In this article you will discover the pros and cons of bootstrapping your startup by looking at examples of other successful hardware startups.
Bootstrapping a company to success usually requires great effort and patience, with perhaps a little luck thrown in besides. It may be exactly the right approach for some businesses, while being entirely inappropriate for others.
One thing for certain is that while a company is in the bootstrapped stage of growth, the founder is in relatively complete control of its destiny.
This changes once funding rounds begin and investors start taking over the company. Once this transition is made, most founders find it’s a point of no return, as far as having full authority over their original business entity.
While it’s possible to fully regain ownership of one’s company after drawing investors’ funding, it usually is not a task for the faint of heart.
Automobile magnate Henry Ford is one outstanding example from history, of someone who took back ownership of his bootstrapped startup from his investors.
Although Ford was able to wrestle back every single share from investors, his tactics used in doing so were aggressive and hostile.
On the other hand, holding on to that control for too long can block a company’s chance for early success.
Although relinquishing control of their company might be a painful experience for some, financing can save a great deal of time in growing a startup company.
Let’s take a look at some examples of companies that were still bootstrapped when they became successful.
SimpliSafe is a huge IoT startup success story, and they managed to bootstrap their industry disrupting hardware startup for over five years after launching.
Home security has been a serious industry for decades, yet broad niches still existed for innovative founders. SimpliSafe is a technology company that acted on this opportunity and is still going strong.
The gap they took advantage of may seem like an obvious hole in the industry, in hindsight.
Home security companies have traditionally been wed to the concept of servicing only homeowners as customers, leaving renters to fend for themselves. That’s exactly where SimpliSafe found traction.
They also offered the only home security option that didn’t require customers to sign a long-term contract.
Their security system is a central processing and alarm device which can connect via the internet to a monitoring facility. The unit works in combination with a number of peripheral add-on devices the company sells, such as door monitors, glass break monitors and video doorbells to name a few.
Customers purchase the hardware from SimpliSafe and install it themselves. The processing unit can function as an audible intrusion alarm only, with no monitoring agreement in place.
SimpliSafe started from humble beginnings as a home based, bootstrapped invention idea. After an initial round of angel funding in 2006, SimpliSafe bootstrapped their growth until 2014, when they raised $57M.
One key reason they managed to avoid outside funding for so long, according to SimpliSafe CEO and co-founder Chad Laurans, was the industry itself.
“Our industry also wasn’t changing that quickly and so we had time to build at a disciplined pace. We had one competitor that raised a bunch and I think it actually hurt them because they made tons of mistakes and didn’t understand the market. The money put them on a tough treadmill, and they needed to figure it out too quickly.”
Money definitely does not solve all of the problems for a startup, and in fact it can cause you to take unnecessary risks.
Chad summarizes it well when he said:
“In a lot of those early years I found the discipline of limited capital to be a really valuable constraint. It made us spend our time in the right places and develop the right products. It made us make sure we were really satisfying a customer need and also testing our marketing tactics to make them work and stay efficient.”
Dubbed The Last Bootstrapped Tech Company In Silicon Valley by Forbes Magazine, iXsystems has grown and thrived without selling their soul to venture capitalists. And they didn’t have to cut corners either.
Founded in 1991 by University of California’s Berkeley Computer Systems Research Group, iXsystems was originally established as Berkeley Software Design, Inc.
The firm provides storage and server solutions for work groups, with an emphasis toward supporting free and open-source technologies of varying types.
After its humble academic beginnings, the company grew steadily, merged with other companies, and sold off its software business unit.
In 2002 the remaining hardware business was acquired by Offmyserver, a web-hosting services company.
The new CEO, and co-founder, Michael Lauth decided not to pursue VC funding despite iXsystems being a tech company located in Silicon Valley.
Lauth said of the non-traditional decision,
“By not having the external pressure from VCs or shareholders that your competitors have, you’re free to set your own priorities and charge fair prices for your products. Our customers consistently tell us how refreshing our sales and marketing approaches are.”
Lauth focused on profitability to sustain the company’s growth.
After deciding to bootstrap the company, they made another non-traditional move for a Silicon Valley company. While most large companies, like their direct competitor Dell, were outsourcing their customer support overseas, iXsystems kept them in house.
Taking better care of their customers’ support needs, while more expensive, paid off because it translated into fierce customer loyalty spanning decades.
Flair Home Temperature Controllers
Flair has made a big name for itself by applying new technology to an old challenge. Namely, the challenge of how to balance the temperature of rooms in a home.
The need for smart vents was conceived during the frigid polar vortex of 2012, when co-founder Dan Myers wanted a solution to his Chicago apartment being hotter upstairs than downstairs.
Myers created the design in CAD himself and printed his first prototype for free at his local library.
Within a few years, Myers was in Shenzhen, China with the Hax business incubator program. Being on the ground in a one of the world’s leading manufacturing hubs, allowed Myers to interview factories and move his product into production.
They successfully used pre-orders as a bootstrapping method to finance production of their early products.
