Bootstrap: Lessons Learned Building a Successful Company from Scratch
301
Bootstrap: Lessons Learned Building a Successful Company from Scratch
301Hardcover
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Overview
From the Author:
What's it like to start a business from scratch? I found it to be intensely creative and stimulating -- so rewarding that I'm in the process of doing it again. Yet the very thought of leaving a job to start your own business scares many people. Should you start your own company? This book provides an insider's window into the process I went through, starting with a dream and ending years later with the sale of my company, Banner Blue Software, at a handsome price. As I built my business, I learned answers to these questions and many others. Ultimately, I did more right than wrong, for Banner went on to great success. I hope that by sharing what I learned, you can improve your chance of success and minimize your mistakes.
About the Author
Kenneth L. Hess was founder and President of Banner Blue Software, a bootstrap startup that he built to annual sales of $23 million. Leveraging his twenty-five years of business experience, Ken taught Entrepreneurial Business Management in the Stanford University Continuing Studies Program. With interests that extend beyond management, Ken holds one of the first software patents. Ken is a graduate of Stanford University and received an MBA from the Harvard Business School. Currently, Ken participates in several entrepreneurial ventures, and he serves on the boards of Sensant Corporation and Stanford University's Hoover Institution.
Product Details
| ISBN-13: | 9780971187306 |
|---|---|
| Publisher: | S-Curve Press |
| Publication date: | 09/28/2001 |
| Pages: | 301 |
| Product dimensions: | 6.40(w) x 8.90(h) x 1.30(d) |
Read an Excerpt
After several hours of intense design work, I feel good about the new database product I am building. Today I solved a number of engineering issues that had perplexed me for over a week. I cannot think of a more satisfying way to spend a Saturday morning.
I always enjoy stepping back to reflect on my creative accomplishments, studying how the pieces mesh to form something new and useful. But today my mind reflects back much farther than usual, to the time sixteen years ago when I founded Banner Blue Software. Driven by the need to control my own fate and excited by dreams of financial independence, I developed a product, grew a company, and fulfilled my dreams of wealth before I left just a few short years ago. So why am I working on a new product at all, let alone on a Saturday morning?
Most would call me a successful Silicon Valley entrepreneur, having bootstrapped a thriving company from little more than the ideas in my head and the money in my bank account. I had pursued wealth as the means to a new life with the freedom to pursue any endeavor. But after more than a decade of toil and a measure of good fortune I found the results of my achievement to be very different from my expectations. Since leaving my colleagues at Banner Blue, I have found that what makes me happy is not wealth or the freedom it brings, but working with bright people to analyze markets, create new products, and build a company. To my surprise, I enjoy the entrepreneurial process more than the final reward.
So I have come full circle. The product I work on today is for a new company, my second start-up, which I founded only months ago.
I have learned many lessons in the last sixteen years, and I want to share them with those who might also seek to explore the unknowns of their professional and personal lives. I want to offer my thoughts on what it is to be an entrepreneur, to found a successful start-up, to gain the wealth of your dreams�and to realize that what is really important is not wealth or how fast you obtain it, but the journey itself and how you conduct yourself along the way.
My path to entrepreneurship began many years before I founded my first company. Little did I know it at the time, but the activities I enjoyed as a youth honed the skills that were invaluable to me as a businessman.
Learning to Build Things
I love to create. My father was a mechanical engineer and our ancestors going back ten generations were machinists, mechanics, or locksmiths. Since I was old enough to hold a tool from my father�s well-equipped shop, I have been creating and building hundreds of different things. I built a push-car for riding around the driveway, dozens of machines with my Erector Set, five Soap Box Derby racers, a firecracker cannon, what may well have been the first Christmas tree illuminated with fiber optics, numerous rockets, a crystal radio, several pieces of furniture, a cloud chamber for tracking subatomic particles, a refracting telescope with a German equatorial mount, a camera copy stand, a darkroom easel, a garage for my father, a microscope, and much, much more.
I always knew exactly what I wanted, and if I wanted something, I figured out a way to build it. Because I had limited funds, I became creative at scrounging for and using available parts in whatever I constructed. If I needed a tool that was too dangerous for me to use, my father would operate it for me with his hand on top of mine.
