The year is 2006. Pao and I were about 15-20 pounds lighter. Pao was still enjoying his mullet haircut, while I was still enjoying some hair.We wanted to put up a flexible benefits solutions firm, capitalizing on my own early-market experience with flexible benefits.
None of us were really “entrepreneurs” when we started. I was an HR guy and Pao was a programmer. We tried pitching to investors for startup capital, but I think this failed for two reasons: a) the mammoth 100+ page business plan (AKA complete waste of time) we crafted, and b) at that time, no one understood what our idea was and could become. So we ended up bootstrapping.
Funding. There are two general ways to fund a firm: a) raising capital from investors, or b) bootstrapping. Bootstrapping basically means getting no outside funds. The founders themselves would put up the initial capital (another common ploy would be credit cards, although nowadays there seem to be no end to spammed loan offers), minimize costs by all means necessary, survive, and wait for the business to break even and eventually, be profitable. What you give up when you get funding from investors is equity – and thereby control. When you bootstrap though, and it works – you retain control.
We put in around 90K all in all and got started. Pao actually took the leap much earlier than I did. In a crucial move, he went full-time in STORM immediately. I worked with him part-time. To minimize costs, the company began operating in the living room of my 1-bedroom condo. The bedroom effectively became my house. (When I stepped out of the door – boom, I was at work!) We didn’t pay for any office furniture – everything was something someone had donated, so uhm … it wasn’t exactly a breathtaking sight. Our monthly costs were Pao’s salary (near minimum), electricity, and the cheapest internet provider at that time – Destiny (don’t get me started). We felt like we could manage the burn and survive until we got a client or two.
Burn rate is a synonymous term for negative cash flow. It is a measure for how fast a company will use up its initial shareholder capital. If shareholder capital is exhausted, the company will either have to start making a profit, find additional funding, or close down. (wikipedia)
Our plan: to make money from flexible benefits consulting first, and then eventually use the funds to develop an online flexible benefits system to market. Game.
Excited, we planned out a half-day seminar on flexible benefits in Discovery Suites. Then we started calling people to come. The event was jam-packed, filled with a lot of large firms. Peso signs started broadcasting out of our eyes and stuff. We we’re Kings of the World!
Until we talked to them.
None of them wanted merely consulting. They wanted the online system.
Hokay. This was a significant problem. We had wanted a kick-ass online system. We had previously developed the specs and we designed the data flow very carefully, capturing the various nuances of a comprehensive flexible benefits program. The resulting design was a gargantuan task which would take months to develop for a team. On pao’s salary alone we had 2-3 months of burn left. So what to do?
This led to our first pivot.
Pivot: this is when, due to new insights gathered from the market a firm does a quick turn, a quick strategy change, WITHOUT changing the overall vision of the firm
We needed small, quick wins to allows to raise funds to hire one more programmer to help Pao finish our system as fast as possible. Prior to this time, I had conducted an organizational climate survey for a friend’s organization – and thought that might be a cool service. However, there were a large number of competitors in the business, so we thought an online web survey tool (there wasn’t a popular one at that time) could make us unique in this market.
Amazingly, Pao did the tool in a month, we dubbed it WebSurv. (we still use it now for some projects) Websurv helped STORM land its first few projects – analyze/report projects for some medium-sized firms.
We eventually got to hire our first employee, Angela (who, during her initial interview, took fifteen minutes waiting just outside the door of my residential condo unit before finally mustering the courage to knock). This set the stage for everything. We finished the flexible benefits system before the year ended, managed to land two major flexible benefits clients as 2007 started, and the rest is company history.
In six years, STORM has manage to become a bona-fide player in the local HR technology market, with its sights set abroad.
Some items to takeaway:
1) No, it’s not as glamorous as you might think. (not at all!) It takes a whole lot of sacrifice and humility.
2) It really helps to have a partner with you to weather the storms (pun intended).
3) It’s mighty tough to get investor money (a bit easier nowadays though). Bootstrapping is entirely possible though and has a lot of upside. Check this out. I’m a big believer.
4) Your plan has to be really be very very flexible to changes.
5) It can take a long time – so patience and perseverance are paramount.