Founder's Blog
Posted on by Justin Couto

Bootstrapping Ain’t Easy: Funding My First Startup on Credit Cards

A doodle fanning out a handful of credit cards.

From the time I was a kid, I always knew I wanted to be an entrepreneur, and I was sure that at some point, I would own my own business. Like many entrepreneurs, the first business I had was mowing lawns. I started it in third grade and had lots of clients that would pay me $5 to $10 a week, depending on the size of their lawn. It was great.

In 1997, I had been working as a tow truck driver to put myself through college. Driving a tow truck was an extremely exciting job where I got to help a lot of people out of terrible situations. I worked nights so I could go to school during the day. I didn’t get much sleep, but the pay, the hours, and the excitement made it worth it. Then, I landed a position at a fast-growing Internet Service Provider.

Leaving my job as a tow truck driver to go work for an Internet Provider was not an easy decision for me. Still, I hoped it would provide me with lots of opportunities to learn about business and to grow as an individual. It was my first foray into the white-collar workforce and my first job working in an office of any kind. At that point, I was a novice, hobbyist computer user, and I had no idea why they would even consider hiring me. To say I was intimidated would be an understatement. In addition to my fear, taking this job at $7 per hour was a pay cut of over 150 percent for me, which was a huge concern because I was barely able to pay my bills and pay for college with my well-paying tow truck job. Accepting this new position would require me to get student loans and would put a strain on me financially. I had no savings account, and there was no backup plan in the form of parents or rich aunts. It was up to me to make it happen. After a lot of thought and consideration, I accepted the position. Never could I have imagined the tremendous impact this new job would have on me, how it would change the direction of my life, or that it would be my launch into entrepreneurship. Let’s just say, it was well worth the pay cut.

At my new company, I quickly moved up the ranks and gained lots of experience. I started in support, then became a lead, then a manager, then to further my technical abilities, I jumped to IT and led many initiatives that positively impacted the company. My growth during this period was exponential. While in my support position, I had a lot of time to learn while I was on phone calls and waiting for customers’ computers to reboot. I would spend my time reading about technology, programming, and building web software. I wanted to have an impact on the company, so I started making tools to streamline our efforts. This was huge. The increase in efficiency from the tools I created was dramatically improving the business. I loved it. A tool I would write today would help someone do their job better tomorrow. It was crazy. I fell in love with software development, just by chance, while working to put myself through school. It was so serendipitous, and it was nothing I would have ever dreamed I’d love doing.

Then, the news came. The company was getting acquired by a much larger Internet Provider, and they were going to shut down our local office. On the bright side, they would give us all bonuses and pay us double-time for the work we would do if we stayed for an additional six months to help with the transition. They’d give out the bonus and the double-time pay on the day the office closed. I was stoked.

By this time, in between school and work, I had been writing code for a secret software project that I hoped I could turn into a business. This was my chance to make that leap. On my last day at that company, after putting in a tremendous amount of overtime during the past six months, I walked away with a check for just under $20,000, and I used every penny of it to fund the software company, Somnio World Web Solutions, I co-founded a few months earlier.

What seemed like a bottomless bank account, my money dwindled fast. In that first year, we had to buy servers, pay for a colocation facility to host those servers, and pay our bare minimum living expenses. My partners and I worked day and night that year to launched our beautiful CMS platform. This was almost four years before Wordpress was founded. We were ahead of our time.

The web was super-hot leading up to our launch. It was growing exponentially, and every business needed a website. I knew that in order for websites to be beneficial for companies, they would need a way to manage their website content on their own. There was evidence of this all around us. As a rookie entrepreneur, I also thought that once people saw our elegant solution, they would rush to sign up for our service. Boy, was I wrong! Just a few weeks before we launched, the .COM Bubble burst and set the web on fire. It decimated the website market to the point that people felt websites were only a fad. That seems hard to believe now, but that was the reality we were stuck in. We were just weeks away from launching our much-needed solution only to have that need evaporate overnight.

On launch day, my bank account was back to normal, and by normal, I mean empty. I was broke again. I had spent nearly every penny of my $20,000 bonus payout that I had worked so hard for. Things were looking bleak. I had been working for well over a year on a product that launched to crickets chirping, and we had zero money to market it. I had no idea how I would survive.

To make matters worse, the $16,000 in student loan debt I had incurred to take that job at the Internet Service Provider was now due. Suddenly I had a new bill to pay, and I didn’t know how I would pay it. The one thing I did know was that I would not give up under any circumstance.

As I sat in my sinking ship, I put on a lifejacket in the form of a zero-interest credit card that came with cash advance checks and a $5,000 limit. I was stoked! That funded five more months of runway. “Say what? 5K got you five months?” More on that later. During this time, getting credit was easy. Even though I had minimal credit history, I had no problem getting that credit card. I felt relieved, and I continued to work night and day.

