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I just learned of a company, thanks to TechCrunch, who has bootstrapped their way to $10 million worth of revenue and 19 employees. That company is SmugMug.

SmugMug is a photo sharing service, with some more upscale features including a slick interface, great customer service, and options of ordering prints. Judging from the reactions of the commenters on TechCrunch, there are a ton of devoted customers who really enjoy the service, even though they are paying for it ($40/year or $150/year).

This really got me thinking about two things:

• What it takes to bootstrap a business
• How can a company charge for a service when there are good, free providers

What it takes to bootstrap a business

There are basically two camps in business creation. You can either start a business and work your way to it being profitable, or you can seek investment (whether that be angel or venture capital).

My personal preference is to see bootstrapping organizations. Have you ever heard the saying, “Those that can get bank loans don’t need them.” The same thought pattern applies. If management is competent, accounting is good, and there is revenue - a company doesn’t need investment unless they have some earth shattering development underway.

On the other hand, if a company is losing money hand over fist and has nothing to show for it, why would someone want to invest in them? There is a myth surfacing about how the goal of entrepreneurship is to get funding… And frankly, that disturbs me.

The truth is, investors don’t pay your salary, as Wil said (the founder of GoBigNetwork). They are looking for their venture capital to be invested in the business, not in a founder’s pockets. Keeping a founder broke, keeps him hungry.

Unfortunately, that is a rough thing to say (and accept…) It took me a while to get that thought through my head. But when you start a business, any consultant will tell you that you will not be paid for the first year. I wish I could say that that wasn’t the case, but oftentimes it is.

How can a company charge for a service that has free competition?

The second part of my dilemma is wrapping my head around how a company can charge a fee for a service that already exists. And when it comes down to it, the answer lies in perceived value.

I am not a photographer. I don’t claim to be. But I do enjoy taking pictures, as you will see from my personal website (generic photoblog..) What smugmug.com does is create supreme value - and back it up with great customer service.

Some of the upper end services which differ are:

• Adding watermarks
• Selling downloads as well as prints of their work
• Allowing customers to use templates,
• Fully customize the look and feel of their albums
• Use domain names

But all of those services add value. The thinking of the company is to recognize the differences between Flickr and SmugMug and expose them. For some, Flickr is a better fit, so choose it. For others, SmugMug works well, so sign up for that one.

In conclusion

I have to say, I love stories like this. Stories that go against the grain and prove everything that you know about the internet wrong.

I applaud the organization, namely the CEO Don MacAskill, for developing a winning system that requires a fee for access. And I commend them for developing an insanely profitable business with no funding.

There are no rules on the internet. It would be wise for all of us (myself included) to remember that.