Building a Startup in a Down Economy - FitnessKeeper Inc.

My FitnessKeeper Inc. business partner, Jason Jacobs, wrote a great post on our company's website (RunKeeper.com) called Building a Startup in a Down Economy and I thought it would be appropriate to re-post it here. Enjoy!

Building a Startup in a Down Economy
I wanted to take a few minutes and write a post sharing some insight into how we have chosen to build the team here at FitnessKeeper. The more startups I talk to, the more I am finding that we have taken a somewhat non-traditional approach.

When I left my job in 5/08 to start FitnessKeeper, it was just me and an idea. Today, FitnessKeeper looks very different than that, and we are proud of what we have accomplished in a short time:

- 235K+ downloads of our initial iPhone application

- featured in TechCrunch (twice), Lifehacker (twice), Mashable, NY Times, TUAW, AppleInsider, and many others

- featured by Apple (at no charge, they picked us) in full page iPhone ads in WSJ, USA Today, NY Times, and on the walls of Apple Stores

- team of 9 of us involved, great team, complementary skillsets

- revenues that are fully covering our burn

- several big initiatives underway, and lots of exciting updates to come

One interesting stat in all of this is the total amount of outside capital we have raised: zero. How have we done that? The secret (shhhhh) is in our non-traditional team structure. 10 months in, and I am still the only one in it full-time. Everyone else is either moonlighting (nights/weekends with a day job) or freelancing (we are one of several clients). Because people have kept their day jobs or other paying clients, it has enabled a large portion of their compensation to be paid in equity, rather than cash.

But make no mistake, these are not “contractors”. We meet at least once, and usually several times a week as a team. We push aggressive goals and release cycles. Every team member is personally vested in and passionate about what we are building. This feels and acts like a founding startup team, it just happens to take a different shape than how most startup teams choose to go after it.

As a first-time entrepreneur, I have spent a good deal of time meeting with more seasoned entrepreneurs/executives/investors for mentorship and advice. As our traction has been increasing, I have heard two consistent rallying cries beginning to emerge: Time to raise funding, and time to really invest in marketing.

As much as I appreciate the advice and can understand this position, I can’t see it making sense for us at this stage of our growth. For better or for worse, the economy is in the dumps. The capital markets have dried up, and even if we were able to raise money, the valuation would suffer. Not to mention the time suck that goes into the fundraising process. And most importantly, I am just not convinced that we need outside capital to get over the hump and really scale this thing.

Now, if times were rosy, we would have tons of competitors out there. And some competitor that shared our ambition would go raise a boatload of capital and blow right past us if we kept this approach. In this economy, I believe that scenario is much less likely to occur. The startups that raised money before us and are out trying to raise their follow-on round—I hate to say it, but they are going to go away. And our potential competitors that are trying for the boatload of capital—they are going to stay on the sidelines because they aren’t going to be able to raise that round. Without funding, which is not the way they have launched companies in the past, they aren’t going to know how to build the business with non-traditional approaches like what I am describing (until reading this post, of course).

So, to all those who say, “time to raise funding”, I counter with, “focus on operating the business and don’t waste your time.” And to all those who say “invest in marketing”, I counter with “leverage free tools like SEO and social media, and give yourselves maximum flexibility and optionality by keeping your burn as low as possible.”

For entrepreneurs, it’s a new world out there. But in my experience, new is not bad, and in it’s own weird way, this new climate makes for a powerful barrier to entry that puts FitnessKeeper in a great position to ride this one through. When the capital markets do open up, we’ll have been plowing forward slowly and steadily all along, and we will be much further along than the companies who stayed on the sidelines and the ones who ran out of cash along the way.

We’ll see where this goes, but that’s my story, and I’m sticking to it! If you are an entrepreneur who is thinking about starting a company and unsure whether you could get the funding, the question is, do you need it?

-Jason Jacobs FitnessKeeper Inc.