Bootstrapping: Weapons of Mass Reconstruction
July 27, 2009
I thank Maureen Kelly at bizbookpr.com for sending me a copy of Sramana Mitra's book Bootstrapping: Weapon of Mass Destruction.
I recommend it to my MBA students and to anybody planning on, or even just thinking about, starting a business. And also to policymakers. Maybe especially to policymakers. The importance of entrepreneurs to our economy cannot be overemphasized. Ms. Mitra notes that there are " approximately five million small businesses in the U.S. with fewer than 20 employees [and] [a]nother 20 million . . . without employees." (See also "America Runs on Small Business".) And I most certainly agree with what Ms. Mitra writes on p. 60:
. . . much of the money that enabled the creation of these ventures came not from VCs [venture capitalists], but friends and family, doctors, lawyers, and of course, the entrepreneurs themselves. . . . By taxing the wealthy, Obama threatens to undermine their ability to refuel an already faltering economic engine.
The book focuses on how many entrepreneurs don't get start-up capital from banks or venture capitalists. They raise the money, as noted in the quote above, from people they know. Hence the term "bootstrapping". Ms. Mitra interviews a number of entrepreneurs. One raised $313,000 from family and friends. Another got $200,000 from one "angel" to start. If I had to quibble, I wish there more details provided about these fundraising efforts. For example, the person who raised $200,000 talks, less than a half page later, about getting some patents and then raising another $1.2 million from an angel group. A lot happened in a couple of paragraphs! And I'd like more detail on how did the entrepreneurs handled the stress: business is risky enough with its chance of personal financial disaster; how did they cope with knowing that failure would cost dearly people they cared about?
The book also emphasizes a useful lesson: in almost all cases, entrepreneurs should be extremely tight with cash in the early going. One even argues (p. 23):
I definitely discourage venture capital in the beginning of a business because it provides a false sense of security. If you have too much money in the company, it removes spending discipline. During the startup stages an entrepreneur should be focused on customers, not on raising money.
The book provides information on the type of person who takes the risk of starting his or her own small business. One characteristic, unsurprisingly, is passion. One entrepreneur tells Ms. Mitra that he hasn't "slept more than three hours a day for the past 11 months" Related, few of the entrepreneurs Ms. Mitra interviews seem to have had some grand plan--they seem to have followed where their passions led them. (I note for the record that while intense interest and focus are probably necessary for success, they are probably not sufficient. An entrepreneur also needs a really good idea and most times a little luck.)
Finally, the book has some good stories about the little and not-so-little things of running a small business. My favorite occurs early in the book, when Greg Gianforte of Right Now tells how his company established a crucial business relationship with Novell.
I won't ruin it for you.
Another recent piece that would-be entrepreneurs might find interesting is "The ABCs of Raising Money: A guide to one of the hardest tasks in any small business".