An old investment banking buddy used to say: “I like to close my deals in the mornings so that in the afternoons I can think about the big picture.” He used to say a lot of other things, just as loaded with dubiousness and meaning, but those are for another time.
For now, let us like scholars bisect the statement at hand in order to arrive at our own desired significance. Let’s go beyond the tongue in cheek irony of the dealmaker in a business in which deals, even during heady times, could hardly close on a daily routine, although some dealmakers may have pretended otherwise. Let’s also move past the contrast that is drawn between the minutia of deal closings and the more dignified exercise of thinking large. Because there is also this: To think about the big picture, to strategize and plan for the long term, is a luxury that only few can afford. My friend needed that deal to close in the morning so that, subsequently, he could afford the luxury of vision.
I bring this up now because I’ve come across a great deal of discussion lately, about the benefits of “bootstrapping” business ventures. “Bootstrapping” is a term used to describe a financial approach in which an enterprise does not seek outside capital to develop, relying rather on the optimization of its cost structure and the reinvestment of profits as an outside capital substitute. The case for bootstrapping is roughly as follows: First, the entrepreneur avoids the pain of equity dilution, of outside shareholders with ideas and demands, of board seats surrendered, and all those unpleasantries for the entrepreneur that raising outside capital entails. Secondly, bootstrapping generates a greater fire in the belly, as it were, a hunger that an overcapitalized enterprise is at some risk of losing.
While this all may be true enough in certain cases, maybe even in many cases, there is something noteworthy in my friend’s remark and the truth that it contains, which does a lot to counter such objections. An entrepreneur should not see strategic planning as a luxury, and a well capitalized enterprise, much more so than a business that is bootstrapped, can better afford to “think about the big picture.” Before continuing with the rest of this article, let’s pause for a moment to reflect. [Pause.]
But there is, additionally, another advantage to outside capital, that may be less intuitive than the first. To illustrate, here is a piece of wisdom from Machiavelli, who always has something important to contribute to conversation. Arguing in favor of the founding of cities on fertile rather than sterile ground, and fully recognizing the advantages of sterility wherein “men [are] constrained to be industrious and less seized by idleness,” he offers the following caveat: “As to the idleness that [such a fertile] site might bring, the laws should be ordered to constrain it by imposing such necessities as the site does not provide.” Emphasis added.
Outside shareholders, outside directors, all of the independent thought and issues and demands that outside capital brings into the enterprise, serve a critical function beyond the strictly financial: these contribute to the laws, the added discipline, which are “imposed necessities.” Together with the luxury of strategic thought that liquidity will facilitate, this could be a formidable combination that would transform a mildly successful but self-sufficient bootstrap into a truly forceful operation. Of course, a lot needs to go right, in either case, as always.
