Jun 20, 2023

Getting Trapped by Bootstrapping

Dilip Ramachandran
5 min read

In 2021 nearly 5.4 million applications were filed to form a new business. My company, Nimi LLC, was one of them.

The initial step in starting a business is identifying your niche and target audience. Ask yourself; what problem you are solving and who your product or service will benefit. By conducting market research and analyzing your competition, you can determine your unique selling proposition and distinguish yourself from others.

Having worked in product management for over 15 years, I knew how to build Enterprise Software, primarily through a B2B sales motion. So it was time for me to start my own company. I had a list of ideas that I had always wanted to work on. I prioritized them and picked the top idea - a FinTech product that would reduce the pain of cross-border commerce.

I would work on this and start piecing together documentation on how the product works and the competitive differentiator.

Show me the money

The next step in starting a business is figuring out how to pay for the company's standard operations - hiring vendors or employees, paying for software services, computer hardware, and perhaps even a salary for yourself.

A typical path for many founders is to seek seed or angel capital. If your idea is very transformative, you could reach out to a venture capital fund that invests specifically in early-stage startups in your category. According to Rex Salisbury, over $300BN of undeployed dry powder is in the ecosystem.

But venture capital only works for some types of businesses. Perhaps you're starting a nail salon or a line of Sri Lankan-themed food trucks. You might be better off approaching a small business bank with your business plan and applying for a business loan.

Venture capital or business loans come with strings attached. You may be tethered to a specific problem or solution and have limitations on what kinds of tweaks you make to your business model. Profitability comes first and foremost, so finding a lender with the same interest in building for the public good will be challenging.

Bootstrapping is a process that involves building a business with minimal resources and funding. Bootstrapping requires you to find a way to quickly test a concept and generate revenue within a short period. It requires a mindset of iteration and a willingness to adjust the hypothesis if the outcomes (revenue) trend in the wrong direction.

Through bootstrapping, you can trade a service or skill for cash, which can be spent on developing a product that has a longer-term fit and aligns with the founder's interests.

How I Bootstrapped Nimi

This unnamed FinTech service needed capital, so I chose bootstrapping to fund the team that built it.

The most accessible place for me to start was to identify what skills I had that I could trade for revenue. The obvious choice was product management consulting. I pitched myself as a "Chief Product Therapist" - someone who could help organizations to put together a clear multi-year product strategy and to hire and train the early members of the product team. I spoke to a few founders and CEOs in my network, and I was able to sign my first contract.

One of the companies I worked with was extremely happy with a product strategy I had presented and asked if I could make it happen. At the time, I was living in Sri Lanka, and given the global shortage of software engineers, I hoped to find and staff good talent.

What started with two quality engineers quickly bloomed into a team of nearly 25 as a profitable services business.

Little did I know that this services business would cause a deviation from the original purpose - of funding and work on the FinTech product.

The Hidden Distractions of Bootstrapping with Services

Scaling services were more demanding than imagined.

Once I signed the contracts, I had to hire and train the engineers. While we are familiar with two-week notice in the United States, engineers had long notice periods in Sri Lanka. Sometimes as long as three months, and requiring a penalty to be paid by the hiring company to shorten this by a few weeks. 

We also found that since we were a new company, we were an unknown brand with no recognizable culture. Therefore engineers wanted to refrain from taking a bet on us. We would account for that by making our salaries higher, but this wasn't a sustainable strategy. So we invested heavily in building a fun, unique culture, and brand that embodied values unique to the Nimi business. 

Earlier on, we were able to hire engineers by working with headhunters. Once we got a good sense of the operating model, we moved to an in-house recruiting team augmented with specific external recruiters we liked for certain roles. This was an expensive way to scale, so we eventually invested in an internship program called Nimi Grow to train and upskill college graduates.

The great thing about Nimi Grow was that it allowed us to work towards our core commitments - build an organization that was diverse by gender, race, and religion.

