Harvard Business Publishing

A fellow Internet entrepreneur is struggling with the core problem of bootstrapping. (And it's the same problem I faced with Jamseed.) The only capital he has is his savings and his site exists merely as penciled sketches of web pages. He wanted to know from me if it's better to:

A. Write a business plan, estimate income and costs, and get financing.

B. Build the site using money from his pocket, and see what kind of traffic he gets and then go looking for financial support.

I suggested that he, B, build first, get money later. My reasoning was that:

1. He didn't have any real data to support financial projections.

2. He would give up a lot of equity at this early stage for little capital.

3. The site idea he has will not be expensive to build.

4. Most importantly: the idea needs shaping as a live site before it can be made into a compelling story for an investor.

He responded:

"The only hurdle would be that I'd be spending $1,000-2,000 or more on the site development, without knowing whether it'd be successful ...

I think I'd first like to have some certainty that the site would indeed work and generate some revenue in the short-to-medium run before spending that money; thus, some high-level financial projections would help me get an idea. Right?"

My answer was this:

What version of Google are you using?

You are using the latest and greatest Google to exist at the very moment you clicked "search." It could have been updated milli-seconds beforehand. It's not like Excel, which is released every few years.

An Internet business isn't the kind of thing that you plan and plan and plan and then build. It's build, learn, build, learn...

The Internet is more like stand-up comedy than a piano recital. A piano recital you practice for in private until you are ready to show the world. Stand-up comedy you have to practice in front of an audience to know if it's working. You need the bored silence of the crowd to find out what makes them laugh.

It's nice to dream about an investor putting in a million dollars for 10 percent of an idea, but reality is, funding is easier the more proven the concept.

And that's why I have reached into my pocket to get Jamseed off the ground while hanging onto my day job. Soon we will need to raise money ourselves, but we are trying as hard as we can to get the site live (and with users) before asking for cash.

What do you think? Is it right to get money first and then build? Is there a clear cut line of investment where you should get other's money? $1,000? $10,000 $50,000? More?