Bootstrapping Effect #2: Competition

Last week I mentioned Valuation as a difference between a bootstrapped business and a seed stage funded business.  Another is competition.  Bootstrapped businesses are more vulnerable to it.

A bootstrappable business model has low barriers to entry.  If you can start selling something within weeks of dreaming up an idea, somebody else can too.  Traditional barriers to entry such as intellectual property, manufacturing capacity or exclusive enterprise contracts aren't feasible without up-front funding.  Of course, competitive barriers are hogwash anyway: hard work is the best competitive barrier. 

The ramp up runway for a bootstrapped business is longer.  It is nearly impossible to capitalize on first mover advantage. It takes a lot of resources to spread out and build an ecosystem around a product.  There is a constant sense of near panic that somebody else is going to come along and overtake your progress by getting funding for your idea.  In the end there will probably be several competitors to battle it out with. 

Competition isn't necessarily a bad thing, though.  A venture capitalist friend of mine said to me last week. "Its great that you are seeing copycats. They are the market's validation of your business."  Sales can actually be easier as well: competitors help adjust the markets expectations.  Further, more energy and interest in a space creates more opportunities for mergers and acquisitions.  Selling out to a competitor is a perfectly good way to get an exit.  Of course, purchasing a competitor that you've mercilessly driven into the ground would satisfy a deeply rooted gladiatorial urge, so that's better.