Bootstrapped V-Commerce

In my last post, I outlined how we've improved our products by increasing our investment in materials and design.

The Outbreaker backpack and daypack each cost twice as much to make as their predecessors did. The daypack's material is 10x the price of the nylon that we used in the last model.

These material investments, additional inventory of new products, and growing the team to take Tortuga to the next level are all expensive. Unlike most v-commerce companies, we're bootstrapped. We've never taken any outside investment. Jeremy and I own 100% of the company. We haven't even run a Kickstarter. When we started Tortuga in 2009, Kickstarter wasn't even on our radar.

We've always done things the hard way. Not raising money was a conscious choice. Everything else was an accident.

V-Commerce Without VCs

Here's how we've paid for each run of our flagship travel backpack (aside from cashflow):

• V1: Personal savings ($10k) + JFLA loan ($15k)
• V2: JFLA loan ($15k) + Lending Club loan ($8k)
• V3: Line of credit from a bank

We've used traditional financing to pay for our modern business model. We've either paid for inventory ourselves (from savings or profits) or borrowed the money.

Bootstrapping inventory puts severe constraints on growth. We would love to grow fast but aren't willing to sell out the company to do it. Outside investment would make us duty bound to grow at all costs until we exit just to satisfy investors. Hypergrowth is nice when it happens, but we don't want to be required to grow that fast.

We're in this for the long haul and are willing to grow more slowly if it means doing things on our terms.

For example, we spent Q4 2015 through Q3 2016 readying the V3 launch of one product. We spent this time laying the groundwork for the next stage of the company, not just designing one product, but we were able to set the terms of this change and relaunch. We didn't have to rush 10 SKUs to market to maintain hockey stick growth. In fact, we chose to take a short-term step back from a five-SKU product line to a single product to ensure that we got it right and to give us time to develop the rest of the collection.

We had to take a step back to ensure we were climbing the right hill.

Why Bootstrapping Makes V-Commerce Hard

The biggest challenge to the v-commerce business model is the timing of when money goes out and when money comes in. As both the maker and seller of products, we pay for products months before they're in stock, much less when they've sold out. We often order fabric six months or more before a product will be ready to sell. In the meantime, we're out that money.

In a traditional retail model, the brand makes the products then gets paid by the retailer for the entire production run when they deliver the products. In v-commerce, the selling process is just beginning.

Having products in stock is good, but we then have to sell through all of them to make the money back. The longer products sit in your warehouse, the longer our cash conversion cycle: the time it takes to turn a dollar spent into a dollar made. The pressure to keep inventories low, while never being sold out, is enormous.

These hurdles have led to brands getting creative.

Outlier recently experimented with Outlier Upfront to get cash into the business ahead of when they have to put up money for a year's worth of materials. Like our use of a line of credit, Outlier is taking on additional expenses to tilt the money in/money out cycle more in their favor.

Now you can see why v-commerce companies raise outside money. In addition to inventory, you can see them spending that money on inundating you with advertising, especially if you ride the subway or listen to podcasts. While there have been huge v-commerce successes, like Dollar Shave Club's $1B sale to Unilever, I expect to also see lots of companies flame out spending other people's money trying to create demand and grow at a breakneck pace.

Bootstrapped V-Commerce Brands

Let's end this post with a shout out to some fellow bootstrapped v-commerce brands run by my friends Abe and Tony, respectively.

• Outlier
• Edgevale

I'd like to compile a list similar to Andy Dunn's but only of bootstrapped v-commerce brands. Let me know your favorites on Twitter, and I'll add them to the list.