When it comes to funding your business, one size does not fit all. It’s important to know all your options so you can create the best strategic funding plan that will take you through your ramp up period and into sustaining revenue. One of these strategies is to “bootstrap” your way into revenue. Bootstrapping is a metaphor that’s related to the main character from The Surprising Adventures of Baron Munchausen who pulls himself out of a swamp using only his bootstraps and no other outside influence. He actually used his ponytail in the story but it’s meant to refer to entrepreneurs who get into revenue quickly and continually use that revenue to grow their company without outside investors. I believe it’s an important strategy for all businesses to use simply because it motivates you to get into revenue as soon as possible HOWEVER I find that many entrepreneurs don’t do it as well as they could. Remember, it’s a collection of strategies and here are just a few for creating success early on using bootstrapping to fund your growth:
1. Make a “no matter what” commitment for the first 2-3 years.
You’ll need a lot of passion, enthusiasm, confidence and somewhat of a maverick attitude to help keep the momentum going. If you’re already committed to at least 2 years, you won’t let anything get in your way. This is a time where you’ll want to dig deep and really get to KNOW and LOVE yourself too!
2. Focus on short term cash flow, not profits.
Forget about long term profit strategies when you’re bootstrapping. Focus on cash flow. If you know you are going to bootstrap, you should start a business that requires little up-front capital, services as opposed to product build outs, short sales cycles, short payment terms, and recurring revenue. It means passing up long sales and collection cycles. Cash is key here so you want to focus on revenue generating activities as soon as possible.
3. Launch your products when they’re ready, not perfect.
“Progress, not perfection” as my friend Eiji Morishita says. It’s better to get your products in the hands of your customers and then let them give you feedback. Best market research! Be careful though— you also don’t want to risk your reputation with shoddiness.
4. Focus on serving a niche market first.
Stay focused on serving a specific market segment and don’t spread yourself too thin with too many customer types or multiple disconnected revenue streams. Each widget should be an upsell of the other. Go vertical with a few focused revenue streams and then spread out from there.
5. Attract people who love you and what you’re up to.
There are PLENTY of talented people out there who will be attracted to your passion, your concept and the excitement of being part of a growing company. That’s the energy you want to be surrounded with when you’re bootstrapping. Conserve your cash— these people will work for future rewards or reduced pay. Find THEM. For your star players or the uber talented, offer them an Advisory Board position that may offer future rewards in lieu of a salaried position.
6. Piggyback on established brands.
Building brand awareness can be costly so when you’re starting from scratch here, allow comparisons to be made to other established brands. Ideally, you want to place an image in someone’s mind of exactly what your product or service is with little explanation. “We’re like ____ only less expensive”. If comparing yourself to another brand serves that purpose for you initially, then I say go for it! Not recommended long term but it will certainly help you initially stretch your dollars.
7. Reach out directly to your customer.
The closer you can get to your customer, the faster you will succeed. When my products were selling in department stores, I made a significant investment in marketing and publicity to bring customers into the store and on top of that waited upwards of 90 days to get paid. If you’re short on cash, try selling directly to the end user first or if you’re selling via third party (distributors, department stores, etc), make sure this third party is prepared to properly sell and endorse your product, not just let it sit on a shelf.