Seeding the cloud: financial bootstrapping in the computer software sector

Abstract

This study investigates resourcing of computer software companies that have adopted cloud computing for the development and delivery of application software. Use of this innovative technology potentially impacts firm financing because the initial infrastructure investment requirement is much lower than for packaged software, lead time to market is shorter and cloud computing supports instant scalability. We test these predictions by conducting in-depth interviews with founders of 18 independently owned nascent enterprises, of which three-quarters have adopted cloud computing. We identify particular bootstrapping methods used by start-ups in the computer software sector. Cloud computing enables firms to develop and launch products with minimal resources, reducing barriers to entry, with consequent increased competition. The primary business bootstrapping technique is foregoing wages, supplemented by small amounts of grant funding. Customers are a source of knowledge and expertise for product development, which occurs in an iterative process. Product bootstrapping techniques have changed in response to technological innovation, although methods to acquire tangible assets are identical over time. Astutely applied, financial bootstrapping is a resource management strategy essential to the growth and survival of high-technology firms.