This company has achieved great success in the short time since its bootstrapped startup days. The technology works by combining temperature sensing controllers with actuated vents, to automatically control an individual room’s temperature.
The vents are designed to replace standard air vents around a home. The controllers, called ‘pucks’, are then easily configured to open and close the vents within that room.
The controllers are also WiFi ready and can be adjusted from anywhere via an app provided by Flair. The system can be used as a stand-alone controller for a single room or can be expanded to zone control the temperature throughout a home of any size.
The company has now successfully partnered with many of the largest names in HVAC, so that the devices seamlessly integrate with other systems.
Makeblock is a fascinating Chinese robotics company that specializes in early learning products, such as children’s laser cutters and programmable robot controllers. The mBot pictured above is a STEM coding robot for kids that teaches coding to young learners.
The company was founded by in Anhui China by Jasen Wang, who Forbes China called “one of the top 30 entrepreneurs under the age of 30.”
After being founded in 2011, the company got an initial boost from Hax, and then raised capital on Kickstarter in 2013. Their Kickstarter campaign was the first ever to be launched by a Chinese company.
Their growth in 2015 was phenomenal with their launch of mBot and mDrawbot. By the end of the year Makeblock was selling their products in over 80 countries, and they had forged partnerships with more than 1,000 educational institutions.
The continued to grow and expand into more countries organically. This allowed the company to forgo outside funding until 2018, when they raised $44 million (USD) in Series C round with a $367 million valuation.
By putting electronic and robotic engineering capability at customers’ fingertips, SparkFun Electronics has carved a niche for themselves in business.
They operate an online store which sells electronic components, where customers can select from many varieties of hardware to suit their design needs.
In addition to selling high tech components, the firm takes a specialized approach to enabling their customers’ design achievements.
First, they offer collaboration on projects, and can guide most anyone through complex design requirements, to produce a finished, working concept product.
This means that an average person with no background in electronics can have their technology idea brought into existence with relative ease.
But it all started in founder Nathan Seidle’s University of Colorado dorm room, where he fried some components while tinkering around with personal electronics projects.
It was 2002, the early days of internet retail, and he realized it was hard to source and buy random electronics parts online or through a catalog. So, he decided to build a website and sell them himself.
Seidle started the business with $2,500 in credit card debt for inventory and shipping materials. He listed his electronics for sale online and decided to feature front and back photos of every part for sale, something new for electronic product listings.
He said in a 2011 interview that,
“After the inventory sold, it was a matter of repeating the process. You take all the money you make and buy more inventory with it. You continue to do this until either you have enough inventory to cover the number of incoming orders or you want to eat…A growing, bootstrapped business is a cash devouring machine.”
He also began producing video tutorials and online content to engage new and repeat customers. After he graduated, he began designing and selling original SparkFun products. The company has grown steadily ever since.
From bootstrapped beginnings in a college student’s dorm, SparkFun boasted $68M in global sales in 2021.
Founded in 2002 by Nick Woodman, GoPro started as a bootstrapped project to capture the owner’s images and action footage, while he was surfing. He knew the power of being able to place a camera right in the middle of exciting action.
For over ten years, he grew the company organically without the need for outside funding. It certainly didn’t hurt that YouTube exploded on the scene during these crucial years.
Since that time the company has grown significantly, and in 2021 reported revenues of $1.16B. So rapid was their early growth that when the company went public in 2014, their initial valuation became $2.95B.
Speaking to the positives of bootstrapping, founder Woodman says,
“You can style your business and your approach exactly the way you want to. You don’t have the pressure of outside investors that you’re beholden to who want to weigh in on how you’re building your business. I think that’s really important and beneficial to a business in its early stages. Bootstrapping allows you total creative freedom.”
Determined to thrive as a dynamically evolving corporate entity, GoPro continues to produce high quality action cameras in a variety of popular models.
They generate recurring revenue through their subscription service which uploads video footage to the cloud. Additionally, the company draws income from posting footage to social media followers.
While it may not be the fastest method of starting a company, bootstrapping has been a startup method that has generated plenty of success stories from the startup world.
We’ve looked at several examples of hardware companies that have been bootstrapped before becoming well known.
As well, we’ve examined a few of the pros and cons that go along with bootstrapping as opposed to drawing investors into a company.
It’s fair to say that no single approach is the best to use in all cases. Bootstrapping does work well, though, for those founders willing to put in the effort themselves, in growing their startup company.
Finally, let me leave you with this incredibly valuable insight on the advantages of being bootstrapped, from Nick Woodman, the founder of GoPro:
“While at the time maybe I wished that I’d had more money than I did, I see it as really advantageous now because we took a long time to learn our markets and learn our customers. We took a very slow, but steady approach that has benefited us. If we had received money to do what we wanted to do early on, I think we would have burned through it trying to figure out what this business could really be. I don’t think we would have necessarily been given the time to slowly and thoughtfully build GoPro into what it is today.”
This article was written by Jessica Teel.
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