For Startups, Bootstrapping Growth is Still Common

Written by Alexandra Edelstein

Fortune Magazine recently published an article, entitled “The Age of Unicorns,” speaking to the fact that billion-dollar tech startups are no longer an exception. Stories about booming startups in industries like technology are now the rule. As Fortune states, “The rise of the unicorn has occurred rapidly and without much warning, and it’s starting to freak some people out.” These startups raise capital from angel investors or venture capitalists and grow quickly. ‘Unicorn’ startups may be more common than they used to be, but research disproves the idea that we are entering a new age of rapid or instant success for entrepreneurs, with venture capital as the driving force. The reality is that most startups are bootstrapping their growth one day at a time, and most small business owners lack the resources, skills training and support to realize the full potential of their companies.

At the South by Southwest festival last month in Austin, TX, Arnobio Morelix of the Kauffman Foundation presented “Insights from the Fastest Growing Companies in America” as part of the festival’s StartUp Oasis series. In his presentation, Morelix sought to debunk several myths about entrepreneurship, including assumptions about the most common industry for startups and how most startup funding is sourced. According to Kauffman Foundation research, only 25.9 percent of all Inc. 500 firms are from the high tech sector. Their research also shows that only about a combined 10 percent of all startup funding comes from angel investors and venture capital. In fact, the three most common sources of startup funding are traditional loans, personal savings, and support from friends and family. Angel investors and VCs are both ranked in the bottom three, along with government-related funding. “It’s a sexy story when a 20-year-old raises $2 million for a new company, and that’s what we hear about… Those stories are important, but they aren’t really representative of the process most start-ups go through,” Morelix told attendees, reported the Washington Post.

In terms of small business success – i.e. what happens after the startup phase – the United States Small Business Administration (SBA) finds that only about half of all new businesses are able to survive longer than five years. “One of the best ways to help entrepreneurs scale their businesses and target new market opportunities is through increased entrepreneurial education,” noted former SBA Administrator Karen Mills.  “Just as we need an emphasis on science, technology, engineering and mathematics, there are specific skills needed to be a successful entrepreneur.”

ICIC is a national partner on Goldman Sachs 10,000 Small Businesses, an initiative that seeks to provide the kind of entrepreneurial education described by Mills. 10,000 Small Businesses is a $500 million investment to help entrepreneurs create jobs and economic opportunity by providing greater access to education, capital and business support services. The initiative offers a targeted entrepreneurship education program that provides small business owners with the opportunity to step away from day-to-day operations and focus on growth; all program participants graduate with a 5-year customized and strategic growth plan. Notably, the program is offered at no cost to the business owner with all participants receiving a full scholarship to participate if accepted.

Olena Dziuba, owner of Clinica La Esperanza in New Mexico, graduated from the 10,000 Small Businesses National Cohort, a unique model of the program that brings together a nationally sourced group of peers for 11 weeks of online and on-campus learning. Dziuba told ICIC that when she and her business partner, Mauro Nava, first started out in 2011, their biggest challenge was securing operating capital. They ended up working with Accion, a Community Development Financial Institution (CDFI), to receive the initial funding she needed. Clinica La Esperanza grew 50 percent in their second year, and Accion then also provided a line of credit to help finance the move to a bigger facility.

After growing the business from a startup to a fully operational small business, Dziuba faced new challenges. She struggled to get buy-in from different stakeholders, such as medical providers, critical to her business growth. She was in need of a strategic vision and an actionable plan to take the company to the next level. Dziuba shared that her biggest takeaway from the 10,000 Small Businesses program was learning to not just work in the business, but to spend time thinking about the bigger picture.

“We are now able to say this is the clinic we are, this is who we serve…the program helped us figure out where we needed to be and I’m very grateful. I was able to step back, get back to the mission of my business, and envision growth from there. I had a lot of questions that got answered. You don’t get that kind of information in school, real world practical information,” said Dziuba.

Clinica La Esperanza now employs 15 full time staff and serves over 8,000 patients.

Most startups do not raise their startup capital in investor rounds, and most do not race to a billion-dollar valuation in under a year. While billion-dollar tech startups may be more heavily publicized, they are not the norm. When businesses look to scale, it also often takes more than just capital to tap into the company’s potential; entrepreneurial education is an equally important resource to leverage when thinking about growth. 10,000 Small Businesses, and other programs offered by ICIC, provide education, training, and enhanced networks to drive small business growth. While stories of entrepreneurs like Olena Dziuba may not make headlines in the age of unicorns, these stories paint a more common narrative of the startup experience and they carry a power of their own.

To learn more about Goldman Sachs 10,000 Small Businesses program, visit www.10ksbapply.com or email 10ksb@icic.org. Apply by April 20th to be considered for our Fall 2015 National Class!