Greg Easley and Paul Frischer can vouch for that. Both men learned how to build successful companies by the seat of their pants. Their experiences taught them business lessons they know they wouldn't have learned in business school.
"Bootstrapping makes you streetwise fast," says Easley, 28. When Easley and his partner, Kelly Moulton, 27, came up with the idea of launching New York City-based Bottle Rocket Inc. in 1996, they envisioned smooth sailing because they were cornering a unique niche. Unlike conventional Web site development companies, Bottle Rocket creates online entertainment products for professional sports teams and major sports leagues to use as marketing vehicles. "Our business model is simple," says Easley. "Our clients, the National Hockey League or National Football League, for example, pay us for the [trivia games we create], and we get an interest in the sponsorship. For this reason, we felt investors would be interested in us."
Easier said than done. Neither Easley nor Moulton had enough money to develop the sophisticated online games that would attract investment dollars. The only way to get the company off the ground was to carefully budget and bootstrap so investors would eventually deem it a hot prospect.
Easley and Moulton became masters of getting things done cheaply. They set up a temporary office in Easley's tiny, two-room apartment. For nearly eight months, the two partners plowed everything back into the company and built credibility in the marketplace so investors would be enticed by their prototype games. "We lived frugally," says Easley. "We did everything we could to cut corners. The idea was to funnel everything we earned back into the business."
But while cutting corners on food, telephone and electricity bills, and walking instead of taking cabs helped, Easley says he and Moulton were often frugal in the wrong places. "Instead of hiring an attorney to handle legal issues, we figured we could do it ourselves but eventually wound up spending more," he explains.
Fortunately, the partners learned from their mistakes. "Bootstrapping is scary," says Easley, "but in retrospect, it's worth it. During those early months, we learned how to manage [a company] and work with clients. It was kind of like a test run, allowing us to iron out our kinks and learn how to use the resources we had. If we hoped to raise investment capital, we had to prove we were a viable business. A valuable lesson for any entrepreneur is learning how to function on a shoestring [budget]. That's what bootstrapping teaches you."
Easley insists danger awaits companies that start out with too much too soon. "If we had gone out and raised a million dollars, about 40 percent of that would have gone to covering our mistakes," he says.
Easley and Moulton's experience paid off. By reworking their business plan, they raised $500,000 in seed money after being in business for 11 months. Within a year after that, they had raised an additional $1 million to fund their research and development. If all goes well, the partners expect sales of $1.2 million this year and $4.4 million next year.