Over the last few years over 8 million entrepreneurs started their first business often while holding down a full time job including myself. I thought I’d share some nuggets of information on the subject.
Bootstrapping in Business is to start a business without external help/capital. Start-ups that bootstrap their business fund development of their company through internal cash flow and are cautious with their expenses.
What follows is some practical advice for bootstrapping a start-up or small business.
First, focus on cash flow, not profitability. Generating revenue and profits is the key to survival. If you could pay the bills with theories, this would be fine. The reality is that you pay bills with cash, so focus on cash flow. If you know you are going to bootstrap, you should start a business with a small up-front capital requirement, short sales cycles, short payment terms, and recurring revenue. Service oriented businesses or new products in hot market segments come to mind immediately.
Hire an affordable mentor or small business coach to offer guidance based upon relevant experience. Most likely they’ve bootstrapped their own businesses in the past. They can provide you with valuable objective advice steering you around potential pitfalls and hopefully save you money, along with time, by keeping you from making the same mistakes as they did in the past. They also aren’t going to want equity in your business just by having their name attached to it or request a seat on your board of directors.
Hire young, cheap, and hungry people. Employees with passion and desire along with low overheads are going to be much more likely to stick beside you during the inevitable ups and downs your business will face. Once you achieve significant cash flow, you can hire adult supervision. Until then, hire what you can afford and make them into great employees.
During the start-up stage be prudent and focus on value. You don’t need the fanciest office furniture, phone system or computers. Look for the best value, haggle and shop around for the best deals. There is no shame is negotiating pricing and terms on almost anything related to your business. Sometimes the best isn’t always the best either; it’s just the most expensive.
Go direct and sell, sell, sell. The optimal number of hands between a bootstrapper and customer should be zero. Sure, stores provide great customer reach, and wholesalers provide distribution. But e-commerce was invented so that you could sell direct and reap greater margins. By taking this route you’ll also learn more about your customer’s needs. Stores and wholesalers fill demand, they don’t create it. If you create enough demand, you can always get other organizations to fill it later. Sell, sell, sell and if you’re not good at selling one of your first hires better be a superstar in that department.
Bootstrappers have more freedom and flexibility. When you take external funding, you become a slave to your business plan and you have to constantly answer to third parties: banks, private investors, grant agencies, etc. This destroys your ability to respond and adapt to unanticipated business challenges, changing market conditions, and unexpected business opportunities. Bootstrappers, on the other hand, aren’t hampered by these forces. They can change direction overnight if that’s what circumstances call for. This adaptability significantly increases their likelihood of near- and long-term success.
In summary, focus on creating revenue, retain a qualified affordable mentor/business coach, pick the right business model for bootstrapping, focus on value when purchasing goods and services for your business, take your time to hire the right people and sell, sell, sell. For a small business or a start-up nothing happens until someone sells something to someone. Period.
