Read Write Web has an overview of bootstrapping a company.
Ultimately, bootstrapping means that you have to create an asset that over time will hold value while keeping your cost down in the short term. This is a trade-off that all entrepreneurs need to overcome. Michael Moritz, one of the more successful VCs of the modern era has a Top 10 Criteria for Investing (actually called “Elements of Sustainable Companies.”):
- Clarity of purpose. Great companies can be summarized in a single sentence.
- Large markets. Buy where there’s a billion to be made. At least.
- Rich customers. You don’t need me to explain this, right?
- Focus. Simple products with obvious value are easy to sell.
- Pain killers. Great businesses solve a real problem facing consumers.
- Think differently. Inventive firms drive their competition nuts.
- Team DNA. Talent attracts talent, and talent usually produces excellent returns.
- Agility. Being first to new markets matters.
- Frugality. Great managers allocate capital only where they must.
- Inferno. Excellent businesses produce huge returns from even small doses of capital.
We’ll look at frugality in this post. Michael Moritz once said that he looked for entrepreneurs that were frugal. When asked how he spotted these, he said he looked for startups that did not buy paper clips. I am not sure if this is a figurative or literal “acid test”, but the underlying premise was, according to Moritz, that you got paperclips en masse via the mail every day, so why allocate any capital to it?
Paper clips aren’t core to your operations, but many other expenses are. The real challenge is not in looking for ways to find efficiencies with random but immaterial office expenses, but also with your core operations and competencies. Google did that with servers. We do that with other things at WatchMojo.com. I’d love to share the details, but I’d have to send over a battalion of hitmen to contain the intel., and let’s face it, that would not be cost-efficient.
So I’ll simply say that what sets WatchMojo.com apart is largely our ability to create mass archives of high-yield video content.
The value of a stock, company, asset etc., simplified, is = Future Earnings / Cost of Capital.
As such, to maximize the value of your company, it’s not enough to only keep costs down or to have a high-quality asset, you have to do both. This is basically Gordon’s Model theory applied to video publishing.
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November 21st, 2008 at 10:23 am
[…] time ago, I published a post that linked to an article on ReadWriteWeb that talked about bootstrapping a firm, which made me […]