By Carey Smith, founder and former CEO of Big Ass Fans.
Throughout my life, I’ve been engaged in the world of business. My initial venture as a child involved selling Christmas cards in my neighborhood. Now, I manage a team that provides advice and invests in dedicated entrepreneurs with innovative products. However, prior to this recent role, I established and self-financed a company that transformed comfort in expansive environments: Big Ass Fans.
Our journey began in 1999 as the HVLS Fan Company, with a small team of six, a strong belief in our product, and little else. Within a few years, thanks to our customers’ enthusiasm, we adopted a more straightforward name, and word-of-mouth became our main sales force. A few years later, we had set up offices across three continents, achieved an annual revenue nearing $300 million, and employed over 1,000 people. We expanded our product range, bringing our fans into restaurants, concert venues, and homes. Remarkably, we accomplished all of this without seeking external funding. However, by 2017, I felt it was time for a shift. The growing company meant I didn’t know everyone I employed anymore, and as the business expanded, it became less enjoyable. I decided on a sale price of $500 million, which enabled me to reward the employees who had contributed to the company’s growth. A portion of the proceeds now supports my investment firm, Unorthodox Ventures.
As the name implies, we differ from typical venture capital firms. Our experience in managing companies allows us to offer not just funding but also mentorship. A key discussion point with entrepreneurs starting their journeys is the concept of bootstrapping. Although it worked well for me, it took nearly two decades, and looking back, I can identify aspects I could have handled differently.
Reasons for Bootstrapping and Why You Should Consider It
There are various motivations for avoiding outside funding. My primary reason stems from my innate reluctance to seek assistance, particularly from unfamiliar individuals. I cherished my independence, a common characteristic among entrepreneurs. My ambition to be my own boss originally drove me into business, and bootstrapping permitted me to avoid external pressures or influences regarding my decisions.
Investment firms prioritize their interests; they are obligated to do so. This is reasonable, given their fiduciary duties. Unless they are privately supported—as we are—they manage savings from individuals focused solely on high returns. If you bootstrap, you retain complete ownership and control.
Bootstrapping offers a remarkable learning experience: you are continually evolving and adjusting. This is one of the most exciting feelings I have encountered. Initially, you are involved in every aspect, which allows for swift modifications as challenges arise. When making mistakes, the learning is profound since it’s on your terms, not someone else’s budget. Moreover, your problem-solving skills tend to be more innovative without the oversight of a VC firm.
One cannot underestimate the benefit of not needing to constantly strategize for the next fundraising round as a bootstrapper. This freedom allows for an emphasis on sales growth, which is the fundamental purpose of any business. If you don’t generate profits, your venture cannot survive. This reality necessitates the creation of a robust business plan outlining your spending and estimating necessary funds for your next steps.
During my childhood, many peers received weekly allowances while I had to earn my spending money. Who do you think was more conscious of each cent? The reason behind discussions on burn rates in venture capital is clear: funds deplete rapidly, often leaving you questioning where they went. As a bootstrapper, you’re keenly aware of every dollar spent, as it’s your capital and entirely your enterprise.
When you bootstrap, you dictate your schedule and can proceed at a deliberate pace. This allows you to respond to customer insights and implement early product enhancements before your inbox fills with grievances. In our first year at the fan company, we sold 146 units. The following year, we increased to 420, then 700, and finally 1,900. That early period taught us vital lessons about product functionality across various settings. We personally reached out to customers, encouraging them to share constructive feedback for improvements.
This leads me to perhaps the greatest advantage of bootstrapping: your clients become your foremost priority, rather than your investors. This alone is a compelling reason to forgo outside funding—at least until you have established significant revenue and solidified relationships with your customers.
The Limits of Bootstrapping
While bootstrapping has many advantages, it certainly comes with its drawbacks. The primary concern is the possible jeopardy to your finances. Depending on your initial investment, you may quickly exhaust your funds, especially if you attempt to expedite processes or heed advice from those lacking expertise—like suggestions to find a contract manufacturer. Accepting such advice could jeopardize both product quality and financial resources.
Another concern is the toll on your mental well-being. Many startups fail. Even prosperous bootstrapped enterprises require considerable time and perseverance. You need to endure both high points and low points. With patience, you might discover that these fluctuations are temporary and can emerge from them more resilient than before.
However, the most notable disadvantage of bootstrapping, which also serves as an advantage, is the time it takes to develop. In a highly competitive sector, this can pose significant challenges. Even in the absence of competition, limited resources can hinder your growth capabilities. I was fortunate to have a spouse whose income supported our household while I forewent a salary during those early bootstrapping days. Without her support, I might well have needed outside assistance.
There was a moment when I engaged in a conversation with an acquaintance at a renowned VC firm, hoping to expand Big Ass Fans into the challenging Indian market, one that promised substantial potential. We couldn’t reach an agreement because the firm sought a stake in the entire company, while I only intended to sell a share in the Indian operations. Looking back, I realize that partnering with a VC might have facilitated swifter overseas growth due to their financial resources. Yet, the autonomy we maintained made that possibly more valuable.
So, what is my advice? Bootstrapping is advisable early on if you possess the resources, resilience, and the eagerness to acquire knowledge. Once you’ve established stability and generate promising revenue, consider pursuing external funding from a knowledgeable source—someone who comprehends not only finances but the intricacies of business operations.
At our firm, we advise founders to develop a solid business plan and accurately project their expenses for the upcoming years, which often reveals that they need significantly less capital than they initially believed—or than what some VC firm is eager to provide.
I shudder to recall the potential pitfalls I could have encountered if someone had entrusted me with anything beyond a mere ten-dollar bill.
