Incubator vs. bootstrapping: What´s the best way to found your company?
When founding your own company: whether to bootstrap or join a startup incubator is one of the earliest and most important decisions you will need to make. No pressure. Except, of course there is pressure, in bootstrapping especially. Let’s be clear though, it is great that entrepreneurs have this choice to make between doing it on their own or seeking outside help and mentorship in an incubator. To have the choice is a good thing; but you need to make an informed and conscious decision. Broadly speaking, there are two types of incubators.
On the one hand, there are those who select founders with an idea that has already gained some traction in the market. Most common examples are startup incubators like 500Startups, Y-Combinator, Seedstars in the US or Seedcamp, StartupBootcamp and Rockstart Accelerator in Europe. Founders get a modest amount of initial funding and tons of contacts to investors and mentors in return for a small equity stake.
On the other hand, there are corporate, institutional incubators: often arms of large companies where would-be founders are hired as entrepreneurs in residence. These teams get the goal to found a company based on a specific industry problem, pre-existing idea or new product development. To the most prominent corporate incubators count Rocket Internet, Team Europe, Axel Springer and many others.
My personal experience
Earlier in my professional life, I founded four companies for the latter type of incubator: for Rocket Internet. At Rocket I was provided with both a business model and funding. At Axel Springer’s internal incubator, I had the opportunity to develop my own idea and raised investment myself from the company´s board. As of July 2013, I’ve been founding and running my own startup, doBranch which I have bootstrapped it so far.
My professional life to date has taught me a lot about the two approaches, and I’ve counted five fundamental areas in which they differ (taking into account my experiences in an institutional incubator). Hopefully, it will help you decide what’s right for your startup.
It certainly has its ups and downs, with many late nights spent stressing out about reporting the numbers at the next management meeting. There’s a lot of competition and backstabbing between the management team since you haven’t chosen your co-founders yourself. On the positive side, given that the mother company has an established reputation and financial stability, you can afford to interview the next Heidi Klum of some exotic country and you’ll receive a monthly paycheck. In short, you have the comfort of an employee with the stress of an entrepreneur.
Forget ups and downs; bootstrapping is a real emotional rollercoaster with all the unpredictable twists, turns and hanging upside down, in total suspense. Every small win or piece of positive feedback makes you feel overly joyous, and it’s a feeling that can’t be replaced by anything. But every negative feedback or encounter makes you feel worthless. You’ll wake up at insane hours of the night thinking up how to get the next customer; so you’ll constantly feel like a 50-year-old zombie even though you’re only in your twenties.
Best practice for bootstrappers: Work on ways to switch off, and try to only worry about one thing at one time (!). Focus on solving that one problem before moving on to the next one.
Everything is completely execution driven. With enough money to hire experts in almost anything, you can find solutions to all of your strategic questions. Often in incubators, mistakes are fixed simply by increasing resources and money until the problems are solved.
You’re on your own. This means a lot of trial and error, testing, and user feedback. You’re super lean, so you can move super fast. And because you have to, you turn over every penny three times, which increases your creativity and efficiency around how to do things. The latest growth hacks and inspiring content become the meaning of life for you; you’re forever on the hunt for new ideas.
Best practice for bootstrappers: Start early to hunt for great blogs on entrepreneurship/funding/hiring and build your knowledge based on the experience of those who´ve done it. Find some mentors who are just 1 or 2 steps ahead of you, as they will be able to provide better advice than somebody who is 10 steps ahead of you!
You can hire, hire, hire; whoever you want, from wherever you want. You can spend over 60 percent of your time recruiting and hiring in the starting phase. Due to the fact you have money and a brand name supporting you, you can acquire consultants that are bored with their jobs and looking to jump ship to the next big thing (don’t take me wrong, consultants are greatly driven and smart people).
Because you only have very limited financial resources, you can be sure all of your employees are super passionate about the business, otherwise they wouldn’t be there. You get a surprising amount of offers of help from many sides, but you go through lot of awkward recruiting meetings with amazing candidates that you cannot hire at the end, even though you’d love to.
Best practice for bootstrappers: Find people that are passionate about your business and may have worked on a similar idea before, and who want to develop in a specific area. Then give them the opportunity to grow in their role. Allow them the freedom to be creative and have the most fulfilling job they could possibly think of; this is also a good way to ensure they’ll stay with you once you have the money to hire them.
It’s difficult to build proper relationships with your investors, because you hardly ever get to see them. You just write your monthly reports for the invisible gods whose money you’re spending.
Your investors are your mentors, close friends and family. At the beginning, they are your close confidants and family; so you have to think carefully about who you enter a relationship with.
Best practice for bootstrappers: Build your investor relations early and keep building them all the time, so that when the times comes, you won’t have to make any unsolicited phone calls to a person you’ve only emailed once or twice.
The people surrounding you are incredibly bright and driven. Because everyone is very ambitious, there can be quite a bit of corporate hustling and backstabbing.
You get to choose the type of people you want to work with. Since you’re a small team and hang out with each other every day, you become super close. You start speaking your own language, and have jokes that nobody outside the close knit office can understand.
Best practice for bootstrappers: Consider your company culture early on and bring together your team accordingly. Ensure that everybody is aligned with your ethos and that you give everyone the freedom to be creative.
The moral of the story is the following: nothing can ever, ever replace the feeling of founding your own business. It is the most stressful, most challenging, most rewarding step you can take in your life. If you’re still not sure whether to choose to go through an incubator or go it alone, work in an incubator first. You’ll gain a lot from the experience and get a feel for the mentality there. It’s a much steeper, taller mountain to climb when you’re on your own and bootstrapped, but when you do reach the top, the view is even more incredible.
by Raffaela Rein