5 Reasons to Bootstrap Your Startup

Last Updated Jun 4, 2011 9:02 AM EDT

Swagbucks is an online rewards destination where users earn virtual currency redeemable for real-life rewards for performing the everyday actions they already take online - like searching the web, playing games, shopping, watching videos, etc. The Los Angeles-based company, which has 3.5 million registered users, does over $10 million in annual revenue and COO Scott Dudelson is predicting close to $20 million by the end of this year. Sound like a classic Internet startup? It's not.

Dudelson started his company, Prodege, (Swagbucks is the brand) with three of his best friends five years ago and he did it the old fashioned way - by bootstrapping. At a time when multi-billion dollar pre-launch funding, billion dollar valuations, and overblown IPOs are once again becoming de rigueur, it bears remembering that sometimes - most times, I would argue - bootstrapping is best. Dudelson thinks so, too. Here's why:
  • Ignorance is bliss. "The company was stared by four people - two were my best friends since childhood," says Dudelson. "None of us had any experience in starting an Internet business. We invested in it as we went along and we weren't tied to any historical model. And that allowed us to be more flexible and creative than if we had outside investors."
  • Freedom and agility rock. "When we started the company, we did private label search sites for charities," says Dudelson. "Swagbucks.com came about because the four of us of us were sitting in a room thinking about what else we could do with our business. We made that decision on a Monday, the following Wednesday there was a mock up, and a week after that, a site was up. We can move very fast because we don't have an approval process to go through with investors."
  • Getting your hands dirty pays off. "When we started, it was just Josef Gorowitz, the CEO, and myself," says Dudelson. "We didn't have the money to hire marketing people, or customer service people, or business development people. All of that was me. While that presented a great challenge, it allowed us to dig into everything and understand every facet of our business. When we grew, we knew how to handle everything."
  • You get to keep the whole pie. "At the start, it never made sense for us to take money," says Dudelson. "We were making money from day one. It was about getting users onto the platform. There was never an overwhelming desire to give up a lot of our company for something that we inherently knew how to build."
  • You'll get the right people on the bus. "We have the ability to create a unique culture and management style that depends on us," says Dudelson. "Especially at first, the people we brought on were not $100,000 a year people. They came on board because they believed in the concept. Whereas if we had a lot of money, we probably would have gone out and found top-level execs to help round out all the positions. It might have worked phenomenally well, but it might not have. There's no incentive to work as hard or be as invested in the company because they already have the big salary."
Now that the company has a proven track record of success, Dudelson and his partners would have far more leverage with potential investors. "The only way we would take money is if it was the right partner that would help us scale in the way we want," he says. "All things being equal, we're super profitable. So there's not that need to go out and do it. But if it makes strategic sense, we'd consider it."

What's your view on bootstrapping? When does it make sense to start and grow a company on your own; how do you decide whether or not to take on outside investors?

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  • Donna Fenn

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