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How We Founded A Startup With Only $600–And Why We Wouldn’t Do It Any Other Way

Bootstrapping a startup is a last resort for some, but not for these cofounders. Here’s why these entrepreneurs consider it the best option.

How We Founded A Startup With Only $600–And Why We Wouldn’t Do It Any Other Way
[Photo: Flickr user grotos]

Bootstrapping is as American as apple pie. The word dates back to 19th-century American writer Horatio Alger, whose prolific writing career featured novels with variations on a very specific theme: an impoverished boy making it big through luck and hard work.

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Everyone enjoys a good underdog story, but only 30% of startups are truly bootstrapped. According to one study, the average startup has between $200,000 and $300,000 in either loans or investment capital when it launches.

So you can imagine the surprised response we get when we tell people that we created our startup Hippo Reads for only $600. With that money we created a thriving business with strong user engagement, quality partnerships with world-recognized institutions, and a client services business that supplies enough revenue for us to keep a staff of more than 40 part-time and contract employees.

Despite the skepticism we hear after we explain our bootstrapping model, the truth is, my cofounder Kate and I wouldn’t have done it any other way. For us, bootstrapping was not an option of last resort, but a choice–and here’s why:

1. If You Don’t Have Money, You Can’t Scale Prematurely

Did you know, according to a study from the Startup Genome Report, a whopping 74% of startups fail because they try to scale before they’re ready? That’s why taking money before you know exactly what you want to do with it is dangerous. It’s like a college student living off credit cards assuming she’ll get a six-figure job after graduation.

When we grew Hippo, we knew we didn’t have a fat bank account to fall back on, so we expanded cautiously and organically and only spent money when we felt it was worth it.

2. You Know It’s A Good Idea When People Will Work For Free

Lots of people will claim to love something for money. It takes real passion to work for free.

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With Hippo, we knew we were onto something when people joined up–enthusiastically–in spite of the below-market compensation we offered. Some even offered to help out pro bono for a few months, all because they believed in our mission and thought we were filling an important gap in the world.

As business, work, and management author Dan Pink explains in his video about motivation:

“[Researchers are reaching] this conclusion that seems contrary to what a lot of us learned in economics, which is that the higher the reward, the better the performance; they’re saying that once you get above rudimentary cognitive skill, it’s the other way around.”

3. You’ll Only Pivot When It Makes Sense

As sexy as pivoting sounds, it can also be a surefire way to sink more cash. A lot of pivots fail–and they end up taking a lot of money with them. The danger of a pivot is that it seems deceptively easy when there’s cash in the bank, but enthusiasm can wane quickly when the pivot turns out to be no more sustainable than the original concept.

At Hippo, we started with a simple premise–we wanted to bring smart, academic-minded content to eager readers. Initially we were the authors of these posts; one critical pivot was our giving academics themselves the reins: This put our community in the driver’s seat, accelerating our content growth by more than 200%, and our readership by many multiples of that, in just a few months.

4. Only Raise When You Don’t Need To

This sounds like counterintuitive advice, but having been in the investor’s seat, I knew the worst thing we could have done at Hippo was to ask for money when we needed it.

Adam Lilling, serial entrepreneur and founder of Plus Capital, explains, “The truth is if you go out to raise desperately needing the money, your chances of getting it are low. Having optionality and being able to choose whether you take money or not makes you more desirable. As much as investors are supposed to be high-risk, they’re really not. They want to see proof of success and they–like all people–are attracted to those in positions of strength.”

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Instead of focusing on being positioned to raise, we focused on being positioned to survive even if we never raised a dime. Our focus on revenue helped us realize early on where the potential revenue sources were in our model. Six months after we launched, we had received our first paycheck.

Today, we’re beginning the process of a raise. But we’re doing it because it’s the right thing for the business–not because we’re turning off our lights and going home if we can’t find an investor. At any point, we reserve the right to say, “Here is our vision. If you want to join us, you can invest. But here are the things that are nonnegotiable to us, and if you disagree, we don’t need to take your money.”

5. It’s Easier To Make The Right Hiring Decisions When You Have No Money

For new startups flush with raised capital, overspending is a perpetual problem. But the truth is that whether a company is bootstrapped or has just raised a 100-million-dollar round, hiring is one of the most difficult things you will do.

Having no money has forced us to be creative. Not only are we hiring people who believe in the dream, but we can’t afford to make mistakes. Even a few thousand bucks a month to the wrong person is a catastrophe.

As a result, we’re always hiring. We have a pipeline of people who help us part time (either paid or free). We create a cautious trial period for anyone we bring on board–and it works both ways in that it gives our new employees time to feel out their role with us.

We’re not winning people based on compensation. All we have in our favor is the positive, supportive work environment we’ve created. We support our staff beyond the office–for instance, because so many of our employees are also writers, Hippo has an internal writing critique group to keep our personal writing careers flourishing.

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6. You’ll Learn Exactly How Frugal You Can Be

Don’t underestimate the value of this skill. The number two cause of startup failure is running out of money. At Hippo, we learned to analyze every single expense. GoDaddy or Google email? A designer from Elance or Fiverr? We’ve spent time on the phone getting our bank to refund $10 fees that were incorrectly levied.

Because we know what our bare minimum spend is, we have a much better sense of what’s a need to have and what’s a nice to have. As we move to a raise, we’re confident we will squeeze every last bit of value from the money we receive from investors and continue to apply lessons we’ve learned from our early bootstrapping days.

Anna Redmond is cofounder of Hippo Reads, a new digital media platform for academics; additionally Hippo Reads offers research and content services to private clients. She is also the author of The Golden Arrow.

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