizing for Money vs. Time (9:05)
A bootstrapped company needs to prioritize cash flow and preserve capital above everything else. A venture-backed company’s top priority is growing as fast as possible at all costs in a race to become the industry leader.
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LINKS:
Episode 1 - How to Turn Your Passion Into a Business
Episode 3 - Secrets of Compounding

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First Class Founders is a show for indie hackers, bootstrapped founders, CEOs, solopreneurs, content creators, startup entrepreneurs, and SaaS startups covering topics like build in public, audience growth, product marketing, scaling up, side hustles, holding company, etc.
Past guests include Arvid Kahl, Tyler Denk, Noah Kagan, Clint Murphy, Jay Abraham, Andrew Gazdecki, Matt McGarry, Nick Huber, Khe Hy, and more.
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Previous Episode

Your Secret Creative Weapon — Constraints

E4: Constraints vs. Bottlenecks - what's the difference? Knowing the differences between these two and understanding how each of them can impact your business both positively or negatively depending on how you look at it.
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TOPICS:
Bottlenecks vs. Constraints Overview (0:53)
Constraints allow you to create boundaries and rules in which you can unleash your creativity. Bottlenecks are found within the boundaries through constraints and they slow down your business.
What is a Bottleneck? (1:48)
Bottlenecks can be anything that slows down the flow of your business from input to output. Your job as the operator of your business is to remove the bottlenecks in your business.
Common Bottlenecks for Small Business Owners (3:51)
For most entrepreneurs, they are the bottlenecks in their own business. If you're working in the business, you may not even realize that you are the bottleneck. To increase output and increase productivity, you will need leverage.
What is a Constraint? (5:34)
Constraints are necessary components for creativity to flourish. Constraints are the pre-requisite to creating something out of nothing. You need constraints. You can use limitations and constraints as tools to unleash your creativity.
Turning Constraints into Opportunities in Your Business (6:20)
When hiring Fulfillment Associates for our 3PL business, we had difficulty finding the right candidates on the labor market. Working with state-run organizations, we were able to find reliable staff members who were excited to be working with us.
Creative Cash Flow Strategy (8:19)
Cash is another common constraint. You could do a pre-order so that you can collect pledges prior to placing an order with your manufacturer. This way, you can test the demand for the product prior to placing a large order.
Getting Banned from Facebook Ads Overnight (9:29)
Through Facebook ads, we hit record sales. Then, a week later, we got banned and lost our primary growth engine. Our sales fell drastically. So what did we do? We diversified and found other growth channels to grow.
***
LINKS:
Poopsy Daisy
Episode 3 - Secrets of Compounding

Next Episode

Amazon vs. Patagonia: A Tale of Two Retail Giants

E6: What do Patagonia and Richard Branson have in common? Likewise, how about Amazon and Elon Musk? We'll compare these two companies and two remarkable billionaire entrepreneurs. I'll also discuss strategies on how to differentiate yourself when you're a bootstrapped company by referencing Seth Godin's purple cow concept. Last but not least, we'll introduce and apply the mental model of First Principles Thinking and how you can use it to come up with innovative solutions to complex problems.
***
TOPICS:
Patagonia (1:56)
Founded in 1965 originally as Chouinard Equipment, the company was an early pioneer in the sustainability movement. Today, Patagonia still exemplifies this important mission of protecting our planet with innovative initiatives.Amazon (3:17)
Amazon was born during the frenzy of the dot com era in the 1990s. Amazon grew at all costs without much consideration for the harmful environmental impact of its growing logistics business, or even for its own employees.Seth Godin - Purple Cow (6:17)
To build a remarkable company that stands out from the crowd, you have to embody strong values that make your company unique and special.Henry Ford (7:50)
Henry Ford once said, "If I had asked what people wanted, they would've said faster horses." Ford mass-produced the first automobile thinking in first principles.
First Principles Thinking (8:07)
Thinking from first principles allows you to think outside the box and see what is possible using a whole different approach.Ray Kurzweil (11:14)
Ray Kurzweil thinks that humans are approaching an inflection in longevity, hitting longevity escape velocity.
Elon Musk (11:56)
Elon Musk is an entrepreneur who often thinks in first principles, coming up with the concept of the Hyperloop while working on Tesla and SpaceX. Musk is pushing into new frontiers that have yet to be explored by humanity.
Richard Branson (12:34)
Richard Branson is another successful entrepreneur. Utilizing Seth Godin's purple cow concept, his publicity stunts and framework for launching businesses in well-established industries is very different from the way Elon Musk approaches business building.
***
LINKS
Episode 5 - The Pros and Cons of Bootstrapping vs. Fundraising

First Class Founders: Creators | Solopreneurs | Personal HoldCo - The Pros and Cons of Bootstrapping vs. Fundraising

Transcript

What's going on everybody? Welcome to the First Class Founders podcast. The goal of the show is to equip you with powerful mental models and frameworks so that you can master the art of decision-making. In each episode, I introduce and apply these concepts in real-world scenarios. My name is Yong Soo Chung, and I'm the founder of Urban EDC, an e-commerce brand selling everyday carry gear and GrowthJet, a Climate Neutral Certified third-party logistics company.
So let's say you have a new bu