bootstrapping your
business
Page two of five |
Previous page
jeffery payne: go figure out the market
Thanks,
April. I have never
been a poster boy before. That's
pretty cool. I like it.
It must be that we are in vogue as bootstrappers because, as
Drew mentioned, bootstrapping a business wasn't something that was a
hot topic over the last couple of years.
Certainly, for those of us who were doing it for the first
time, which is what I'm doing, it made us all question ourselves.
There is no way you could avoid it because of all the money
that was being thrown around and all the valuations you were seeing.
It really rocked my foundation and
made me question whether we were doing the right thing, but I
kept coming back to the fact that I believed fundamentally in what
we were. I think Drew
put it best when he talked about building a business for long-term
value versus flipping or just trying to make a quick buck. Businesses built on value propositions tend to grow and
sustain, ones that don't tend to go away.
We started Cigital back in 1992.
For those of you who don't know our business, we help
companies make sure that their software works.
I always say that we make software behave.
We make sure it's reliable, safe, and secure for use.
We focus on businesses who don't necessarily produce software
as a product, but build it into their products or use it in their
enterprise or are transacting commerce with it because, quite
frankly, software producers always mess it up. It never works right,
and businesses suffer when that happens.
I'd like to acknowledge Netpreneur and Mario, as well.
I started attending Netpreneur events back near the
beginning, and it was a great forum for an entrepreneur.
Nothing like it in DC before.
When I first went to Netpreneur, the crowd was a lot
different than it is today. I
see a lot of ties here. Back
in '97, '98, '99, you got carded at the door, but you weren't
allowed in if you were over 25.
Back then, when I told somebody that we started Cigital in
1992, I heard, “Wow, dude, you are old, man!”
I don't know how many times I heard that, but Netpreneur was
definitely something that helped us out.
The other thing that helped was MindShare, which April is
intimately involved with, a program that helps CEOs learn about
business.
The idea behind Cigital goes back to grad school for me,
where my partner and I met at William & Mary in computer
science. He was doing
Ph.D. research in how to make software work, and I was kind of a
businessy entrepreneurial dude.
Even though I was a geek in the computer science department,
I was working up here in DC after grad school and looking for
something new to do and learn. I didn't know a lot about business, but I have always been
kind of an entrepreneurial guy who was always selling something in
school. I'm sure a lot
of you were like that, always making a buck, and figuring out an
angle; trying to make myself successful at something.
He and I were talking one day about software and the fact
that it didn't work very well.
Out of that came an idea that software was going to change
and become the business. It
would be embedded in every product.
It would transact commerce and it would really run the
enterprise. Of course,
it was 1992, so all of this was fiction, but we knew it would
happen. It was just a
matter of time.
I would like to define a bootstrap operation as one that
takes no money based on a business plan.
You decide that not raising money is the best
alternative to get your business going. We have never raised money and we have almost 100 people.
We have been at it almost 10 years now, never having raised
money, but that doesn't mean that as the plan matures you are not
looking to raise money.
I separate that from today, which is the state a lot of
people are in. They can't
raise money, so they consider themselves a bootstrap operation.
I think there is a big difference because one is based on the
fact you just can't find anybody that wants to give you cash, and
the other one is based on a belief about how bootstrapping the
business and trying to fund it yourself actually helps you succeed
in the long term.
When we started the business, it was probably the worst of
all situations. It was
the end of a recession. We
had no contacts; we had no business; we made no money.
We really had never run a business before.
People ask me, “Why didn't you go out and get money when
you started Cigital?” It really comes down to a couple of things.
One is that our plan said that the things we were going to do
early we could fund ourselves. We didn't need a lot of up-front capital to get them done, so
we could probably get the business going, improve it first, save
ourselves on valuation and get the business to the point where yes,
someone will be interested and it might make sense if the market was
there or not.
The second reason is that I didn't know what the heck I was
doing. Let's be honest.
I had no clue how to run a business.
Neither of us did, so my big fear also was that if we ever
took money from somebody, they would kick us out.
This was the first business we had ever started and I didn't
know how to run one, even though it was my job.
