Editor’s Note: Earlier this week, Cincy Inno debuted its “Bootstrapping in Cincinnati” series, where we heard from tech entrepreneurs Bo Howell and Alec Cheung, co-founders of the 2018-born CCO Technology, as well as Ariana Ross of Actually Good. Today, we've another perspective from Alex Yastrebenetsky, co-founder and CEO web analytics consultancy InfoTrust. His insight comes in the form of an email-based Q&A, and has been edited for length and style.
Cincy Inno: Tell me a little bit about you entrepreneurial journey and the company you run now. When was it established; who does it serve; what does it do? Yastrebenetsky: My partner Michael Lohan and I quit our full-time jobs and started InfoTrust [in] late 2010. Our clients are some of the largest consumer/packaged goods, internet retailers and media companies. We are a marketing technology company. We help our clients build digital analytics systems across the entire enterprise ... collect data about their website and app visitors. [We then] connect this data with different downstream systems so [companies] can make better informed marketing decisions and allocate their multi-million dollar digital advertising budgets accordingly. Our business has three divisions: We have a professional services organization, we are a technology value-added reseller for Google and we have our own sofware-as-a-service product.
Cincy Inno: In the instances that you bootstrapped, did you and your co-founders know from the beginning how you would fund your startup? Or did boostrapping over VC funding happen more organically?
Yastrebenetsky: Back when we needed the money the most, investors were not interested in services business and now, because of our numerous nationwide awards, I get emails from private equity and VCs weekly. But now, we are not interested.
Cincy Inno: Can you walk me through the decision making process? Did advisors/mentors agree with your decision to boostrapping? Are you glad this is the route you’ve chosen so far? Yastrebenetsky: I’d like to rephrase this question. Over the years we have worked with numerous coaches and advisors. Even right now we have an amazing board of advisors, which includes people who raised capital and those who didn’t. Our advisors taught us how to build an amazing culture (we won the 'best place to work in Cincinnati' award in 2018 and were finalists five times; No. 1 [employer] in Ohio for two years in a row; ranked as a top employer nationwide per Inc. Magazine and AdAge, etc). Our retention speaks for itself.
Our advisors taught us how to turn our clients into raving fans and now 95 percent of our clients renew with us year over year.
Our advisors taught us that raising capital is a liability, not an accomplishment and everything has to be done at the right time. It is far more important to learn how to optimize your business cash flow and create a business model where you do not need to raise capital. And if at some point you choose to do that, you will do it on your terms. Equity is very expensive. Unless you run a unicorn business, you have to look at all options, and equity investment is just one of them.
We now have a global eight-digit business. We just finished shopping around local banks to find the right partner who will support our growth, and I am proud to say that we were approved by every single lender we talked to. They gave us a seven-digit credit facility to help with our accounts receivable, but we are still 100 percent self-funded and privately owned.
Cincy Inno: Do you see yourself changing a funding strategy in the future? What would make you change course? Yastrebenetsky: Again, I’d like to change the question. It's not about changing the strategy. It is about doing the right thing at the right time. Our SaaS product is very successful and we are considering all options, including spinning it off as a separate business and raising a Series A. However, at the same time, we are a profitable business and we can afford to continue self-funding our product until the time is right.
We have an internal skunkworks division currently working on a couple of product ideas. Depending on the success of these ideas and the MVPs, we may raise capital and co-invest with some early-stage investors to get one of these products to market.
We plan on keeping our primary business privately owned, but as we are scaling our process of innovation and continue spinning off product companies, we will explore different funding options. We will be opening our own investment fund so we can take our own capital as well as investors capital and invest into early-stage products envisioned by our organization.
Cincy Inno: What’s the landscape like in the Cincy ecosystem for startups like yourself to bootstrap? Do you find more startups chose to lean into VC funding as opposed to boostrapping, or vice versa? Yastrebenetsky: I have plenty of friends who do both. No matter what you do, you should not allow yourself to only listen to one-sided advice, be it bootstrapping or raising capital. I have friends who got kicked out of their own companies, and I have friends who built $50-$100 million businesses without raising any capital. At the same time, I have friends who came up with business models that would not have been possible without raising capital, and they were able to go from 0 to 60 in record time. I
If there is one piece of advice I can give earlier stage entrepreneurs, it is to spend a lot of time building the right peer group, both in Cincinnati and outside. However, hanging out with a bunch of early stage founders is not going to be a helpful peer group. You must surround yourself with people who have run a four-minute mile so you can do it, too. It is possible. When I started a business, I was an introverted engineer who didn’t know that many people. Now, I have friends [who are] entrepreneurs all over the country and internationally.
You need to build a peer group and get smart advisers to help you map your business model and your projected cash flow to your business needs. It all depends on the business model. Debt capital is so easy to get these days; in many cases, all you need is a small line of credit and you can be up and running.
Cincy Inno: What advice do you have for entrepreneurs figuring out the best way to fund their work? Yastrebenetsky: Study the "Lean Startup" book and the "Customer Funded Business." Don’t make an assumption that you need capital. Focus on how you can add the most value to your clients — add more value than anybody else — and study cash flow models. If you are not good with numbers, that’s a lousy excuse. Study cash flow optimization strategies. Even if you raise capital, showing your cash flow savviness is only going to make your investors feel more comfortable about your skills. Keep in mind that raising capital is extremely low probability and an extremely time consuming initiative. Think about the amount of time you are going to spend fundraising and figure out what happens if you invest that time into sales and marketing.
Also, I highly recommend that no matter what you do capital-wise, you get your financial “house” in order before you become a full-time entrepreneur. Most likely you will have to financially guarantee a lot of things because you are not going to have any assets, so be prepared for that. Clean up your credit. If you want to bootstrap, explore debt options while you still have a full-time job.
Most likely your biggest expense is going to be wages. Whether you fundraise or bootstrap, cut your expenses to a bare minimum. Early stage investors will allow you to pay yourself, but its not going to be much. If you can get some additional source of income for yourself and your family, especially if you have kids, it will be easier for you to not pay yourself as much and invest everything into a business. Cash flow fixes a lot of issues. Don’t know where to start? If you are in a technology or marketing field and you do not have cash reserves for the first one to two years, find a client who will hire you on ongoing basis for 10-20 hours per week. Yes, you will have to work a lot, but having this extra stream of income — especially in the first one to two years, is going to make a big difference. Ideally, you would not make it a distraction, but find a gig in the industry where you are building your business.
Finally, make it your goal to talk to 100 people as quickly as possible. Not random people, but people who may be buyers of your product or service, or potential partners. Understanding your target market pain points and possible solutions is the most important thing you could do as a new business owner.
Cincy Inno: What is a misconception about boostrapping in general (or boostrapping in Cincy) that you think people have? Yastrebenetsky: Capital is a liability, not an asset. We celebrate people who raise capital. I’d love to see us celebrate people who build things that matter. I strongly believe that if you do things that matter, you will find the way to fund your business.
Common misconception around bootstrapping is that you are not using any capital. You have to understand all sources of capital, including lines of credit, term loans, home equity loans, etc. A lot of new entrepreneurs are not familiar with seller financing and think that the only way buy a business is to raise capital or get bank debt. Depending on many circumstances, seller financing may cover around 50 percent of the selling price and with seller financing in place, it may be a lot easier to secure bank financing.
The Cincinnati ecosystem is huge and a lot of people are more then happy to offer their time and advice. I am always happy to answer questions for new entrepreneurs.