The downside was that training engineers took away a lot of the development capacity of our team. And to ensure we could meet customer commitments, we had to hire managers and create multiple units with a hierarchy so they could all move fast and independently from each other.

Services revenue can be very volatile.

In 2021, it was in a booming market for software development. I was getting inbound emails every other week asking for engineers. And when the war started in Ukraine, it briefly disrupted a very reliable pool of engineering talent, diverting companies to consider countries like Sri Lanka for software development work.

The cost was not a barrier. When I would tell a company that I didn't have the required talent on the bench, they would counter with a higher price. I could have made a lot of money back then switching developers between customers, but I chose not to do that in a commitment to my relationships with the founders.

So I had to return to the market to find new developers to fill a long list of jobs we had open. It was a bidding war, and we kept increasing salaries to get the best talent onto our team. Over two years, we saw wages increase across our roles. Salaries went up over 250% in some functions like QA; for full-stack and DevOps engineers, it was over 4x.

And suddenly, in June of 2022, it all crashed. One of our customers missed their fundraising window and had to stop working with us. Another client was systematically restructuring and had to renegotiate all vendor contracts.

By the second quarter of 2023, the outsourcing business seemed completely different. As companies continued their layoffs, we saw companies shutting down, outsourcing vendors consolidating or being open to partnerships, and general negative sentiment toward hiring engineers.

Risks amplify in a weak economy.

As the fuel for startups started getting out of reach, companies began cutting costs. In this environment, we saw companies focus more on less of the product set. So they would reduce the number of engineers in an engagement, limit hours, or renegotiate pricing.

In some unfortunate circumstances, customers decided not to pay vendors at all. In these scenarios, the risks can amplify quickly for a services vendor where you have to have enough funds to cover wages and operating expenses.

Typically as a services company, you factor in these risks by deploying:

  1. Termination periods for revenue insurance and time to place your team in new roles.
  2. Economics that account for a bench such that the company can run for X months with a bench of size Y - all this is factored into the pricing.
  3. The most talented engineers on multiple projects to maximize customer satisfaction and delivery speed at a lower price point.
  4. Creative methods and processes to improve the operational efficiency of the business, reducing the cost of managing a customer.

The Unacceptable Trade-offs 

The goal of these activities was to preserve company revenue and profitability.

This decision-making diverted the best engineers away from our FinTech product, Nimi Kash. I justified it by telling myself we were doing a good thing by training our junior engineers to build actual products.

But the cost of this trade-off was not trivial. It took us much longer to build Nimi Kash, and the first cut of the product was at a different level of quality than we expected from customer projects.

The biggest casualty was time. When I started this company, the purpose was to build a product company, one that would create the solutions the industry was begging for - Nimi Kash. But it took more than 15 months to stabilize the services business, delaying our path to success.

Not only had I lost control of the outcomes of Nimi Kash, but I also had lost control of the company's true purpose.

I didn't start this company to "preserve revenue." We were going to do something transformational. We just got sidetracked.

Stay tuned for the next blog post on how I got things go even worse before I could attempt to get it back in line.

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“Challenge the boundaries and get out of your own way”

gangsta vision

Dilip Ramachandran

Entrepreneur, Author, Dad and Product therapist

Dilip Ramachandran has over 15+ years of building teams, shipping delightful and highly successful enterprise software products in MarTech and FinTech at companies like Walmart, Experian, Marqeta and Bond.

Dilip wrote Gangsta Vision to help folks in product management to figure out their path and a plan to break into senior leadership.

At Nimi, Dilip is CEO and Chief Product Therapist helping high-growth FinTech startups with product and payments advisory and matching them with highly reliable and skilled experts in Sri Lanka. Learn more about Nimi at www.nimidev.com

Dilip has a Bachelor’s in Electrical Engineering from the University of Pennsylvania and resides in Oakland, California with his partner Alla, daughter Ariadna and son Wiley (a papillon-sheltie rescue). The family occasionally travels to Colombo, Sri Lanka for his work with Nimi.