Bootstrapping stories: Run it like your first lemonade stand

Run it like your first lemonade stand

. That was the idea behind the financing details for WhatCounts, a business I founded in 2001 with the help of my former Starwave colleague Brian Ratzliff. I’m a software developer and Brian is a marketing and business expert. With $50K I had available to start a business, WhatCounts was organized in the summer of 2000. Our mission, and one on which we have remained focused, is to provide an exemplary platform and service organization for creating, managing, deploying and measuring sophisticated email campaigns for companies across a wide range of industries. Today, we have customers on four continents. We help Fortune 1000 companies communicate with their customers. Major news organizations in the US and around the world deliver breaking news utilizing our technology and services. 

What about the lemonade thing? It’s simple. Businesses, fundamentally, need to be run like your first lemonade stand. You know, the one you set up outside your house when you were six. Limited resources and 100% cash-oriented. No angel investors (though parents were there to help). No venture capitalists. No preferred warrants. Cap table? It’s called an empty glass jar with some starter quarters put in for market effect. 

The plan when you were six was simple. Identify your target market, which was thirsty adults that were suckers for cute kids learning what it meant to operate a small business (avoid slightly older kids that had already gone through this sometimes humiliating ritual and rarely had disposable income). Next, secure the resources and manufacturing rights for your product. In this case it was either real lemons your mom had picked up at the local supermarket and helped you squeeze or some store-bought concentrate. 

Execution was only slightly more complex. Basically, build and deploy your product. Market it to folks passing by and start collecting income. How successful you were could be measured any minute of the day by counting what was in the glass jar. No audits. No tax reviews. Just counting. 

These principals influenced us when we started WhatCounts. We thought about raising money, but only for about a minute. Even had a few informational interviews with area venture capitalists - mostly friends we had known. It’s funny, when the markets are down, as they were in 2000 and are again now, VCs have lots of time for meetings. In the end, we knew we had a good product and there were lots of potential customers. There didn’t seem like a good reason to take someone else’s money and give away a fairly large piece of the pie. So, we decided against doing so. 

In hindsight it might be easy to say our decisions were brilliant and suggested a keen and sharp understanding of capital markets, startup growth and investor return scenarios. In reality, though, we made our financing decisions based on the need to execute quickly and remain 100% in control. We also had some cynicism toward the hockey stick growth patterns that investors wanted, expected and often cajoled startups to design for. And, truth be told, email wasn’t as hot a space as it is now. Raising money is difficult and we just wanted to get on with it. We replaced the notion of having a board of directors willing to give us what they though might be good advice with paying customers that told us what they wanted and how we were doing every time they paid their invoices. We listened when customers told us the lemonade was too tart (needed better customer service) or the portions were too small (deployments needed to be faster and more efficient). 

So, with our prototype up and running we did what startups should always do but sometimes fail to do quickly. We started searching for customers. Customers that would pay us. We wanted quarters for our glass jar. Our lemonade was ready and we were serving up a pretty sweet product. Thankfully, we discovered paying customers very quickly and started putting money in the bank. It wasn’t enough to pay ourselves for a while but it was soon enough to pay our first employee. Then our second, and third - and, around that time, ourselves. And, any minute of any day we could calculate how well the business was performing. It was easy. We’d add up what we owed to other people (usually zero; to this day we like to pay our bills quickly) and what was in the checking account. Thousands of clients, 40 employees and numerous contractors later the same basic formula is used. Sure, we use payment processing companies, have employees in two countries and four states (and have to deal with the resultant payroll taxes for each) and even have a matching 401(K) program. But, fundamentally, WhatCounts remains efficiently run and structured in much the same way it was when we started it. 

What we’ve learned along the way is what every small company should discover. Namely, building the best product possible combined with the best service possible and an inordinate amount of hard work leads to success. Sometimes the distance from start to success is long. Sometimes it’s shorter than you might expect. It depends on timing, market conditions and, ultimately, the quality of your work. There’s sometimes a little luck involved too, but, it’s mostly hard work. 

Bootstrapping a high-tech software or services company might be easier than doing so for other types of companies simply because the startup costs may be lower. While I still believe it’s a great path to pursue if you’re able to do so, it has its downside. And, while some of my previous descriptions of our funding history might suggest a disdain for angel and venture funding, that’s not the case. Both serve potentially vital roles for new companies. I suspect we simply weren’t skilled at raising outside funds when we started. In some ways, funding WhatCounts ourselves was the easy path. 

Would I trade where we are today with a strategy that, eight or nine years ago, may have involved outside investors? That’s a hard one. For one, I’m doing something I absolutely love and for which I have a passion. Every day I wake up excited about what we’re doing, what our customers are doing with our platform and the potential for product and company growth. 

If we had taken on VC money early in our history it’s possible and even likely I wouldn’t be doing what I’m doing today. Would I be rich and off pursuing another startup? Hard to say. I doubt it. Venture money is designed to accelerate the growth of a company. It’s not designed to make founders rich. It’s possible WhatCounts could have been many times its current size and would have allowed its founders and executives various exit routes. But, rapid growth (vs the very organic customer-driven growth we enjoy) has downsides too. Bigger companies mean bigger teams, larger expenses and often greater risks. It means changing focus from trying to serve your customers the very best way you can to serving your investors the very best way you can. Often those pursuits are aimed at the same point and are symbiotic. Often, though, they are not. Bigger companies require different management skills. Would the management team of WhatCounts be the right team to lead a 100 or 200 person company? A few years ago the answer would have been no. More recently, though, we’ve attracted top, senior talent that could lead large teams - and have in the past. As Casey Stengel said: “the secret to managing is to keep the guys who hate you away from the guys who are undecided.” 

Interestingly, WhatCounts is at inflection point where the notion of raising money has come up again - as it did when we first started. And, the reasons are the same - to accelerate growth. This time, however, the difference is that we have something that’s been profitable for eight years and has zero debt and a clean corporate structure. Financing for growth will be relatively easy if we decide to pursue it.  So, how does a startup or a small business (which we still consider ourselves to be, even with 40+ employees) decide whether to bootstrap or take on funding partners? It starts with discovery and analysis, and asking some of very same questions a 3 person startup might ask before their first VC meeting. 

Where do you want your business to be in 12, 24 and 36 months? If you plan to raise $x million dollars, how will it be used? Do you have the team you need to execute your plan? How does organic growth with no dilution compare to accelerated growth and some level of owner dilution? Does your exit strategy require a public offering or an acquisition by a larger company? Are you prepared for your second round of funding in terms of dilution? Your third? What are your funding partners expectations for growth and how you run your company? Are you prepared to spend a significant amount of time working with your board of directors as you chart and execute your plans? Are you prepared to change roles if someone more qualified comes along to run your company? 

Andrew Carnegie wrote that “the way to become rich is to put all your eggs in one basket and then watch that basket.” While that sounds a little risky as an investment strategy, it might fit in terms of applying a high degree of energy and passion to your own company, or lemonade stand. WhatCounts is lucky to have a great team and customers that benefit from our industry-leading technology and services. We’re excited about the next several years. It still feels like a startup!