Posting in Education
Tech entrepreneur and author Sramana Mitra says schools need to be more realistic about where most startup funds come from.
It's a popular theme to observe how everyone either benignly neglects or outright picks on entrepreneurs, from banks to government to the media, even though small businesses fuel 80% of economic growth.
Business schools, too, seem to be leading budding entrepreneurs down the wrong path. At least that's the view of Sramana Mitra, a tech entrepreneur herself, who asserts in a recent post that students are being misled to believe that venture capital financing awaits every good idea ready for the marketplace.
That's not the case, Mitra says, citing the views of colleagues involved in entrepreneurial higher education. In fact, there is very little VC money for startups. Rather, new entrepreneurs should be instructed in the ways of bootstrapping and other non-debt financing techniques.
Part of the issue is that entrepreneurial education is still a relatively new discipline. And, it can be argued, entrepreneurship is a fire that dwells within; not something that can be formally taught. (Ask Bill Gates and Steve Ballmer how much they learned about bootstrapping a business while at Harvard.)
Mitra's message to B-schools:
"Unless you are teaching at Stanford or MIT, or a handful of institutions with similar access to the financial community, you better come to terms with the fact that your realistic path to grooming successful entrepreneurs is through bootstrapping. So don't mislead the students, don't set them up with unrealistic expectations."
Mitra followed up her initial post with accounts of how two well-known software companies bootstrapped their way to success -- and eventually, venture capital funding.
Christian Chabot, founder of Tableau Software, an analytics provider, originally bootstrapped another company, BeeLine Software, and used funds from the sale of the company to bootstrap Tableau.
Greg Gianforte, CEO of RightNow Technologies, provider of cloud-based CRM solutions, also used a similar bootstrapping strategy. Funding came from incoming revenues, which were built quarter by quarter. VC money followed later.
Mar 15, 2010
Ah - just read my post: John, by suggesting you are a sort of lottery winner I am not implying in any way shape or form that you did not work incredibly hard to build your business. I only mean to say there are very few who do as well as you did.
Stuart21 writes: "I think you are talking about inventors / inventions? " Inventions are the extreme long shot, but I am talking about many other businesses as well. There are some exceptions: Dentists, doctors and some widely recognizable and well funded and supported franchises probably make up a disproportional share of the 36% of businesses that survive. So long as they set up in the right area and involve the right large players they will see a continuing revenue stream that may keep them afloat. Unfortunately that means that mathematically the proportion of other businesses that fail is probably higher. Responding to John - Some good questions there and I'd be glad to further explain my position. 1) Where would jobs come from if no one started businesses? Jobs would come from existing businesses with proven track records and highly efficient business approaches. Smart hard working people with dreams would be able to expand the existing businesses while surrounded by other smart hard working people ready to help. Entrepreneurs would have their savings and a job rather than a broken heart and an empty bank account. If 64% of businesses fail then those jobs created there are temporary in any case and by implication aren't providing as much to the economy as they are taking from it. 2) Given your return I don't think you need quotation marks around 'successful' when describing your business. Clearly you are one of the aforementioned lottery winners and by definition in the top 36%. If you had a 16000% return you've earned $400,000 in just three years. Is that more than you would have earned had you focused on getting a job that paid what you were worth instead? That's hard to say. It depends mostly on what 'return' means and of course what the job would have been. There is NO question it would have been lower risk. 3) I think if you have a sound idea and desire you have a recipe for losing everything you have. Belief doesn't bring in cash flow. Trial and error is certainly how it will work, but there is an outstanding chance that when you err you will take down your family and/or friends with you. Encouraging people to start a business because they have a dream is like encouraging someone to cross the Atlantic because they've had a summer boating lesson. Frankly I consider it borderline irresponsible. I mean no offense and I know the practice is widespread but I do think it is wrong.
I don't think starting a business is stupid. Besides if everyone was smart, i.e. not stupid, and no one started a business where would all the people who think starting a business is a stupid idea get a job? I started my first 'successful' business with about $2,500. (I acquired the start-up capital the same way I got the start-up capital for my multiple unsuccessful business start-ups: by working two jobs and saving my money. Novel concept I know, but you learn a few things like the value of money, both yours and others, with this approach). Anyway, I bought a bunch of Southwest themed tourist t-shirts, wrapped them around a wire, twisted the whole thing up in the shape of a coiled rattlesnake and sold them through gift shops and airports. That was several years ago but 3 years after start-up the return on my initial investment was around 16,000%. Personally, I don't think there's a formula for successful start-ups that can be codified and taught in school. There are too many variables both with the idea and its place in the market along with the skill set of the person running the business. Plus, business and/or entrepreneurship as presented through academia deals primarily with what I'd call big business, but that's not the only game in town. There are small ponds to jump into all over the place and they're generally absent the sharks with their burn rates, scorched earth marketing, gross margin void undercut pricing, etc? techniques. I think a sound idea and desire is all one really needs to make it. The sound idea being trial and error mainly, unless you're lucky on your first go around. -John
Live the Fail says "Sure many will profit from doing so, but far far more will lose everything they have. Bootstrapping just spreads the pain to more victims" I think you are talking about inventors / inventions? See comments 7 & 8 above -
Starting a business is as stupid as playing the lottery. Sure many will profit from doing so, but far far more will lose everything they have. Bootstrapping just spreads the pain to more victims and takes people who can recognize a bad idea early out of the cycle. I also find it particularly interesting that so many larger companies recognize that small business startups provide an unending source of dumb money. They have responded by creating small business offerings most of which are designed simply to drain the cash from unwise small business owners as quickly as possible. Although they all seem to advertise about 'adding value' and 'enabling your development' they don't seem to be associated with any decline in the business failure rate. I think the optimism that feeds this cycle is unending and businesses that recognize and exploit this to live on the startups can do very well. I certainly wouldn't recommend starting a business to a new graduate unless I absolutely hated them.
