I find lately that at least once a month I’m at an event that’s about pitching your business or mingling with VCs. These events come with a feeling of mandatory attendance that I compare to the days when I was single. There was always that standing Saturday night party you had to attend; it was a weekly opportunity to chat with your friends (today other start-ups) and chase girls, hoping you’d find that “one” (today VCs with hopes you’ll get lucky). As you work the room at these events you’re always pitching – talking up recent traction, painting a picture of the next product release and emphasizing your accelerated performance metrics like they’re front page sports stats.

Uberflip’s strong numbers, including traction with new users, paid customers, and revenues often prompts the question: Who’s funded you to date? When I explain that we’ve actually bootstrapped Uberflip, people always want to know: How have you managed to grow to 19 employees and more than 650 paying customers in the last 3 years on your own?

Here are 5 of the key strategies I often cite, which have allowed us to avoid institutional funding:

1. Recurring Revenue

I’ll start with the most important. There’s a reason VCs love businesses with monthly recurring revenue (or MRR): It allows you to create predictable revenue month over month, as long as you manage to keep your churn (customers who leave you) down. I remember that in early 2010 before we re-launched our pricing, I would celebrate the big one-time sales with a fist pump, but end up sleepless on the 1^st of each new month trying to figure out which opportunities would materialize next. Without predictable revenue, the decision of making that next hire, whether dev or sales, is overwhelming. You may think you can pay them this month, but what about 3 months from now if we hit a dry spell? Conversely, recurring revenue allows you to create a long standing relationship with customers by getting them in the door at a palatable price point. As many enterprises have decentralized their procurement, this is an easy way to get in without big scary upfront payments. Some call this the ‘land and expand’ mentality – we use it here and it’s allowed us to land big brands that come in at a reasonable starting point. You can then work to grow that commitment over the long term using the right nurturing techniques.

Entrepreneurs running a B2C offering may find it tough to generate revenue early on, but if you’re B2B do not be shy to charge for your offering. Since traction and uptake is often viewed as the be-all end-all, it is easy to get tempted into freemium or free models. But remember that businesses have budgets and they’re willing to pay for value. So if your product truly rocks, monetize it with a scalable price structure (see tip #3 for more details) and in turn help fund your business in the most simple of old school business strategies: revenue.

2. SRED

Ok, so now comes the one that identifies my Canadian hockey loving roots. Any tech start-up working in the great north that does not know about SRED (Scientific Research and Experimental Development) needs to wake up quick. The SR&ED Program gives claimants cash refunds and / or tax credits for their expenditures on eligible R&D work done in Canada. For those who haven’t heard of SRED I’ll clear up some common questions I get from US VCs (often combined with looks of disbelief) when explaining the program:

- Do you need to be profitable and/or paying corporate income tax to get a refund? NO
- Do you have to pay back the government when you are profitable? NO
- Does the Canadian government get any equity in my business? NO
- Is this a joke? NO

That’s right – this is a no brainer and perhaps a temptation for some American entrepreneurs to open an office up here in Canada. There are many companies who will prepare and submit your SRED claim for you, including accounting firms and SRED specialists who take a success fee often negotiable in the 20% range. Some start-ups try and take on the filing themselves. My advice: outsource it – the fee hurts but putting it on a third party allows you to place it as a priority, which is unlikely to be the case when it would otherwise fall on your dev team who are already under pressure to focus on the next production push. The best part of SRED is you can reinvest a lot of your R&D dev spend back into the business to fund next year’s projects year after year. This means all you have to do is find a way to carry the business in between annual claims. We’ve been very happy with our SRED team – feel free to message me (@randyfrisch) for their contact details.

3. Government Grants

There are a lot of other programs available through the Canadian government to help companies focus on R&D, and the best news is that many reimburse you as quickly as a month after the expense was incurred. When bootstrapping your business, cash flow management is key, making some of these programs an even better deal than SRED where you can wait months for a cheque in the mail after filing your year-end financials.

Whereas SRED is fully focused on projects that involve science, technology, engineering and math (STEM), there are other programs where you can get government funding for non-STEM staff, as long as they are still focused on cutting edge ways to push your business forward. This can include marketing gurus and other operations roles that are less ‘techy’ in nature. A couple of the programs I’ve participated in include IRAP and Career Focus, which have covered up to 80% of a new hire’s out of pocket costs in the first year. There are many other programs available depending on the sector you serve, including FedDev and OMDC. Be sure to consult with your accountant or just do some research on your own to see what dollars are awaiting. Thanks to programs like these our bootstrapped business will surpass 20 team members in the coming month with minimal additional cash burn.

