For as long as I can remember, I’ve been in business. My first job as a kid was peddling Christmas cards door to door. These days, I lead a team that advises and invests in serious entrepreneurs with promising products. But before this latest venture, I founded and bootstrapped a company that revolutionized comfort in large spaces: Big Ass Fans.
We started in 1999 as the HVLS Fan Company with six employees, a lot of faith in our product and little else. Within a few years, our customers had given us our new, more direct name and through word-of-mouth were selling our fans for us. A few years after that, we had offices on three continents, annual revenue of nearly $300 million and more than 1,000 employees. We had developed new product lines that moved our fans from factories into restaurants, concert halls and people’s homes. And we had achieved those milestones without any outside investors. But by 2017, I was ready for a change. I no longer knew everyone whose paycheck I signed, and the bigger the business grew, the less fun it became. So I set a price of $500 million, which allowed me to generously reward employees who’d helped grow the company. Now a part of those proceeds fund my investment firm, Unorthodox Ventures.
As the name suggests, we’re different from your standard venture capitalists. We actually have experience running companies, so we provide not just cash, but guidance. And one thing we always talk about with entrepreneurs who are just setting out is whether to bootstrap. Although it worked for me, it took almost 20 years and, looking back, there are some things I might have done differently.
Why I Bootstrapped and Why You Should, Too
There are several reasons I never took outside money. First was the fact that it simply wasn’t in my nature to go looking for help, especially from people I didn’t know. I was stubbornly independent, a trait of many entrepreneurs. The desire to be my own boss was what led me to go into business in the first place, and bootstrapping meant I didn’t have to deal with some outsider telling me what they thought I should do.
Investment firms aren’t altruistic enterprises; they’re looking after their own interests first. It’s understandable, as they have a fiduciary responsibility to do so. Unless they’re privately funded—as ours is—they’ve been entrusted with the savings of people who are only focused on good returns. As a bootstrapper, you own all the equity, and you have all the control.
Being a bootstrapper is also an incredible education: You’re constantly learning and adapting. It’s the most exhilarating feeling I know. At the same time, you’re aware of every detail, at least at the start, and can make changes quickly when problems crop up. When you make mistakes, you’ll learn from them in a way you never could if they were made on someone else’s dime. Plus, you’ll be more creative in solving them than if a VC firm was advising you.
You can’t downplay the fact that as a bootstrapper, you don’t have to constantly plan your next round of fundraising. This means you can focus on growing sales, which is how it’s supposed to work. If you don’t make money, you don’t stay in business. That will compel you to create a strong business plan that details exactly where you’re going to spend your money and how much you’ll need for the next step in the process.
When I was a boy, most kids I knew got a weekly allowance. I had to work for my spending money. Who do you think counted their pennies more closely? There’s a reason people talk about burn rate for venture capital funds: because it’s gone quickly, and you’re left wondering where it all went. As a bootstrapper, you watch every dime much more closely than you would with investor money. It’s your money and 100% your business.
When you bootstrap, you operate on your timetable and can expand slowly. This gives you time to act on customer feedback and make product improvements early on, before your inbox becomes flooded with complaints. At the fan company, we sold 146 fans the first year. The second year it was 420, then 700, then 1,900. After that, we took off. But those first couple years really taught us how the product worked in different applications. We called each customer and convinced them not to be shy about telling us how we could improve.
That leads me to probably the biggest advantage to bootstrapping: Your customers are your top priority, not your investors. This alone is reason to avoid outside investment, at least until you’ve generated a significant amount of revenue and laid the foundation for building strong relationships with your customers.
Bootstrapping Only Goes So Far
There are lots of benefits to bootstrapping, but there are certainly downsides. First is the risk to your bank account. Depending on how much money you put in, you could quickly run through it, especially if you try to rush things along or rely heavily on the advice of people who don’t know what they’re talking about—people who tell you to find a contract manufacturer, for example. If you do that, you might as well kiss a quality product and your money goodbye.
Second is the risk to your sanity. Most startups fail. Even a bootstrapped success takes a significant amount of time and heartache. You have to be able to withstand the ups and especially the downs. With luck, you’ll learn that they don’t last forever, and you’ll come out of them stronger than before.
But the biggest disadvantage to bootstrapping is also one of its advantages: It takes longer. If you’re in a field of heavy competition, that can present real problems. Even when you don’t have competitors, limited reserves can affect your ability to scale. I was lucky to have a wife whose job kept us fed during the years I didn’t take a salary. Without her help, I would almost certainly have needed outside help.
There was one occasion when I went so far as to talk to someone—an acquaintance—at one of the world’s most famous VC firms. I was looking to expand Big Ass Fans into India, an extremely challenging market to enter but one that had the potential to be huge for us. We weren’t able to come to an agreement because his office wanted a piece of the whole company, while I was only willing to offer a share of the Indian business. But in hindsight, I think if we had been able to strike a deal, then with the VC firm’s deep pockets, we probably could have grown the company overseas faster and larger than we did. But we retained complete control, and maybe that’s more important.
So what do I recommend? Bootstrap early if you have the resources and the fortitude—and the desire to learn all you can. Once you no longer feel you’re on the brink of going under and are generating some decent revenue, consider seeking a cash infusion from an outside, knowledgeable source, one that understands not just finance, but the nuts and bolts of business.
At our firm, we tell founders that if they create a strong business plan and calculate exactly what their expenses should be over the next couple years, they’ll realize they don’t need nearly as much as they thought—or as much as some VC firm is willing to throw at them.
I shudder to think of the trouble I could have gotten into back in the day if someone had entrusted me with anything more than a sawbuck.
This article originally appeared in the March/April 2022 Issue of SUCCESS magazine. Photos Courtesy of Carey Smith.