Mindaugas Čaplinskas is Cofounder and Strategic Advisor of IPRoyal, a leading residential proxy provider.
Starting a company without outside capital, commonly known as “bootstrapping,” is a strategy many startups adopt for reasons other than simple necessity. There are several long-term advantages you can achieve by avoiding a large influx of venture capital at certain stages of creating your SaaS business.
Besides retaining ownership and lowering debt risk, bootstrapping an SaaS product can allow you to build an organization focused on maintaining a positive cash flow. Drawing from my own experience as an SaaS cofounder, let’s look at how you can effectively bootstrap your startup.
The First Decision: Growth Vs. Profitability
When deciding if you want to seek venture capital or take the bootstrapping route, consider whether you want to prioritize growth or profitability. Having access to large capital can allow your company to grow to new markets and services faster, while prioritizing profit can help you build a business model that sustains itself.
Depending on your product and its market, you may prefer one approach over the other. It’s common to think that access to venture capital gives you more flexibility in choosing strategies, but I’ve found that the pressure for growth from investors can be counterproductive in the long run. Bootstrapping efforts can be validated by early adopters, whereas starting with a large amount of capital can turn your focus toward prioritizing larger but less-loyal early customers. While there are no universal rules in building an SaaS business, I believe it’s important to acknowledge these factors when making this choice.
In the end, your success will likely rely on the specifics of the market you are in. For example, when my company entered the proxy market, it was already quite saturated with a few well-established players. Focusing on growth under such circumstances would not only prove challenging in attracting capital but also in building our brand. Since proxy and its software implementations can be difficult for customers to begin using, we chose to stand out by focusing on customer-centered features, building the entire organization around them.
Bootstrapping Success Factors
In my experience, balancing growth and profitability requires customer-centricity, lean processes and an internal culture of innovation. These factors are important for bootstrapping a SaaS business in a competitive market.
• Customer-Centricity
When bootstrapping an SaaS business, it’s important to focus more on what will help you acquire new customers and support existing ones rather than on chasing growth metrics. I’ve found that knowledge of the market and proper product validation are often more important than capital when it comes to aligning your company’s processes and later decisions with customer preferences.
Venture capital-based SaaS companies often overlook small channels in order to scale their products for a larger audience, neglecting the niche demands their customers might have. A bootstrapped SaaS business can direct its smaller amount of capital toward finding customer-centric strategies that avoid costly acquisition cycles and help ensure repeat business. I recommend applying a minimum viable product (MVP) framework here, with a focus on how your MVP will solve a problem for a targeted early-adopter user base.
You can also focus on building further features or expanding to markets around existing communities that would immediately see a use for your product. In the proxy market, for example, one valid strategy is building guides on how to apply the product in specific use cases. In my experience, solving problems relevant to your users can drive organic customer acquisition better than if you simply funded features that customers might not even know how to use.
• Lean Teams And Processes
Venture capital-funded companies often override customer-centric priorities and lean processes due to investor pressure for growth. However, lean methodologies typically align with bootstrapping strategies due to their similar focus on resource constraints.
When applying a lean methodology, optimize all of your workflows to maximize the value to customers while using the least possible amount of resources. In the product development phase, start with MVP prototypes, and only move them to further development after they have proven useful to customers.
This goal should be reflected from the very beginning of your product development process. Start by identifying the task your MVP will perform. Next, formulate a process for achieving it, and then hire the required team or acquire the necessary resources. Throughout the process, obtain and incorporate customer feedback to build consumer trust in your brand.
You can also consider outsourcing noncore tasks to freelancers or agencies and automating processes where applicable. This can help keep your internal teams lean while allowing you to verify the effectiveness of your MVP before you build up your internal expertise.
• Company Culture
When you don’t have a large amount of venture capital at the beginning, it’s especially important that your team understands the importance of managing company resources. One way to foster this kind of resource-responsible culture is by ensuring your organizational structure and values encourage innovation within the confines of profitability.
This can be done at different levels of your organization, but be intentional about where such entrepreneurial gaps are created. For example, we encourage employees to innovate and make their own decisions as long as they can present a good value proposition to the end customer. Implementing short, agile sprints can help you ensure that the need for customers is validated before you move forward and scale an innovative feature.
When it comes to who you bring into your culture, I’ve found that it’s better to hire people with the right mindset than just those with the right skills. An important part of a trust-based culture is having people who can adapt quickly and openly communicate what they need.
Finally, encourage your team to feel a sense of ownership in the business. This can help your company embrace a remote and asynchronous distributed work culture, which can help you hire the best talent regardless of geographical constraints.
Final Thoughts
A bootstrapped SaaS business isn’t necessarily less adaptable to new competition or market fluctuations. On the contrary, maintaining a solid bootstrapping strategy for your SaaS startup can help you build culture and customer-centric processes while still allowing you to turn to outside investments later.
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