Bootstrapping is all they teach at Strayer University. In my MBA program, all of my professors are working in their industries so there is no academic isolation. I guess bootstrapping is the new term for fiscal responsibility and growing up and ?getting a pair?. It?ll work if you let it. H.W. McCormick
As head of HR at a Silicon Valley company, I was invited to participate in a study by USC's Marshall Graduate School of Business. We had a lot of MBA's, mostly from Stanford. The study looked at psychological characteristics of MBA's, and we got a copy in exchange for allowing our MBA's to participate. The study found the group to be quite risk-averse, interested in landing on their feet regardless of what was going on around them, and wanting to know in advance what was required to get a "good grade." Add to that the attraction of the venture- capital lifestyle, where you skip the scraping-by stage and go right to some nice offices while you spend the VC money, and you have a pretty big cultural disconnect with the idea of bootstrapping. We sold a software company we had built entirely by bootstrapping, to a Silicon Valley acquirer in 2006. Bootstrapping was hard. We would lose bids to competitors with venture capital who bidding for less than their cost, to attract market share for their "built-to-flip" company. It was all worth it. When the suitors saw that we had no debt, no VC ownership, and clean books, they were thrilled. Nice piece, great theme.
Joe and Heather - you have hit on a very important sweet spot - there are more students on campuses - community colleges and four year institutions - ready to innovate and start-up that just need some micro-financing resources. Problem is that all these SBA programs, state and regional seed funds, and then the regular early stage and venture programs - not one of these is willing to do an investment that is less than $100K or does not return 30-40% in FEES not ROI. Its the fees that drive the decision-making. Now its on to Dormcubators, Student Innovation Micro-Funds, and some real impact for our economy. Richard Seline
I have inventions which I think could be helping solve the planets problems - but I will not even put them on paper as I know they will just end up in the public domain - i.e I lose my rights. I go, they go. Unless & until we get a patent system that recognises inventors human rights.
&, of course, if patents only cost one dollar. many many more inventions will be realized - by bootstrapping alone.
A major part of funding requirements (for inventors) should not be necessary - only forced by a fraudulent patent system that considers only the pecuniary interests of the patent attorney industry. If society really wants to encourage inventors to solve societies problems, patents should not cost more than one dollar or one peppercorn. The existing system, requiring many hundreds of thousands of dollars for iP costs, kills many inventions and also the odd inventor - including Americas best inventor.
I came across this article in a blog search and found it interesting. I work with entrepreneurs on a daily basis through events and also on-line. A section of our events involves a panel of investors who speak about the "do's and do not's" of starting a business. I have heard the same thing, a few times, from our investor panels regarding bootstrapping your business before proceeding to Venture Capital. Not all the time, but most of the time, investors would like to see that there is revenue already coming in before they invest in a business. Bootstrapping is the best way to get you from point A to point B. -- Thanks! Heather Coull Marketing Manager FundingPost.com 617-688-0440 Twitter: http://www.twitter.com/creativelycoull Facebook: http://www.facebook.com/fundingpost iPhone app: http://www.FundingPost.com/iphone
I read Mitra's original post and appreciate your expansion on the topic. As one who gets to observe and report on much of the entrepreneurship activity here at McCombs School of Business at UT Austin, I've been encouraged to see bootstrapping get serious attention from faculty members and advisors who are working with student entrepreneurs. We are fortunate enough to be one of the schools that is regularly helping students access venture funding, but even in that environment bootstrapping may be the only (or better) option for many. The students I saw at the recent Texas Moot Corp finals grasped that concept, even as they competed for funding.http://bit.ly/ajp0zq
Relatively few teachers had experience outside of educational or mid- level corporate establishments. I'd frequently get deer-in-the- headlights looks whenever I'd bring up something from my personal experience that was contrary to what showed up in the textbook.
I think you might be on point John. Few business professors have any business experience at all. I know, I teach economics after 20 years in the private sector and two of my own businesses. The college I am at started an 'entrepreneurship' program that is taught by people with no business experience.........book larnin' only LOL
...so few people in the educational establishment have any experience, or barely even 2nd-hand exposure to it?
I run my own rural ISP. The entire operation was started by bootstrapping. Now it's doing well enough to pay for itself.