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Comment by openmosix | Hacker News Reader

The problem is when you bootstrap your startup business, and your competitor is a VC backed startup. They don't need to think about revenue, they can build a product they give away for free - and you need to price it reasonably to pay salaries. Competition with a free product always leads to a race to the bottom. A few years later, these competitors will burn, but you cannot wait years to turn in a profit.

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The best time to bootstrap is right after a crash. Many years ago I worked at a startup that flamed out. A couple of guys went off and developed a similar product to fill the niche abandoned by that company, and no VC would even touch that space (remember the buzzword "B2B"?). Right there those guys had a 2-3 year window to develop a product and build a brand almost undisturbed by competition.

How did they fare in the long run?

In that case there's plenty of competition to take Zenefit's business.

I started my career at a company that was entirely bootstrapped, and by the time I left, they were doing nine figure annual revenue. Since then I've worked at VC-backed startups (all of which have actually generated revenue). The longer I think about it, the more I think that bootstrapping at the beginning is the right move, and then to see how far you can go while bootstrapping. Raising money should be on the table, and will often be the right decision, but the longer you can go without raising it, the better position you'll have put the business in to succeed after raising.

I take your point. But as a practical matter, this is a foolhardy (and somewhat tautological) approach to building a business. It is to say, "We must raise too much money in order to compete with other companies who raised too much money, even though it will almost certainly lead to both of our companies ultimately going out of business." Moreover, it seems that the people who (perhaps intentionally) get their companies into these situations cannot publicly acknowledge the grim reality of what they're doing (if they even understand the consequences) while raising the kind of money they'd need and pretending to their employees about the company's rosy future. It's fuckery all around and the only people I feel bad for are those unfortunate enough to be suckered into working at these places.

It's somehow the prisoner dilemma applied to startups. I've raised ~30M$ as a founder in my past startup. For my next adventure, I'd love to bootstrap (with personal savings from my last exit). But here is the (prisoner) dilemma: if I start something that needs to be profitable and my competitor(s) are also bootstrapped businesses that needs to be profitable, game on. If my competitor is a VC-backed startup, I might be in serious trouble. So either I find an industry VC won't touch (porn?) or the prisoner-dilemma for startups is hanging over my head.

I don't think it's fair to assume that a war of attrition must be fought by parties with equal resources. I can't think of any reason why a patient enough small player could not wait long enough by the river.

There is also the option of aiming for a segment of the giant market a la 37 signals.

Me, I don't think I would ever go after one of these giant markets if I truly believed that the only way forward was to raise 8-9 figures and pray that my competitors die first. It's unreasonably risky.

I disagree. It just takes rigid discipline and perseverance. The value proposition, business model, and team emerging from that will be fierce. I sense that these stories are much less reported and talked about, since they have less click appeal...

Bingo.

This is why, when leads mention a VC backed competitor, I say something like: They'll be gone when the money VC dries up. You can trust us to stay for the long haul because you are our boss.

The downside of that is that if your product strategy is beholden to a few early adopter customers then it becomes much harder to make the changes you need to "cross the chasm" to the mainstream market.

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