Sacramento Executive: The Best Way To Bootstrap A Company

Are you thinking of starting a company? If you are short of capital, the best way to bootstrap your company is get sales. Right away. Do it before you do anything else. Don't write a business plan. Don't develop the product first. Go get orders.

Call me crazy? Let me explain by example - RightNow Technology a software company located in Bozeman, Montana. This is their story - a customer relationship management software solution provider, started in 1997, bootstrapped their way to an IPO in 2004 at $7.00 per share, and now has 530 employees, generating $99 million in annual revenue, with 1,700 customers, $15.61 per share, and a market cap of $504 million.

How did they do it? Founder and CEO Greg Granforte writes:

There's a sign that I keep on the wall of my office. It says simply, “Nothing happens until somebody sells something.” In other words, sales is where your business begins. Sure, you may have a great product or service that you’ve worked hard to develop. You may have hired a fantastic staff. You may have cash in the bank, a logo and letterhead, a beautiful office, computers on the desks, all those things that come to mind when we picture a business. But that’s not what makes a business. Only sales can do that.

This is good news for bootstrappers. Bootstrappers can’t afford fancy offices or big staffs. They may not even have a finished product yet. But the bootstrapper doesn’t need those things to get started. As soon as you can start selling—that is, go out and find customers willing to buy his product or service—you have a business.

So when you’re bootstrapping a business, you don’t worry about the nonessentials at first. Your first concern is sales. Everything else can come later, and sometimes that includes the product or service that you’re selling. In fact, if you approach it the right way, sales is the best way to come up with a product that people will buy. Let me explain.

I started RightNow Technologies with just an idea for a product. What made it real was sales. It was 1997 and the Internet was just starting to boom. Sitting at my home computer, surfing the Web, I noticed that a lot of companies didn’t have a very good way of responding to customer inquiries at their websites. Most of their software solutions seemed to be homegrown and not very effective. When entrepreneurs see a need that’s not being met, they scent opportunity. So I tried to imagine what kind of software would be able to respond to customer inquiries automatically. I made a list of features that I thought would be important for the product to have. Then I hit the phones.

I called hundreds of companies and asked to speak to the customer service manager. I described the software that I had dreamed up and faxed them the specs—just a page, nothing more. Then I asked them whether they’d be willing to buy this product for their company’s website.

Some of them said that yes, they would like to buy the product, and I was certainly happy to hear that kind of positive response. However, when a potential customer said no, I didn’t mind. In fact, that’s when I went into full alert and really started to listen hard. “Why not?” I asked. “What features do you really need? What would make you want to buy this?” And they would tell me. Of course, not everything that the customers wanted was feasible, but if I thought that I could realistically add it to my software product—still purely hypothetical at this point—I’d jot down a new feature on the spec sheet. Plus, there were a few bells and whistles that I’d thought of that didn’t seem to interest customers at all. That lack of interest was important feedback, too. I dropped those features from the spec sheet.

In other words, I used the sales process to do my market research. Had I been awash in start-up capital, I could have hired a marketing firm to run some focus groups and do some surveys of potential customers to figure out what the market wanted. But my way didn’t cost anything, and when I was done, I had a stack of orders. If the reverse had happened, if no one wanted to buy my product, I would have learned quickly and relatively painlessly that I didn’t have a viable business idea. Rejection isn’t easy, but it’s a lot easier than raising money, renting office space, hiring staff, producing product—and then going out of business because your brilliant idea didn’t pan out in the marketplace.

In fact, I would argue that going out and talking to customers myself taught me more about my market than a dozen surveys or focus groups. For an entrepreneur, real learning doesn't start until you actually have real customers. So the goal of the bootstrapper is to get a real customer as quickly as possible.

Of course I couldn’t actually fulfill those orders immediately, because there wasn’t an actual product yet behind that spec sheet. But I had been honest. You never want to lie to people, especially if they’re your customers. I had told them that the software was still under development and wouldn’t be ready for another sixty days. And I had made sure that the product on my spec sheet was something that I could build within a reasonable period of time so the customers would wait for it. A lot of people who start businesses get hung up because they think, "Oh, I've got to have all this stuff in my initial offering.” The way bootstrappers think about it, they figure out what they can deliver quickly with a reasonable set of features, so that they can go ahead and start the business.

Once I knew that people would buy the product on my spec sheet, I holed up in front of my computer for six weeks and wrote the software. To be honest, the result was a very minimal, bare-bones product. To call it a 1.0 release would be a stretch. However, it did what I had promised it would do. Then I started implementing it for customers. At first I didn’t charge for it. It was more important for me to get the software into the hands of real customers, so that I could find out what they liked and didn’t like about the product, and then fix it.

The beauty of it was that I got a lot of feedback at first. So I ran really fast and I kept dropping in changes, and eventually I heard the response, "I'm not happy because...” less and less. That’s when I knew that I was starting to get a mature product. It probably took about ten months of iterations to get a mature product.

Meanwhile, after a couple of months I started to charge for my product. My market was made up of big corporations that easily could afford to pay $100,000 for a piece of software. I could have charged customers that much—and it would have been six months before I closed my first real sale. I didn’t want to wait that long to start generating cash. So instead I priced RightNow’s software to move, at $5,000 for a two-year lease, and then I offered big discounts, up to 50 percent, on top of that. At this point, my business expenses were almost nil. I was still working out of my home, and I had no employees. I could practically give away my product and still manage to be profitable.