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The Bootstrap Report(BusinessWeek Online Via Thomson Dialog NewsEdge) <strong>Pulling Oneself Up Is All the Rage</strong> Trying to raise millions in venture capital is a fool's errand for many entrepreneurs. The business press and blogs abound with stories about how creative individuals are making a little into a lot. The tale of how Kyle MacDonald turned a single red paper clip into a house via a number of creative trades has sparked much of the talk [see BusinessWeek.com, 7/13/06, "One Red Publicity Party"]. So has the rise of TerraCycle, a maker of plant food created from waste products. Its founder, Tom Szaky, raised thousands of dollars by entering university business-plan contests. "Money is the enemy of most entrepreneurs and marketers," says Seth Godin, an author of several marketing books. "Great product development and marketing almost always come from organizations that don't have enough money. Having less money keeps you from trying to buy your way out of trouble." He adds, "Learning to live with less money means you will develop skills and resources instead of buying them. And it means that when you have less money [again], you'll be prepared." [see BusinessWeek.com, 4/18/06, "Vetting Your Idea"]. Good advice. I've long felt that too many entrepreneurs spend too much time and energy searching for funding, when both would be better invested in creatively building the companyand leaving more of the company for the entrepreneurs. <strong>A Teetering VC Straw in the Wind?</strong> There may be another reason to bootstrap as well: A small ongoing survey of venture capitalists gauging their interest in investing just registered its sharpest drop in the two-plus years the survey has existed. While the University of San Francisco Silicon Valley Venture Capitalist Confidence Index for the second quarter of 2006 came in at a not-unseemly 3.89 out of a possible 5, the index "declined significantly from the previous quarter's level of 4.15 on a 5-point scale, to its lowest reading since this index was originated more than two years ago in April, 2004," say the survey originators. The implications of this survey of 37 VCs? It "signal[s] a shift from broad confidence to increasing caution among a growing number of Silicon Valley venture capitalists." [see the survey]. <strong>The "Secret" to Building a Compatible Team</strong> "You may think this is too touchy feely, a little weird," Jeanne Sullivan, a venture capitalist, told a group of entrepreneurs recently at the Venture Voice Startup Workshop in New York City [listen to the podcast]. When launching StarVest Partners, a $150 million venture capital firm, eight years ago, "we hired, and kept through many years, a corporate shrink." This was an organizational behavior professional whose role was to administer psychological tests to team members and "help us understand our decision-making style." The therapist helped smooth a number of bumps in the road. "We were three women and one guythere was a lot of estrogen in the room," Sullivan recalls. The guy "wanted to go A-to-Z in making decisions, and the rest of us wanted to go A, B, C, D, real logical." The psychologist's input helped team members "trust each other better. This was critical for success." While hiring a shrink may not be in the Top 10 list of priorities for cash-strapped entrepreneurs, Sullivan argues it should be considered as early as possible during the startup process because of the fragility of teams: "These blow up all the time." <strong>Getting Paid When Your Product Is "Illegal"</strong> I was at a farmers' market at a small town in central New Hampshire, drawn to a stand where a couple of 5-month-old baby goats were playing with each other. The woman in charge of the stand was handing out samples of goat cheese -- plain, herbal, and so on. You'll understand why I'm not using her name. How much for a container of the herbal? I asked. "I can't sell it," she responded. "It's illegal in New Hampshire to sell cheese made from nonpasteurized milk. In order to sell it, I would have to pasteurize the goat's milk, and the equipment would cost me $7,000. I calculated it would take me years to make the money back. So you can take someand if you'd like, you can make a contribution." Hmmm, I thought. "What is your recommended contribution?" "I recommend $3 a container." So I made my "contribution" into a glass jar stuffed with cash, and walked off with my cheese. Which all goes to show, where there's an entrepreneurial will, there's a way. And by the way, the cheese was delicious and, no, I didn't get sick because it was un-pasteurized. |