4. Sacrifice and Confidence

Growing a business without funding is not without sacrifice. One of the hardest and most obvious spots to cut costs and avoid funding early on is with your own salary. Believe me I’d love to take home a salary with more digits before the decimals, but like any entrepreneur I’m in this for more than one extra digit. I’m far from the guy to be all high on himself, but I’m pretty confident I could be making a lot more money had I chosen a cushy downtown job or taken a slightly different path earlier in my career. But I chose to be part of building something that could grow beyond what I could control on my own. To do this you need to face the reality that your friends and even some of your own staff may earn more than you early on. You need to remain focused on the big win. Sacrificing some salary now will allow you to add another key member to your team, getting you that much closer to your goal. Those who think they can pay themselves a little more by just doing a little more are not thinking big enough. If you need to be involved in every step and decision in your business you’re setting yourself up to have a nice small business, not a scalable billion dollar blueprint. You often need to hire a team who believes in making sacrifices too – I’m not the only one at Uberflip who might deserve more – the key is making sure you hire people who also believe in your billion dollar vision.

To take less likely means that you’re confident in your business. My business partner Yoav (our CEO) and I have believed in this business every step of the way – so much that we’ve both put a good chunk of our own (and family) change into this business. Some may say that if we’ve funded the business then it’s not really bootstrapped because we were in a fortunate situation – I say that’s BS. I know a lot of successful people who have the money to buy businesses or make investments outright, but opt to spread risk and bring in outside investors. Being fortunate to be able to fund your business is one thing, doing it is another.

5. Scale

No matter how much money you can get from family, personal savings or the government, it better be going into a scalable business model. Without something that scales and earns back your money in a reasonable time span, forget about ever going at it without VCs, let alone finding a VC who will listen to your story in the first place. It’s all about your CAC Payback (for those not familiar with key SaaS accounting terminology, I highly suggest reading Bessemer’s 10 Laws of Saas). The CAC Payback is a statement in months, of the time it takes to fully payback your sales and marketing investment. Very early on I had a vision of quickly building a large team of salespeople to cement our footprint. The way I looked at it every company needed Uberflip, so I would simply toss a sales rep onto every vertical and build further around the verticals that were productive. Putting aside the time and cost of recruiting good salespeople and the number of hires that won’t work out, I figured the good ones would start to pay their salaries in 6 months. But how much would we have bled by then? It simply was not scalable and it took no time for VCs and advisors to wake us up to the reality of a slow non-scalable death.

With time we figured out the right model by using a mix of organic and direct response acquisition strategies to bring customers to us through a free trial rather than chase them with dead end cold calls. After some testing we started to understand our CAC, our CLTV, average spend per conversion and churn (see Bessemer’s Laws). All of a sudden the numbers were pushing us to invest more and scale our supporting resources accordingly. We had eliminated the risk of dipping into our cash reserves. Forget about 6 months for a salesperson to start paying their worth (ignoring paying back the initial bleed), we’re now seeing CAC Payback in less than 4 months.  This allows us to add salespeople (which we call Customer Success members) after the customer has already upgraded from ‘free’ to ‘paid’, focusing on servicing and educating customers on more robust solutions when appropriate. We’re responding to opportunities rather than hunting for them.  This has been a real key for allowing us to scale and manage cash to date and more so in the future with our aggressive targets and large market potential.

So don’t raise?

So, you may be wondering: what am I doing at all these venture funding events if I’m preaching about not raising capital? Let me be clear – I’m not saying not to raise, I’m just saying it’s possible (specifically with a B2B model) to bootstrap early on, and it can be really beneficial too. As exciting as a TechCrunch article highlighting your multi-million dollar round can be, VCs will, rightfully, turn your thinking upside down before you have the opportunity to find a logical path on your own. Being able to pivot (a la Eric Ries) as we’ve progressed, without worrying about how a big shift in pricing, target market, or even a rebrand will look to your VC, is a great luxury.

Despite the above I’ll never stop attending venture events, giving our pitch at any chance, and updating our deck. The reason is that VCs come with more than just money – they have great feedback. We get great free advice every time we sit down to update a venture group or compare ideas with another entrepreneur. A lot of our business today and roadmap for the future has been shaped by those meetings (and a great advisory board). Also there may be a day where a key acquisition will require funds, or that next step will be so big that funding will make sense. When that time comes along it’s important that you’re known in the room not just for what you plan, but for what you’ve accomplished.

Until then don’t let an idea sit in your head or a ‘no’ from a VC stop you from pushing forward. We have grown Uberflip to significant recurring revenues, have thousands of really cool users who’ve trusted us with their content, and built an amazing team of nearly 20 – all done without any girl committing to us at the party yet.