Monday, May 26, 2008

Bootstrapping is Effectual, not Causal

BootsLast year I read about a paper by Saras Sarasvathy titled, "What makes entrepreneurs entrepreneurial?". Bijoy Goswami and others in Bootstrap Austin praised it and so I filed it in my "Stuff to Read" folder and just got around to reading it this weekend.

With only 8 pages of text, it was a quick read. While the article doesn't talk about bootstrapping specifically, it immediately resonates with any true bootstrapper and has a lot in common with Demo, Sell, Build.

Saras explains the "common sense" model of causal reasoning, where you first select a goal, come up with a strategy to achieve the plan, acquire the necessary resources, and finally execute on the plan. This sounds perfectly logical and is the way that many people go about planning a new business.

But then she defines effectual reasoning, where you start by evaluating the resources you have and figuring out what you can do with them. What are you excited about? What skills do you have? What relationships can you leverage to your advantage? Once you have a place to start, get to market quickly and learn from your customers. Then start the process over now that you have more information.

In comparison, causal reasoning seems rigid and inflexible. Effectual reasoning is fast to start, low risk to experiment with and has faster iterations. By getting to market quickly and incorporating user feedback, effectual reasoning is more likely to produce the best product and better able to respond to a rapidly changing marketplace. Too often with causal reasoning, it takes so long to get to market that the market changes before you get there.

When I started SKYLIST at Carnegie Mellon, I didn't have some grand plan - I mostly just did things that people offered to pay me to do. I got into email hosting because I was rejected for the WebSTAR beta program but was accepted for the ListSTAR beta program. My first customers were all relationships that I developed while working with ListSTAR at StarNine. I used the PowerMac 7100 that my parents bought me for college to host them and I stuck it on the school network in my dorm room.

Starting UnsubCentral was a similar story. I wasn't planning on starting a new company. The CAN-SPAM law was passed in December 2003 and the opportunity presented itself. I didn't spend a lot of time researching the market - I just dove in and started building it and we launched the product in January. I thought all our customers would be other email service providers like SKYLIST - because that was what I knew the best. But it turns out that our primary customer base was advertisers because that's who is directly responsible under the law. Fortunately we built the right product and just had to refocus our sales efforts on the right customer.

And my current startup, OtherInbox, is no exception. I looked around at the problems with my own email that I want to solve. I leveraged more than a decade of experience working with email marketing in designing the initial solution. I taught myself Ruby On Rails and built a demo myself. Then I started using it.

After convincing myself that I was on the right track, I partnered with a friend from Carnegie Mellon to start building a version that could support multiple users. I recruited some of my close friends as beta testers. Right now we're learning more every day about how people use it and we're iterating until we have it right.

I'm not saying we won't ever take an investment. In fact its very likely that we'll need to raise money at some point in order to ramp up customer acquisition or to expand internationally. But the longer we can put it off, the more we'll understand exactly what to do with the money we raise. The more we understand our customers and our model, the less equity we'll have to give up.

Joshua Baer's latest bootstrap startup is

Reposted from Austinpreneur

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