Sometimes my projects had problems. A neighborhood kid accidentally ran over me in my own push-car, leaving a two-inch scar on my right knee. It was the hard way to learn that the car needed brakes. Being extremely impatient, I hated to draw plans before I started building�it took too much time! My dad was an excellent draftsman and he always drew a sketch before building anything. He tried to teach me to do the same, but instead I liked to just visualize everything in my head, then hammer away. As the things I built became more and more complex, the lack of adequate plans became troublesome. I remember when I first tried my telescope mount. As I swung it around the polar axis, it clanged into another part of the mount and I had to rebuild it so I could look at the whole sky. Eventually, I learned what my father had been trying to teach me: it�s important to have a plan.
My father also taught me about craftsmanship. �If a job is worth doing, it�s worth doing right,� he told me again and again. Both his plans and the things he constructed always looked much more polished than mine, and his work served as a goal for me. Every year I got closer to the high standard he set.
I did not know it then, but I was already displaying my most fundamental character traits: I knew what I wanted, I wanted it done right, and I wanted it yesterday. I was goal-oriented, competitive, and creative in my means of achievement.
I entered Stanford University as a chemistry major, but soon switched to engineering. Computers were still new at the time and they fascinated me, so I concentrated in product design and computer science. It seemed I could program a computer to do anything (except conjure up a date for the weekend), a powerful appeal to someone who likes to build things.
In other classes I was able to study the art of creating. One of my college instructors, Egon Loebner, taught me his analytical method for systematically inventing new things in any field. The local patent library provided source material for the class. In one exercise, I selected several existing patents for which I estimated the pool of potential inventors. I found that only a handful of individuals were likely to have the required combination of knowledge, skill in applying the knowledge, and motivation. This emphasized to me the importance of being the world expert in the chosen area of invention. Having an idea was the easy part. Understanding all existing and related inventions, separating new ideas from old, deciding what was possible, deciding what was valuable to someone, implementing the idea�those were the difficult things that only an expert could accomplish. I learned that doing my homework was as important as preparing a good set of plans.
Do I Have What It Takes?
Throughout my education during the 1960s and 1970s, I evaluated a variety of career opportunities, primarily in the areas of science and technology because those were my favorite subjects. During junior high school I wanted to become an aeronautical engineer; then in high school I settled on being a chemist. It was not until college that I first considered becoming an entrepreneur.
Vern Anderson, a Stanford instructor teaching a seminar called �Ethical Problems of American Businessmen,� was the first person to put this idea in my head. Vern was a successful entrepreneur and his enthusiasm for starting a business shined through in every class. I also saw in Vern the financial independence that comes with a successful company. With my own company I could create new, unique products and attain the financial freedom that would allow me to pursue my other interests.
Although creative freedom and a big pot of money sounded pretty good, everyone else I knew worked for a large company, so entrepreneurship was uncharted territory. Vern�s example to the contrary, dozens of articles in newspapers and popular magazines had formed my image of an entrepreneur. Most of these entrepreneurs had created giant companies (since giant companies are the ones that attract attention in the popular press), and as people, they did not seem to be much like me. Some were scientists or inventors with an obsession, others were performers or self-promoters, and many had become legends. I was not any of those things. I also wanted to raise a family, and I noted that many of these entrepreneurs had broken marriages and spoiled kids. While I liked the idea of being an entrepreneur, I was not sure that I could be successful. Vern did seem to be more like me, and he had a wonderful family, but he was only an example of one. Besides, and perhaps most importantly, I did not have a good idea for a product.
What I did have was lots of questions: What personal qualities does it take to found a successful business, and do I have them? What education and experience is the best preparation for becoming an entrepreneur? How do I find a good product idea? How do I obtain the money to start a company? Could I run a successful business and still have a normal family life?
If I wanted to be an entrepreneur, I had a great deal to learn. With the vague objective of starting my own company�a company doing or building what, I did not know�I began to educate myself.
Deciding to Pull Myself Up by the Bootstraps
Most new companies have outside investors of one kind or another, perhaps as many as three companies out of four. Some number of those without investors would dearly like to have them, but they simply cannot obtain funding for one reason or another.