My partner was this kind of wild-haired science dude, and I
was the business guy, and the last thing I wanted to do was bring
somebody in that would figure out that I had no clue about what I
was doing. I would be
kicked out first, of course. He
would be kept because he was the technologist.
I was the business dude and I'd get kicked out to bring in a
CEO. That definitely
weighed heavily on our minds when we started the business.
That was a factor in not going out and getting money, but
really, the business plan and the fact that the market wasn't there
yet is a good indication that you shouldn't raise money.
Go figure out if the market is there first, before you go get
money, because if you go get money and you are wrong, you are gone,
either personally or the whole organization is gone.
The closer you can get to validating that the market is
there, the more success you will have in attracting capital, the
more luck you will have staying there and the more likely
you will get the valuations that you are interested in.
Drew mentioned some of the things that I can relate to about
starting up a business, such as bootstrapping is very hard.
In fact, I have often asked if I would ever do this again and
the answer is, “No way would I ever do it this way again.”
I would never, ever start a business where the projection is
five to 10 years from now there might be a market, but this was my
first and I needed practice, so that's what we did.
Next time I would try to find something a little closer on
the horizon because it is very hard to bootstrap a business.
We went two years without drawing a salary.
We were paying our employees salaries, but we weren't getting
anything, and that's a tough way to operate.
The other thing that I'm a big believer in is focus.
For those of you who have ever seen it, Focus: The Future
Of Your Business Depends On It by Al Ries is an excellent book
about how important it is if you are building a business to really
focus in on one thing and make that successful.
Don't get yourself scatter-shot and go after any opportunity
that shows up. It's
hard to stick to in any business, but, when you are not getting
paid, it's really hard to stick to.
When we started out, we used to work 24x7 and we used to joke
that vacations were for the weak, food was for the weak, weekends
were for the weak, everything was for the weak because we were just
working like mad to get this thing off the ground.
Well, one Saturday we went out to lunch, came back, and it
was just the two of us. There
was a message on our machine from a sweet little old lady named Mrs.
Toones. We were in
Arlington at the time and she wanted to know why we hadn't shown up
to cut her grass. She
was very upset about this.
So being entrepreneurs we said, “Let's give her a call.
Maybe there is some money in this.”
We called her up, my partner gets on the phone and he is a
real riot. He starts talking to Mrs. Toones about this issue and she is
saying, “Now, you promised to cut my grass and you weren't here on
time and I need this grass cut.”
So, naturally, he says, “How much are you willing to pay to
get your grass cut?”
“Well, I promised $25.”
We look at each other. Twenty-five dollars is pretty good, so
he starts turning it and saying, “Well, we do software.
Have you heard of software?
Do you think you need software risk management?”
“I need my grass cut.
You said you would come and cut my grass.”
“Well, we don't cut grass.”
Big long pause. “Well,
you don't? You said you would.”
“No, we do software. Can
we strike a deal where if we cut your grass you will buy some
software risk management?”
We are just having a little fun with her and I don't know if
she is playing along or what, but at some point we are kind of
negotiating that we might go cut her grass, figuring that it would
pay for lunch and she says, “Well, I'm getting all upset over this
and I'm not feeling that great.
I need to go downstairs and get my heart medicine.”
We were like uh-oh, all right, end of call, nice talking to
you, you got the wrong people, see you.
It's just an example of the lengths to which you will go to
stay afloat. Poor old
lady, she was very nice to put up with us for as long as she did.
I hope someone eventually cut her grass.
I don't know who she was trying to reach, but it brings me to
my point that you have to stay focused.
You can't cut grass if your business is software risk
management, but you also have to stay in business.
When you are a bootstrap company, it makes the tradeoff
between sticking to your focus and going out and cutting grass into
a day-to-day discussion that you have to have with yourself.
As I always tell our people, if we don't stay in business, we
don't succeed.
It seems pretty obvious to me, but it's amazing how people
get caught up in the company and spending money and trying to do the
things they are trying to do, but they forget that if the business
doesn't succeed, none of that matters. We are not going to do a lot of great things in the future if
we go out of business, so you have to weigh that and figure out how
far away from your focus do you want to let
yourself get. That
changes every day in your business.
It changes because your financial situation changes.
