Overclass: The Problem With the Bootstrap Era

Published March 31, 2009 @ 09:44AM PT

With angel and venture investments slipping, a comment I increasingly hear is that it's time for folks (particularly in the web tech world) to bootstrap it, getting tiny sums from friends and family and basically paying out of pocket, working after hours to build their companies.

I don't disagree with this. In fact, as I plan on transitioning to assetmap full time (or more full time), it's a really serious possibility that I have to do this for a bit. To be honest, the last 6 months or so have been full time at Northwestern during the day and then working all night. The potential rewards for this include more of the company in the control of the founders and a more tight, focused product that has a revenue stream based on people actually paying for something rather than dubious advertising.

At the same time, I worry that it has the potential to create a startup overclass, as well. Bootstrapping by its very nature requires a relatively extensive support network: friends and family with cash and in-kind skills to contribute, places to stay cheap (usually with friends and family), and all sorts of things that could very quickly "price out" whole swaths of people with great ideas.

Capital with a real tolerance for risk plus the power of the internet to help smart ideas find the right money breed a meritocratic venture economy in which innovation can come from lots of places. But it's worth remembering that the very term "bootstrapping" came from the last Gilded Age and the saccharine and deeply damaging farce that all it took to be successful in life was hard work. A "bootstrap era" has the danger of dramatically reducing the nature of where that innovation can come from, and it's worth thinking about how we make sure to continue to help capital flow towards promising startups, wherever they come from.

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Nathaniel, thanks for the post. I am of the opinion that Bootstrapping (something I have been doing for 2 years) is both rewarding and terribly damaging.

It is rewarding because it feels a lot like you are as "close to the ground" as possible in your work. I really feel every $10, $50 and $100 donation that comes in, and it has immense rewards when you know your hard work has produced something - in spite of all the insecurity getting there.

But it can be damaging as well. Bootstrapping is akin to survival, and survival alone inhibits growth. At SMRC we have made a clear strategic choice to work hard (bootstrap, I guess...) to find sufficient funding so we can get through the next 9 months without being in jeopardy of total bankruptcy. It's not going to be easy in the short run, but my romantic views of working all the time out of passion have changed to working smart all the time rather than working to say I am bootstrapping.

Posted by Saul Garlick on 03/31/2009 @ 09:56AM PT
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This is a great post acknowleding both the necessities and inequalities of bootstrapping. Survival may hinder innovation, but when we are forced to adapt, we are forced to innovate.
However, there is an apparent tension between American individualism and reliance on kinship and social networks. And of course if things are truly dire (they are right?), you can't pull up on your bootstraps if you can't buy boots.

Hurray Horatio Alger Jr.

Posted by Charles Harding on 04/01/2009 @ 09:08AM PT
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> Nathaniel Whittemore:> all sorts of things that could very quickly "price out" whole swaths of people with great ideas>

I don't know if this "overclass" idea is likely to happen... Great ideas, and more critically, great people who can push those ideas to their full potential, are always worth a lot.
That's why the venture capital market exists, come to think of it. VC's are people who pay to help grow other people's ideas. It's really been interesting to observe companies like Y-Combinator experiment with investing sums that are traditionally "very small", but still a healthy stipend for a young adult. I think we're going to see an explosion of new ways to "equitably distribute capital" coming out of the "web tech world". (One example that comes to mind: http://www.businessinsider.com/startup2009)
Certainly the drying-up of capital that characterizes a bootstrap era can be a difficult obstacle to new entrepreneurs. But it's also an opportunity to prove the strength of one's idea, at least by surviving when others do not, and at best by earning press coverage and profit.

Class is malleable. You're right that the dream of "good old-fashioned hard work" is obsolete. What replaces it, I wonder...
> Charles Harding:> However, there is an apparent tension between American individualism and reliance on kinship and social networks.>

Absolutely! My personal opinion is that it went too far in the 80's. Now we're picking up the pieces by inventing things like Twitter. (Half-joking...)

Posted by Lawrence Wang on 04/05/2009 @ 05:53PM PT
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Update on investing small sums into new ideas.

http://www.nytimes.com/2009/07/06/technology/start-ups/06andreessen.html?ref=business

Posted by Susannah Cunningham on 07/06/2009 @ 05:17AM PT
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Nathaniel is the founding Director of the Center for Global Engagement at Northwestern University, which works annually with hundreds of students in dozens of countries around the world through curricular programs and student project incubation.