When bootstrapping a product, how do you know if you should raise money?

November 19th, 2014

I have spent the past six months developing a website in my free time that offers a unique solution to a common problem. I am in a position where I don't NEED additional capital right now, but it would certainly make some aspects of promoting the site easier and would probably help success happen sooner.

My question - is it better to continue to bootstrap the site and hobble along or is it better to take advantage of outside capital to promote and grow the brand.

Anonymous

November 19th, 2014

I always look for the magic numbers.

1 - Do you have over 1,000 users - This is interesting, you have some friends who use it.

2 - Do you have over 10,000 users - This is more interesting, its something that has some interest.

3 - Do you have over 100,000 users - This is the critical one, it means you have something interesting and people have told other people about it, now it might get noticed.

4 - DAU - Daily Active Users - This is what its all about, how can you continue growth AND keep people coming back. You need some secret sauce for this.

If you don't have 1,000 users yet, its still a hobby, keep working part time. If you have 10,000 users, then put more time into and continue it yourself, if you ask for help now then you will have to give up too much, if you can continue to 100,000 users then you will be in a better position.

Once you have 100,000 users with a good return rate (DUA) then life changes, there are a few ways to get additional money for operations and Marketing.

100,000 users will allow you to put Google Ads on the site, you will make a few dollars from this, think about how you want to monetize the site, are yo going to charge for membership or put Ads? You must have thought about this before.

No one will have the same view of the product that you do, the more you control the better off you will be.

Thats my 2 cents.

Michael Brill Technology startup exec focused on AI-driven products

November 19th, 2014

As always, it's hard to tell with such limited info but high probability you should be spending all your time on getting your first handful of users to try it out. Then focus on getting even a single user to a level of engagement you think could monetize. Then your second user, third... tenth. At that point, you'll have a lot more info about whether this is something you want to throw yourself into.

Right now, from an investor's perspective, you're just a guy with a full-time job who built a website.

Cyndee Sugra CEO & Founder | Creative Entrepreneur | Foodie | Design & Tech Innovator | Musician

November 19th, 2014

In my experience, investors need to see some traction first. Have you launched your website yet? Do you have any users? Do you have new users signing up regularly? Etc… Definitely better to do all that you can do on your own before you involve investors. Bootstrap as long as you can. You need to be creative and smart with the funds you do have for marketing and hopefully you will see some traction. And I realize that you are not posting what exactly you are doing here, but you will need to definitely refine the “unique solution to a common problem” if you are looking to get investors. :-) Cyndee

Lawrence Goodhue Project Manager

November 19th, 2014

Wow, thank you all for your input and suggestions. The site is live and has a handful of users. It has been in a limited-release beta state while we finalize some features and complete work on the mobile app. I have performed basic market research to determine if there is even a demand for the service and consistently the answer is yes.

Thanks again for the valuable feedback!

Rob McCarty Social Media Influencer Expert, Speaker, & Ad Exec ► Co-Founder of PopShorts.com

November 19th, 2014

Nice thing about this day in age is that you have a myriad of free (or relatively free) tools available to you in the social & SEO world to get the word out. From there you also have an incredible amount of feedback systems you could employ to see what works best.

Best of luck to you and your journey!

Rob

Chris Carruth VP/Director. Strategy | Business Development | Operations | Product | Solutions

November 19th, 2014

@Steve - there are numerous reasons not to "go get investment capital. Ignore all other advice...". My assumption is he is not selling anything yet, which puts valuation at close to $0, bearing patents, contracts or something else that shows proof of concept, like actual sales.

Even if there are sales it should not equate to running out and getting outside capital. Giving up equity, too early, can make a big mess later..the stories of entrepreneurs doing so, losing material control as dilution and unfriendly terms for accessing more capital sets in, and ultimately being forced out of "their baby" and having nothing to show for it, does happen..once is too often.

Ask anyone involved in raising money - equity is EXPENSIVE and not just in terms of short term ownership. Be cautious.

Chris

Robert Bouthillier Owner, Design Net

November 21st, 2014

The group has given you a variety of perspectives to consider and you should give all of them some thought.

We develop products for many startups and work with their investors, and one of their greatest concerns is besides seeing traction, is your IP that gives you some protection from copycats as you build your customer base.

You also need to build metrics that monitor traction at a finer level than just sales otherwise you will miss opportunities for growth of your userbase which are critical for the sucess of a startup.

The book 'The Lean Startup' by Eric Reis details how to create these metrics.

Manuela Fassbender Founder and CEO at Tahaanga LLC

November 22nd, 2014

We are right now in the Kickstarter phase and can confirm that getting traction is the most difficult part. My suggestion is to reach out to other co - founders who have been at a particular phase to get support and tips. I'm more then happy to share my experience up to date.

Chris Carruth VP/Director. Strategy | Business Development | Operations | Product | Solutions

November 19th, 2014

@Thomas - 100% agree, good metrics to live by.

@Lawrence - only other comments I might offer is that equity is the most expensive financing available in terms of total ROI. If you have the ability to bootstrap that is your best bet, as even if you obtained outside funding (incredibly difficult to do BTW), any valuation that is part of ownership calculations is really worthless. One option would be convertible debt, which can bypass the valuation issue, but leaves the business with debt at a time when you might need to raise more funds, which will make that effort even harder. There are ways around this but in general it is correct.

Bootstrap if possible until you have to go outside for funds. I would suggest a couple of sources for additional advice:

a) One Million Cups (http://www.1millioncups.com/) holds local entrepreunural meets, see what advice they offer

b) Get additional views /ointers from listening to public roundtable recordings at http://1m1m.sramanamitra.com/. The lady that runs it has been holding these for a few years, most discussions are about tech, and many are around launching/growing app revenues.

Chris

Sanjeev Rao

November 19th, 2014

Lawrence, you appear to have a ready prototype/product, but if you don't have users or revenue, you don't yet have a business. Find a way to show traction i.e. have other people use it and love it. You could start very narrow there to limit your time, but whatever you do, focus on an enjoyable and useful experience for a very small subset of people and then grow from there.

Also, expect to spend money on paid marketing. Product development is not the only cost a business incurs.

-Sanjeev