Editor’s Note: The following is a guest post by Jerry Tian of ContentDJ. ContentDJ helps you identify and share quality content to engage with your online community.
Passive Income vs Startup Guy
A: What are you working on?
B: I’m working on a SaaS tool that foos bars.
A: Oh cool, where are you guys based?
B: Well, it’s just me, I’m actually traveling, not based anywhere.
A: Have you raised money?
B: No, the business is bootstrapped.
A: So you just work out of coffee shops and stuff?
B: Sometimes, but mostly I don’t work. I do other stuff.
A: But what about dev, marketing, customer service etc?
B: I’ve automated 95% of the non-dev. The other 5% of non-dev I deal with in about 20 minutes a day. Every few weeks I’ll have a big dev day.
A: How can you scale the business without a team?
B: Because the business was designed with some very heavy constraints in place.
A: Like what?
B: I say no to any feature that would require a team to scale / support.
A: That’s absurd.
B: It limits my market drastically, but it’s still big enough for me to live comfortably off of.
A: How much are you making, if you don’t mind me asking?
B: 5 figures in profit a month.
It seems that a typical “successful” startup life cycle looks like this:
- Build a product
- Make a sale
- Seed fund
- Talent acquisition
- VC fund (A, B, C…)
The default route is to raise money, and go big or go home. Few people stop to think about the consequences.
What’s crazy about this is that the guy who’s actually making money is being laughed at — it’s just so much better to have a gazillion eyeballs (and no business model).
Freedom or debt, pick one
There are really two kinds of startups. In the words of Steve Blank, there are scalable startups and small businesses (lifestyle startups):
A “scalable startup” takes an innovative idea and searches for a scalable and repeatable business model that will turn it into a high growth, profitable company. Not just big but huge. It does that by entering a large market and taking share away from incumbents or by creating a new market and growing it rapidly.
In the U.S. 5.7 million companies with fewer than 100 employees make up 99.5% of all businesses. These small businesses are the backbone of American capitalism. But small businesses startups have very different objectives than scalable startups.
Investors play a big role in scalable startups. What most entrepreneurs don’t take into account is the cost of investment.
Once you take someone’s money, you no longer work on your own terms. It’s like you spend 6 months pitching (instead of working on your startup) only to find yourself a new boss and work on their terms.
And if everything doesn’t go as planned, you can kiss goodbye to your grand vision (read: why Canada has no big tech companies).
What drove you to start your own company?
I recently asked some of my startup friends the question: “What drives you to keep going each day? What’s in it for you?” A Majority of them answered freedom. Freedom from the paycheck. Freedom to work on whatever / whenever / wherever they want. It seems among my startup friends, freedom is one of the strongest entrepreneurial drives.
This reminds me of my own encounter with this question.
One of the first things Kevin got me to do was to write down the 6 things that were most important to me. Here is what I wrote down:
- Work from anywhere
- Not managing a lot of people
- Create great innovative product that people love
- Be financially independent
- Create a system that’s independent of me
- Life-long learning
Kevin told me that I should create a company around these values, and not to pretend to be something I am not.
A little more than a year after launch, my startup is ramen profitable. Lately, I find myself thinking a lot about the kind of company I want to create.
As founders, we have the special privilege to shape our own destiny. We have the freedom to create startups as extensions of ourselves. We have the opportunity to maximize our own happiness.
So, before you take the default fundraising route, I encourage you to stop and think about what drove you to start your own company. Are you driven by your own freedom or are you driven by making your investors rich?