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Dec. 10, 2012 11:00 am

Bootstrapping in Philadelphia: why focusing on revenue, rather than investment, fits here [VIDEO]

When John Fazio and Chris Alfano tried to open their own video game center after dropping out of Drexel, they became increasingly frustrated with trying to raise capital the way they say their business classes had taught them, by trying to find investors. “When we first met, we tried to raise capital to run a […]

The Jarv.us team working out of their Devnuts hackerspace

When John Fazio and Chris Alfano tried to open their own video game center after dropping out of Drexel, they became increasingly frustrated with trying to raise capital the way they say their business classes had taught them, by trying to find investors.

“When we first met, we tried to raise capital to run a completely separate idea that we had, it was a game center,” said Fazio, now a Jarv.us Innovations cofounder. “We had a $1 million target goal, and we ended up only having about $100,000 of that million committed to us.”

The pair became so frustrated by consistently begging people for money that they decided to try a different strategy, using all of their personal money to fund their own business and growing on revenue. With a much a ballyhooed investment crunch dominating a national entrepreneurship conversation, the focus on bootstrapping businesses has become a timely one.

Though it can slow scaling, building a business on revenue first has its advantages, namely weeding out the firms that can’t survive. Does Philadelphia have a leg up in building profit-first businesses and is it a distinction we should want?

“Trying to convince people to buy into our company really just stuck with us,” Fazio said. “We were like ‘Screw this,’ we can go do this, we can make our own money and we can fund this thing ourselves and that’s kind of what sparked it, pushed us into bootstrapping ourselves.”

Together, they used this concept to build both of their Northern Liberties-based businesses, hackerspace Devnuts and software and design firm Jarv.us.

Jon Sample is a junior project manager and up-and-coming developer. He has been described as a “voracious learner” on the company’s website.

PHILLY HAS CHEAP TALENT

To Alfano, Philadelphia was the perfect place to bootstrap because of the large number of university students looking to work with them in the area. (Still, we’ve heard more talent is needed)

“I think a lot of the success is due to being in Philly,” said Alfano, 26, also a local Code for America brigade captain, attributing most of the company’s early progress to a university pipeline that allowed for college interns looking for real-world experience and eventual hires.

PHILLY IS AN AFFORDABLE BIG CITY

Another factor that makes bootstrapping easier in Philadelphia, Alfano said, is the cost of living compared to other big cities, a familiar defense of Philadelphia’s shortcomings elsewhere.

Watch a video interview with Jarv.us cofounders Fazio and Alfano on bootstrapping.

PHILLY HAS A NURTURING COMMUNITY

Yasmine Mustafa bootstrapped 123LinkIt, a WordPress plugin she sold last fall to Netline. For Mustafa, 30, her lean focus came with a lack of a support network, so she sought out community in the city, rather than in her suburban start. In the best cases, investment brings with it mentorship, connections and advice. So avoiding that structure necessitates the need for new sources of guidance and support, she says. Mustafa found that through Philly Startup Leaders and Temple University’s Innovation and Entrepreneurship Institute.

Firefly cofounders Patrick Leahy and Dan Shipper

Dan Shipper, cofounder of browser screen sharing service Firefly, which showed customer growth before last week taking on a small $20,000 investment, said Philadelphia has more of a bootstrapping focus than other cities with a big startup community.

“In other sort of startup hubs, the default option is like ‘let’s go raise a bunch of money and let’s go do it now,” he said. “In Philadelphia, there’s a really solid group of bootstrap companies that take a revenue-first approach and get customers and make money.”

Shipper, 21, said the Philadelphia area provides a variety of bootstrapped companies that he has looked up to, noting successful Paoli-based search engine company DuckDuckGo.

“What’s great is you’re near New York so you have all the depth and resources of New York,” said Firefly co-founder Patrick Leahy. “But at the same time you have the small nature of the community here in Philadelphia.”

Leahy said the community in Philadelphia has a bootstrapping mindset.

“I get the sense that all the businesses here in Philadelphia as startups kind of have that [bootstrapping] philosophy,” 21-year-old Leahy said.

Real Food Works COO Mike Krupit

PHILLY HAS LESS RISK INVESTMENT

COO of  Real Food Works Mike Krupit, who has a long entrepreneurial career with and without investment, however, feels like bootstrapping has grown in Philadelphia out of necessity. The Conshohocken-based healthy-food subscription service launched with a bootstrapping-first mentality, led by Lucinda Duncalfe, whom Krupit knew from their Infonautics days, but the team is now currently looking for angel investment for scale.

“Philly’s a bootstrapping hub because there isn’t enough capital here,” Krupit said. “It’s out of necessity. Nine out of 10 bootstrapping entrepreneurs I work with would rather not be bootstrapping.”

Krupit, 49, added that despite having a talented team of 10 people, Real Food Works is struggling to find investors.

Justin Meltzer, co-founder of Firefly, agreed with Krupit that although Philadelphia is a bootstrapping hub, it is not necessarily out of choice.

“I don’t think there’s anything really specific about Philadelphia that makes bootstrapping more attractive,” 21-year-old Meltzer said. “I guess you can say because there is less capital in Philadelphia compared to New York or compared to Silicon Valley or I would think compared to Boston, you might not have as much access to capital as you normally would, so you may be more forced to bootstrap.”

This report was done in partnership with Temple University’s Philadelphia Neighborhoods program, the capstone class for the Temple’s Department of Journalism.

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