The most interesting part of the 27th Web Innovators meeting in Boston was the panel discussion on “Self-Funded Success Stories.” Laura Fitton, the Founder/CEO of oneforty did a great job moderating a panel discussion with Steve Conine, Co-Founder of CSN Stores, David Hauser, Co-Founder of Grasshopper, and Todd Garland, Founder of BuySellAds.
All three guys founded self-funded startups that have become relatively successful. Over the last 8 years, Steve’s CSN Stores — basically Amazon for niche verticals like luggage.com — has grown to 600 employees and over $300 million in revenue. David’s Grasshopper provides virtual phone systems targeted at startups – in the last 7 years they’ve grown to 8 employees and have served over 100,000 entrepreneurs. In about 2 years, Todd’s BuySellAds has grown to several employees and allowed him to quit his day job at HubSpot — BuySellAds has served well over a billion ads.
You Will Run a Better Company If You’re Self-Funded
All three guys were very happy that they managed to avoid taking any outside funding. They all grew organically, starting with either 1 or 2 person teams. The consensus was that, contrary to popular wisdom – self-funding made them much more agile and got them to market faster. They didn’t have time to waste, because financial pressure forced them get a product out the door immediately so they could start generating revenue. As David Hauser put it, “VC-Funded companies have the time to dick around.” Self-funded companies don’t. They need to focus and execute quickly, or they will die.
They also thought that the lack of funding helped them make better hiring decisions. Every hire’s salary was coming directly from their own revenue stream, which impacted their own salaries directly. Burning someone else money on a bad hire is less painful than burning your own, so whether intentionally or subconsciously, you’re likely to make better decisions when your own money is on the line. Steve guessed that if you work really hard at hiring, you might get it right with 70% of your hires. But if you have someone else’s money to spend, that might drop to a 50% success rate, which will cost you a lot of valuable time and money.
You Don’t Need a Business Plan
It seems that none of these guys had a business plan. Everyone laughed at the premise that you must have one. This seems to echo the thinking in David Heinemeier Hansson and Jason Fried’s book Rework. Everyone had a spreadsheet model that “proved” they could make money, but no one had a formal business plan. Todd joked that he majored in Portuguese and when he started he certainly had no idea how write a one.
Self-Funding Requirement: You Need To Be Tech Savvy
Interestingly, I noted that all three entrepreneurs where tech guys or had tech co-founders. To me, this is a key requirement for self-funding. Unless you have a prior success and lots of cash to put into your startup, then “self-funded” likely means bootstrapping. And since you don’t have money to pay for the initial development, you need to be able to do the development yourself until you generate enough cash-flow to hire an engineering team. If you’re a pure bus/dev person with a good idea, you won’t get anywhere unless you team up with a tech guy or girl to get things off the ground.