The Montana Mogul: RightNow CEO Greg Gianforte (Part 6)

SM: Have you taken any venture capital funding with RightNow, or has it been solely bootstrapped?

GG: We raised about $27 million in 1999 and 2000. The first key is that our partners were really good. We also were a good size, we had about 160 people on board. We had a $6-million-a-year business and they gave us a $130 million valuation. On those terms, I would probably raise money again today.

SM: You did two rounds, then? One in 1999 and one in 2000?

GG: Yes, we raised $15 million in 1999, and we raised $12 million in 2000. In both rounds we used Greylock and Summit.

SM: By waiting as long as you did, you were able to have a great valuation. Did you also maintain a significant portion of ownership in the company?

GG: I still own about 28% of the equity, and 70% of the equity was owned by the employees of the business when the company went public.

SM: You frequently caution people against taking venture capital. Why?

GG: I definitely discourage venture capital in the beginning of the business because it provides a false sense of security. If you have too much money in the company, it removes spending discipline. During the startup stages an entrepreneur should be focused on customers, not on raising money.

SM: Let’s move on and talk about your book some. What are the core principles of bootstrapping? Why should people bootstrap?

GG: If you get a bunch of MBAs together and ask them how to start a business they will tell you to write a business plan, raise money, and then start a bonfire and pitch the money on the bonfire. Hopefully there is a company there before the money is all burned.
Bootstrapping is how most entrepreneurs in the country start businesses. There are hundreds of thousands of businesses that get started in the US every year and fewer than 1% raise money from venture capitalists or professional sources. That kind of begs the question, what did the other 99% do? I think they bootstrapped.

Bootstrapping is a discovery process. Rather than trying to build an ark, wait for animals to come, and hope the tide rises, you take an incremental approach and discover a legitimate, real-world value proposition. That means you only have to build a product that customers will actually buy. I also like bootstrapping because it forces you to start the sales and learning process sooner. The only activity in an early stage bootstrapping company is selling.

SM: You can only sell what you know you can deliver.

GG: Absolutely. You do not want to mislead anyone, but there is nothing wrong with asking for money because that is how you really determine market demand. If you just pick up the phone within a few days you will know if you have a stupid idea or a good one. Bootstrapping accelerates your time to market, which means you start making money faster.

SM: Not only that, but it keeps you in touch with reality, whereas if you have loads of venture capital money you can get complacent.

GG: It is hard to have a false sense of security with bootstrapping. The mantra of a bootstrapper is ‘there is always another way’, because it if there isn’t then you won’t have any money! That changes when you have VC money. Not only is there a false sense of security, but when you raise money you take on a new set of masters. When I start a new business the only master I want is my customer. I believe entrepreneurs get pushed out of businesses by financial backers because the marketing timing is not right, or the strategy was wrong but they could not change direction.

It’s hard to make a fatal mistake in business when you don’t have money. Having venture capital masks the hard questions about business viability. If you don’t have VC funding behind you and you need to put food on the table, then you are forced to figure out how to find another customer. I think that is a good thing. I think that is business.

This segment is part 6 in the series : The Montana Mogul: RightNow CEO Greg Gianforte
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