Technology companies are no different, and Symantec�s strategy was quite typical�hand over a large equity stake to venture capitalists in return for cash. Some of the earliest personal computer software companies had started without outside investors, but self-funding was becoming increasingly rare among new entrants to the market like Symantec. These newer companies came to the conclusion that the increasingly crowded marketplace required elaborate products followed by heavy spending to establish distribution. Lotus Development had utilized large amounts of capital to launch its product 1-2-3.
Yet, my desire to retain control biased me against using venture capital. I did not formally analyze my needs for financing. My feelings about this matter were just that�instinctive and somewhat emotional, based as they were on my experiences at Symantec. Although self-financing never seems to be in favor, I certainly would not be the first person to try it. Perhaps naively, I was comfortable bucking the conventional wisdom about what it took to start a software company.
The term for a company founded with no outside investors and minimal resources is a bootstrap. Clearly, bootstrapping the company would establish constraints on the type of product I could offer and the way I could sell it, but to me, it seemed like a fair trade-off in return for complete control over my company.
During February and March of 1984, my business approach started taking form. I decided that in order to do a bootstrap, my product needed to meet several important criteria:
1. I wanted it to be a unique, creative product first in its market niche.
2. I wanted it to create obvious value for the user by saving large quantities of time in an important task�a productivity product that the customer was waiting for someone to offer.
It would have been expensive to convince a customer they had a problem when they did not already know it, and money was something I did not have. Several heavily capitalized software companies had recently failed because of that exact strategy, trying to persuade people to do something new, just because their product made it easy. On the other hand, ThinkTank, a niche program that automated the creation and editing of common outlines, was enjoying success because customers were looking for a better tool to perform that task. What I wanted was a productivity tool for a job that people performed in spite of the job�s difficulty. The absence of direct competitors and obvious customer value would help the product sell itself.
3. The product also had to be buildable in about one work year. I did not have enough money for anything more complex.
There were also market reasons to keep the product simple. The combination of rapid market changes, no competition, and high customer need would permit me the luxury of a minimalist product strategy. I could design an elegant, simple product, then ship it quickly. The objective was to include only features essential to the primary task of the software, ruthlessly excluding anything that was not a certain requirement of the target user. I would not need to worry about meeting the features of a competitor, because there would not be one. Then, I would aggressively and proactively obtain feedback from users to learn the strengths and weaknesses of the product. Following that, I would rapidly revise and ship a new version of the product, continuing this process in-definitely.
If instead I tried to develop a perfect, robust product, the risk grew that development time would exceed the validity of my original market insight. While vainly trying to create perfection, a competitor would come to market first, the customer would meet his needs in some other way, or like Symantec I would bite off more than I could chew. My experience had taught me that it was far better to keep things simple.
Additionally, but unrelated to my bootstrap financing, I wanted the product to have high performance. Responsiveness and interactivity were key ingredients in making personal computers successful against larger, time-shared computers.
Although I have learned many requirements, advantages, and disadvantages of a bootstrap since the time I formulated these criteria, they form the core of my product thinking to this day.
Table of Contents
| Preface |
| Chapter 1. Should I Start My Own Company? |
| Chapter 2. Betting on Change: The Founding of Banner Blue Software |
| Chapter 3. Defining the Banner Blue Culture |
| Chapter 4. Family Tree Maker and Diversification |
| Chapter 5. Riding Waves of Change |
| Chapter 6. Selling Out |
| Chapter 7. Employee Number 1559 |
| Chapter 8. Reflections |
| Appendix A. Lessons Learned |
| Appendix B. The Product Development Life Cycle |
| Appendix C. Pro Forma Income Statement |
| Appendix D. Product Awards |
What People are Saying About This
John Glynn, Professor of Entrepreneurship, Stanford Graduate School of Business
An excellent reference for anyone wondering what it takes to be an entrepreneur.
John Neer, Executive, Lockheed Martin and former Founder, Space Imaging
More than a how-to book, it is one of an entrepreneur�s journey, accurately detailing both the personal and professional struggles that he must overcome on the way to the top, and what he will face once he arrives.
Chuck McMinn, Founder and Chairman, Covad
Not your typical Silicon Valley venture capital story. This book shows bootstrapping is a viable way to start and win at building a high tech company.
Heidi Roizen, Managing Director, SOFTBANK Venture Capital
Solid advice on every step of building a company, from developing a product to selling the company.