During the day, I would go door to door, talking to business owners, and handing out flyers. I joined Business Network International, the chamber of commerce in several local cities, and I started networking. I hated it. I am naturally introverted, and have an extremely tough time in any networking situation, even now, after all these years. But do you know what I hated even more? Not surviving! Networking sucked, but I had to do it.

My partners and I also got creative to make our funds stretch. We’d trade design work for free entry to tradeshows. Since we had no money for a tradeshow booth, we got a job demoing an office space one weekend so that we could keep a couple of the cubicle walls. We took those walls, some plywood, and some cheap black carpet we bought at the hardware store on our credit cards and built our own tradeshow booth. That booth was so heavy and cumbersome. It would take us 5 hours to set it up. We’d literally have to go shower after configuring our booth, often barely making it back in time for the tradeshow. It was a lot of work, but we always had one of the best looking booths at the events we attended.

In addition to creative cost cutting for our business, we were also creative at home. One of my partners and I found a fantastic deal on a three-bedroom rental house through some people we knew. We rented it and reconfigured the bonus room so we could sublease it along with the other spare bedroom. We took a shed that was attached to the back of the house and remodeled it, turning it into an office space for our company. We built a custom desk and shelf so we could all squeeze into our new corporate headquarters. It was amazing.

We did all this work ourselves, and it cost us roughly $2,500, which we put on our credit cards. When it was all said and done, the rooms we subleased covered all the rent, our office space was free, and we had a nice place to live. This creative solution made our living expenses extremely low and allowed us to spend money mainly on growing the business.

Just as we started to get some momentum and sign up customers, we were hit with the terrible news of the September 11th attacks on the World Trade Center. On that day, business stopped everywhere. Once the shock finally subsided, we picked ourselves up and continued pushing forward. It took six months of incredibly hard work to land our next account.

By this time, my credit card debt soared, and the weight of it was beginning to crush me. I had never been late on a payment in my life, and I knew how vital credit would be for my business, I just couldn’t mess it up. To avoid that, I’d pay my minimum credit card payment with cash advances from my credit card. When the free interest period on my credit card would run out or when I was just about to hit my credit card limit, I would apply for another zero-interest card and transfer my balance. Each and every time, the new credit card company would increase my credit card limit giving me more runway to continue. It was a tight rope act and rollercoaster ride of emotion all in one, but I made it work.

By 2004, I was $34,000 in credit card debt, but the business was finally starting to chug along. We were adding customers on a regular basis, and we were able to pay ourselves consistently. My hopes were high as we headed into the new year.

Then, one day in February, the partner I lived with informed me that he wanted to go back to school to finish his degree and would only be able to work part-time. We had both quit college to launch this company, and he wanted to go back and finish what he started. He was still committed to the business and would continue to do anything we needed to keep it going. He’d also offered to skip school anytime it was necessary. I was a little surprised by this, but it didn’t worry me because I knew he would never leave me in a bad spot.

Shortly after, as we started to explain the situation to our other partner, he opened up and said he wanted out of the business. It blindsided me, immediately causing my heart to race. I couldn’t help but think of all the customers I personally made promises to, not to mention the $34,000 in credit card debt and $12,000 in student loan debt I was still carrying. This partner had married a year earlier, and he and his wife were expecting a baby. As he explained, it became clear that the little money we were paying ourselves was taking a toll on him. I understood this and offered to cut my pay so we could increase his, but it wouldn’t help. He was burnt out and was no longer interested in continuing the business.

At this point, I started to get upset. I explained that I had made commitments to our customers and that we couldn’t just shut down the business and turn our backs on them. I knew the company was too big for me to manage alone, and hiring people would have been difficult to do quickly enough. I was at a loss.

As we sat in silence, I wondered out loud, “What if we could sell the company?” I could see the doubt on my partners’ faces. Suddenly invigorated, I immediately picked up the phone. I started cold calling companies I thought could be interested in bolstering their hosting business by adding a state-of-the-art CMS. Literally, the very first business I called ended up acquiring our company 30 days later.

Just like that, after all the years of playing the cash advance game and carrying the crushing weight of credit card debt, it was gone. I kept my commitments to my customers, I paid back my debt, and I had a little money in the bank to help fund my next company. I was totally stoked and happy to start a new chapter in my life.

Now the million-dollar question, “Would I do it all over again?” That’s a tough one. After paying off my debt in 2004, I vowed never to go into debt again, and I have kept that commitment. Everything I’ve done since has been self-funded. Taking that risk gave me my start. So, would I do it again? Yes, I would! One-hundred out of one-hundred times. Would I recommend it to others? Absolutely Not!  

Have a good one!

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