STAYING AHEAD OF THE CURVE
I spoke yesterday with the founder of a bootstrapped software company in the network infrastructure space. He started a software company from his dorm room in the late 1990’s, then went to work for a dot.com. One day it struck him that his tiny startup (that he was still running on the side) was generating more revenue than the dot.com, which was threatening to go public at a $100 million valuation. He bailed out shortly before the meltdown and went full time on his company. Low risk and high earnings were back in fashion. He stuck it out through to the present. He was unfashionable again in 2006 and 2007 when institutional investor were again stacking their chips on the premise of a huge, high growth market. But now, lo and behold, he is once again ahead of the curve.
I have several repeat clients who have built efficient, valuable companies with little or no outside investment. I have helped them achieve multiple exits in the $10 to $20 million range. After paying transaction fees and debt and business partners they take home a substantial amount of money. One of my clients did the math and calculated that, in his 10 years as an entrepreneur, assuming a 40 hour work week, he has made about $1,500 per hour. Even after correcting for the fact that he typically works 60 to 80 hours a week, this is a nice return.
>The founder is technical, or at least a good manager of technical people
>In spite of being technical, the founder also knows how to sell (or hire talented sales people)
>Infrastructure is outsourced and fixed costs are minimized
The challenge for investors is that these deals typically don’t scale enough to drive returns on a substantial investment, and there is no reason for the entrepreneur to take a small investment. The challenge for the entrepreneur is that, absent substantial individual wealth, he or she will be undercapitalized and at risk of going under.