Back in the dot-com era, I remember reading this novel called, The First $20M is Always the Hardest by Po Bronson where the author talked about the gold rush days of Silicon Valley and founders’ dreams of making their first $20M and the twisted stories around that pursuit.
Having been a two time “bootstrap” entrepreneur in Silicon Valley, I’d like to modify that title as “The First $20k is Always the Hardest“.
Yup. The first $20k per month of revenue (or gross profit in some cases) is the hardest. Once you get there, you are the captain of your ship and life gets much better.
When the startup team gets to that approximately $20k of monthly income (or gross profit) where it can sustain a small team of founders and early team members, then everything becomes fun & easy.
So how to get there? Here is what we did in my two startup journeys:
- Create your Minimum Viable Product (MVP) while not re-inventing the wheel completely. Don’t turn your idea into a science project. As Warren Buffett says, starting a proven franchise branch is a much safer bet than trying to be next Steve Jobs. So pick a concept that is not too far off from existing proven models. My first company was an adaptation of Friendster/Myspace for international markets. It took off in Turkey (my home country). My second company was a Solar Equipment Distributor with an amazing e-commerce website and no warehouses. What is yours?
- Don’t give shares to investors but give shares to co-founders. Give shares to early team members who believe in you so much that they are willing to work for shares instead of cash. Negotiate with your people so that they work for half the going rate for similar jobs in a regular company. And give them shares. Even better if they take zero cash and all shares. Do the math. Instead of getting 100’s of thousands of dollars from investors and giving them a big chunk of your company (mostly to pay employees with it), give 5% or more to each of your early people and have them work for zero (or some) cash and all (or more) shares. In both of my startup journeys, the original founder shared generously with co-founders (20-50%). And also shared generously with other early employees (1-5%).
- Get to cash flow positive as soon as possible. Focus on costs and revenue. In both my startup journeys, my team got to cash flow positive in less than a year. How did we do it? We got paid close to nothing (in cash) for the first year and focused on serving the customer, getting a fair pay for our services, and growth.
Once your team gets to that $20k then all you have is upside. It is in a way some of the most fun times. You are not needing investors. They are – possibly – wanting you because they are thinking “Oh wow if this thing scales up fast, we might be missing on an amazing opportunity.”
Of course, not all startups will scale to the moon. Only few will do. So not all will attract investors. And even if yours does not, you are your own boss making a living, having fun, creating something new… which you can grow at a modest rate without the stress of pleasing of investors… And that peace of mind might be worth much more than $20M.
I see many early-stage teams talk about how they need capital to do X, Y, and Z. And only if they had capital, then they could build a prototype, etc.
My response to that is: Well, show me how you are already providing that service without your prototype. What does it look like today? And why don’t you charge your customers to pay for the product development to turn that into a more scalable process/product…
Once you get that formula nailed, then revenue and profit will follow. And then, Capital, too. But only then. And then, you get to decide whether to take investors’ Capital or not (which comes with its own set of burdens).
In a sense, Capital is a lot like Love… only when you generate it within you (e.g. within your company and its processes) then you will attract more of it. And if you accept that Capital, then you might also be giving up some of your freedoms to please the expectations of your Investors.