What is bootstrapping?
Bootstrapping Yourself Up the Hillary Step on Mt. Everest
Every entrepreneur planning a new venture faces the same dilemma. What are the critical capital resources? How much cash (financial capital) is needed? When is it needed? How will the funds be used? How soon will the venture reach profitability? For an entrepreneur, when times are good, cash flow is the oil that keeps a venture running smoothly. But cash is like oxygen at the summit of Mt. Everest, run out of cash and trouble brews really fast.
At 28,900 feet, just 135 feet below the summit of Mt. Everest where the South Summit takes a slight dip, is a 40-foot treacherous ice and rock face that can only be scaled one person at a time. It is the last obstacle all climbers who desire in making it to the true summit must climb. It is called the Hillary Step.
It was named after Edmund Hillary, a thirty-three-year-old beekeeper from New Zealand, who first successfully climbed Mt. Everest with Tenzing Norgay on May 29, 1953. Many times Hillary doubted that the pair would reach the top–deep ravines and crevasses, avalanches, and extreme rock walls stood in the way of their success. In View from the Summit, Hillary recalls in vivid detail, the account of that fateful morning in late May. “Ahead of me loomed the great rock step which we had observed from far below and which we knew might prove to be a major problem. I gazed up at the forty feet of rock with some concern.” A slip at this point would most certainly result in a fatality. There was no other way to the top but up, one footstep at a time.
Looking back on that day, Hillary commented, “I didn’t know whether we were going to be successful or not. I knew we were going to give it everything we had.” With this fortitude, scraping at the ice and snow with his ax, Hillary chimneyed between the rock pillar and an adjacent ridge of ice to surmount this daunting obstacle, which was later to be known as the Hillary Step. “I pulled myself out of the crack onto the top of the rock face. I had made it! For the first time on the whole expedition I had a feeling of confidence that we were going to get to the top.”
Following the first attempt to climb Everest in 1921 by the British, there had been at least ten major expeditions before Hillary’s. Since Hillary and Norgay, more than 1,200 men and women from sixty-three nations have reached the summit; a total of 175 climbers have died trying, with as many as 120 bodies interred on the mountain. Today, it takes more than six months to move the 30,000 pounds of gear up to 17,500 feet. More than 5,000 items are needed just to get a pair of climbers to the top. It is all about getting the resources in the right place at the right time. According to Todd Burleson, director of Seattle-based outfitter Alpine Ascents and organizer of more than 11 Everest climbs, “We take the bare minimum to make this work. But if you get up there and find you’ve forgotten, say even a fuel cartridge, you’ve just killed the expedition.”
Everest veteran Ed Viesturs said, “You don’t assault Everest. You sneak up on it, and then get the hell outta there.”
Entrepreneurial leadership requires marshalling resources cooperatively toward a goal while simultaneously preserving and encouraging a strategic vision. To successfully execute a business plan, in order to translate the business concept into a reality, entrepreneurs have to surround themselves with the right mix of resources, which includes people, capital, and partners. But they first need to assess the resources that the venture will require, and they are often required to do more with less. In fact, many successful entrepreneurs pursued their new business opportunities relentlessly, without becoming deterred by the limited resources that they initially controlled. Simply put, by definition, entrepreneurs are attempting to achieve goals that will require considerably more resources than they currently control.
One of the key skills of entrepreneurial success lies in distinguishing between those resources that are absolutely critical and those that would be nice to have but are not so critical. The other skills are knowing how to get the resources, and knowing how to manage or allocate them. Because resources are scarce, entrepreneurs must make clear choices as to which resources they must obtain, and in what time period they are needed.
There are five basic types of capital resources that are absolutely critical to the entrepreneurial process.
- human capital
- opportunity capital
- economic capital
- financial capital
- and entrepreneurial capital.
Entrepreneurs who fail with their first venture almost always put the blame on lack of financial capital, saying they were undercapitalized. But all too often we hear about entrepreneurs who create wildly optimistic sales projections, to cover their fear of failing, and then go out and spend their money on noncritical capital resources like fancy offices, computer systems, new cars, global-travel, slick brochures, and launch parties.
Every entrepreneur planning a new venture faces the same dilemma:
- What are the critical capital resources?
- How much cash (financial capital) is needed?
- When is it needed?
- How will the funds be used?
- How soon will the venture reach profitability?
For an entrepreneur, when times are good, cash flow is the oil that keeps a venture running smoothly. But cash is like oxygen at the summit of Everest, run out of cash and trouble brews really fast.
Serial entrepreneurs understand that all resources are scarce to a start-up, and that cash must be as cherished as the oxygen that is required to reach the summit of Mt. Everest. Weight on a climb to the summit is like overhead to a start-up. David Breashears, the first American to scale Everest twice, says that climbers cut their toothbrushes in half to save weight.
Tom Siebel founded Siebel Systems in 1993 with $50,000 in East Palo Alto, California. Ten years later his company had nearly $2 billion in revenues, with 8,000 employees working out of some 136 offices in twenty-four countries. Said Siebel, “We didn’t spend much money. We had the crummiest space in Silicon Valley. All of our furniture was the crummiest furniture that we could buy at auction.”
This “bootstrapping” is self-financing by employing highly creative ways of gathering and allocating critical capital resources without raising equity from outside investors, or borrowing money from traditional banking sources. Bootstrapping requires a different mindset and approach, because the principles and practices imported from the corporate world will not serve well. Entrepreneurs need to become a “cash management fanatic.”
One report on successful bootstrappers found that 73 percent tapped into their personal savings, 27 percent used credit cards, 14 percent had repayable loans from friends or family, 7 percent had a loan against personal property, 5 percent had a bank loan, 2 percent found equity investors in friends or family, and 14 percent found other sources of cash. Almost two-thirds, 63 percent, started their business in their homes; 49 percent did not start paying themselves until a year later; and 33 percent waited more than a year to pay themselves.
Additional research on bootstrappers found that 87 percent of the CEOs leading high-growth ventures had on the average 43 percent of all their personal assets at risk in their start-ups. About 28 percent of them raised their seed money from co-founders, 24 percent from friends and family, and about 7 percent raised seed money from strategic partners and customers. Two-thirds of them launched using $50,000 or less, and 22 percent needed more than $100,000. It takes, on the average, twenty-eight months for successful ventures to grow from the seed stage to sales ranging between $1 million to $50 million. Another recent study found that ventures with seed capital of $100,000 or more grew, on average, some 2,074 percent over five years, employed about 150 people, and had nearly $21 million in annual sales.
Successful entrepreneurs know that new business venturing cannot be taught, even at the best business schools, and it cannot be learned from working at the biggest and best-run organizations in the business world. It can only come from experiencing and surviving a climb to the top of the world at Mt. Everest. Nothing gets an entrepreneur more focused than uncertainty and fear. And at no other time in the entrepreneurial life cycle is there more uncertainty and fear when the entrepreneur and venture has to commit to climbing the Hillary Step.
German philosopher Friedrich Nietzsche once said, “That which does not kill me, makes me stronger.” Sir Edmund Hillary proved that Mt. Everest can be climbed. Psychologically, making it up the Hillary Step is vitally important. It gives you the assurance that you can fight and be successful, that you can believe in yourself as an entrepreneur, and that your team is a winner. The Nepalese saying goes, “The summit of Everest can deliver you from the prison of ambition.”
Today’s entrepreneurs need to figure out the pathway to successfully launching the venture, and then bootstrap themselves to the summit and plant a first prover flag.