So we got the business going and one of the things that
helped us a lot in our strategy was that we believed that we really
needed a strong research component to build intellectual property.
We didn't have the cash to fund that, so we decided to
leverage the federal government¾you know, those people we pay taxes to in order to
fund research in software areas.
We put together a plan early to get research money from the
government for things we planned to commercialize and sell.
It seemed radical at the time, but that's really the way we
got the business off the ground without ever putting any money into
it other than a lot of sweat equity.
We successfully went out and found people who were interested
in the same types of things that we were around making software
behave, and we got them to fund some of our early growth and provide
us some stability while we worked on the real market for our
business, which was Fortune 1000 companies who deal with software
that had to work.
There is risk in doing what we did.
One is that working with the government can be difficult, but
it seemed like a great way to get our tax money back, right?
Two is that you get stuck in the government.
From the beginning our market was never the government.
Back in '92, that was really odd because most companies here
in DC sold to the government; there weren’t a lot of software
companies here going after the commercial market.
A lot of companies get stuck in the government side, however,
and can't make the transition to the commercial side.
I'll give you some advice if you want to leverage our model
of getting the government to fund some of your R&D¾it's a great approach, but you have to continually
think of your business as a commercial business, operated like a
commercial business, managing cash like a commercial business, and
focusing on the commercial side of things.
Look at the government as just a vehicle.
We got the government to bootstrap our business, but that's
the only way that model ever works.
One of the pros of bootstrapping a business is that it
teaches you fiscal responsibility.
If every nickel that you have comes out of cash flow, you
have to make more money than you spend. It seems like a simple equation to me, but it was really out
of vogue for a while here. When
you bootstrap a business, you don't have a choice.
Bankers, of course, love us because they always say, “How
do you make yourself profitable?”
I say, “How do you make yourself profitable?
If you are not profitable, you go out of business.”
So you have to be profitable every month, or, at least, every
quarter because if you are not, you go out of business. Going forward, that rigor and fiscal responsibility that we
have learned from bootstrapping will help the business as we take
money, as we look at an IPO and things like that because it's going
to mean that when we have the cash, we are going to spend it the
right way, no advertising on the Super Bowl.
Ms.
Young:
Thank you, Jeff. That's great. I
found a number of things that Jeff said resonated with me. I have an academic background, and it's always very
interesting to see the conflict between the ideal, as presented by
Steven Covey or Peter Drucker, and any number of other wonderful
people in the reality of paying the mortgage and keeping people
online.
I am reminded of Steven Covey's first book which has a
wonderful matrix in it about important, unimportant, urgent and not
urgent. It's a very
useful thing to go back periodically and see where you are, because
one of the real costs in bootstrapping in any entrepreneurial
organization is this “tyranny of the urgent.”
There are so many things that want doing that you forget the
not-urgent but important stuff, like the planning, the decision
making, the fact that you sit down and have a discussion about
whether or not you are going to cut the grass. Maybe $25 is important that day.
I think there is a second thing that comes through in Jeff's
comments, which is the incredible role of humor and having
colleagues that you really enjoy.
I'm going to ask Lynne specifically to hit on that because
her business is one which she built with a very close friend and
colleague. I think one
of the things that has pervaded this whole panel is finding people
as Mario used to say, whom you want to be with in the foxhole.
The last thing I want to underline is these sorts of
unexplored opportunities. I
think that's what's fascinating.
We know that the government is huge.
Until there was venture capital in this region, the federal
government was typically the source of venture capital, SBIRs,
research grants, consulting and a whole lot of things.
I really like Jeff's point that the thing you have to
remember is that it's not the endgame.
It's very easy to get swept up in that end of town.
Our next speaker, Lynne
Revo-Cohen, is not exactly a poster child, but she is someone I
look up to. Lynne and
her partner started a company in 1984 focused on the issue of
cultural diversity, sexual harassment and other issues in the
workplace that, believe me, nobody wanted to hear about in 1984.
It wasn't leaping into the Web world in what was then a tide
of great fashion, and very successfully building a business that not
only, does well, it does a lot of good in terms of building healthy
organizations. Do you
want to tell us about SCENDIS,
Lynne?
[continued]
Page two of five | Next page

|