The health of startup ecosystems is often measured by the investment they attract. Thus, London’s position as a preeminent hub in Europe rests on the city’s ability to attract more venture capital than its counterparts and rivals such as Paris, Berlin or Barcelona.
But what happens if there isn’t much capital available? Is it possible for tech startups to “start” a path to success in global markets? Well, yes, it is. This path can be difficult to navigate, but it has some advantages.
You can see it in action in emerging ecosystems. For example, during a recent visit to Lithuania, I met a few companies that have built a successful international presence without any initial access to equity financing. Eager to learn more, I asked Eimantas Sabaliauskas of Nord Security and Tadas Burgaila of Kilo Health about the pros, cons and practicalities of bootstrapping.
Founded in 2012, Nord Security is a provider of Internet privacy and security products to consumers and businesses. In September this year, the company secured a $100 million investment and reached a valuation of $3 billion. However, for most of its existence, it grew its business by building a customer base and increasing its operating revenue.
As co-founder Eimantas Sabaliauskas explains, it’s an approach born from the realities of building a technology company in the Baltic region around ten years ago.
“Initially, we didn’t have a lot of accessible local capital,” he says. “In 2012, when we started, I believe Baltic startups raised about $50 million in total, excluding Microsoft’s takeover of Skype a year before. »
Early profitability
And while Sabaliauskas believes the company could have raised capital, it also had room to grow without investment. “We also knew the target market quite well. We could more or less see what was going to happen in the industry, with topics related to security and end-user privacy becoming more and more critical. From the beginning, we strived to be a mission-driven company and wanted to focus solely on creating a great product for our users. And our users liked it, which led to rapid profitability,” he says.
Kilo Health has also seen rapid growth. Operating in the wellness and fitness sector, it was named in the FT 1000 list as the second fastest growing company in Central Europe. Currently, it serves around 6.5 million customers in the global market.
A conscious decision
Tadas Burgaila says starting without external funding was a conscious choice. “We have been profitable from day one and have deliberately managed our business in a way that we are not dependent on external financing,” he says. “The decision to forgo venture capital had a significant impact on the company’s culture and its ability to adapt and develop new products as quickly and as cost-effectively as possible.”
In this regard, he argues that bootstrapping has been key to the company’s success, rather than being an obstacle.
Alright, the appeal of venture capital funding is the financial cushion it provides. Products can be tested and rolled without pressure to immediately break even or make a profit.
“The tricky part — and this is where venture-backed startups have a little easier time — is building the company and the product simultaneously,” Sabaliauskas acknowledges.
So how to achieve this? “We kept our expenses as low as possible and strived to make every penny count by constantly looking for unorthodox sources of income,” adds Sabaliauskas. Understanding the target market meant the company could seek out customers willing to pay for its VPN products. “Essentially, our users funded the development of our product,” says Sabaliauskas.
Self-financing required tight control of the reins of spending. “When you’re starting out, you’re bound to learn expense management skills. Every dollar spent had to come back to us in at least a predetermined ratio,” he says. To this end, Nord used performance marketing to get its message across to potential customers. “At first, representatives from television advertising, sports sponsors and many others were unhappy with our negotiation to tie payments to performance instead of a usual lump sum. Today, it has become common practice. »
Effective marketing
Performance marketing, for example, was a great way to control ourselves and find ways to only pay for things that mattered and brought strong results,” says Sabaliauskas.
Cash flow has also been critical to Kilo Health’s progress. “The key principles that guided us were to move quickly, focus on positive cash flow, maintain a unified mindset and work hard. We adapt quickly, continually analyze the needs of our users and adjust our products to meet those needs,” says Burgaila.
This last point is important. Burgaila emphasizes that simply focusing on profitability is not enough to ensure long-term success. Listening to user feedback and adopting products accordingly has been a key factor in ensuring revenue continuity.
But is it really about making a virtue out of what is in reality a necessity? Are there any real benefits you can associate with bootstrapping? Burgaila thinks so. “Being a start-up company growing so quickly gives us confidence and a ‘we can do anything’ attitude. We are free to decide what risks we take. We experiment, we are ambitious and we are not afraid to be bold and stand out. In fact, we encourage people to do just that,” he says.
Find a market quickly
Sabaliauskas says this encourages businesses to seize opportunities when they present themselves. One thing that bootstrapping does effectively is that it forces you to launch your product and find a market fit quickly. You don’t have the luxury of waiting for your product to be perfect, so there’s less chance you’ll launch it too late. A perfect product, but six months too late to market is a scenario no founder wants to find themselves in,” he says.
It would be a mistake to underestimate the disadvantages. For companies focused on R&D and product development, there is constant pressure to maintain positive cash flow.
But is there a lesson here for startups across Europe? Venture capital is widely available, but are there times when it would be better to grow on your own?
“Both options have advantages and disadvantages. Depending on the market dynamics, already existing team and resources, every new startup has to make a calculated decision,” says Burgaila. Depending on the company’s unique circumstances, startups should decide whether their interests will be best served by flexibility and independence or by equity that can accelerate growth.
Sabaliauskas says this should always be considered a viable option. “In today’s economic climate, bootstrapping may be becoming a trending topic again out of necessity, but its benefits have long been evident. If you are up for the challenge and have the opportunity to follow this path, it can bring you incredible returns. For me, these are also many cases that I have observed in which founders have brought in external capital too early without first finding the right partners or the right synergies.”
For those in need of equity capital, Sabaliauskas recommends spending time talking to as many investors as possible to find those who will actually help “lift” the company’s path.
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