Five tried-and-true tips to make bootstrapping less challenging and more effective
Bootstrapping. The term has always had a particular cachet in the startup space because it embodies all the hard work and ingenuity needed to build a business from nothing.
The principle behind bootstrapping is ‘doing more with less.’
The term comes from the British saying “pulling yourself up by your bootstraps”, indicating someone trying to hop over a fence (or achieve an ambitious goal).
In startup parlance, bootstrapping refers to all the different methods of financing a startup without the assistance of venture capital. It usually applies to early growth companies looking to find a product/market fit, but the principle behind bootstrapping – doing more with less – is practically a universal business axiom by now.
The Bootstrapping Mentality
In order to build a business without venture capital, founders need to be penny-pinching spendthrifts as much as idealistic visionaries. Bootstrapping is usually a combination of self-financing and revenue from sales. Both are important, as personal savings are needed to get an idea off the ground, while bringing in early customers validates the business model and might catch the eye of investors.
The challenge is accessing the money available to you and maximizing the impact of every dollar spent. Here are five ways to make sure you bootstrapping your startup with precision:
5. Set up a cash flow system that works for everyone
When money is tight, you need to know where every penny is going, and how many pennies you have left to spend. This can get incredibly difficult when your are dealing with multiple vendors, tracking shipments and payments, outsourcing work, and trying to collect new customers. Missing a payment deadline because of internal financial disorganization is never a good look, no matter how new your company is.
The only way to track this status is to set up a cash flow system that is easy to update and scalable. You want a tracking system that works as well for you with 10 customers as with 100,000, so thinking about efficiency from day 1 is a must.
Establishing an effective cash flow system will also bring compound benefits because investors and seed backs will like your business model better if you can show consistent cash flow.
4. Don’t hire too soon
One of the toughest financial questions to ask yourself is: when am I making enough revenue to justify hiring someone to help with the workload? Obviously, you can’t do everything yourself, but too many founders put their trust (in the form of time and money) into others when they don’t even have a validated business model. The lesson: save money and grow a little slower by waiting to hire in key positions.
3. Get leads from social media
If you have not set automated messaging up and built your network on this platform, then you should focus more time there. Facebook and Twitter are also powerful platforms for bringing traffic to your site, though slightly harder to measure.
You want to be growing your customer base as quickly and cheaply as possible at this point, and with this goal in mind, paid advertising on social can show great returns by bringing high volumes of traffic to your site.
Also, LinkedIn is a super effective B2B lead generation platform. The Content Marketing Institute recently published findings from a 2018 survey, and 78% of respondents said LinkedIn was the most effective platform for their marketing efforts.
2. Grow in increments at first
The impulse behind bootstrapping comes from not wanting to count your chickens before they are hatched. In other words, you don’t want to build up your expenses to the point where, even if you are hitting revenue targets, you are still operating in the red for far too long. That is overcapitalization, and it is an indication that the financial features of your business model are broken. No VC’s will back a startup with an overcapitalization problem, and for good reason.
The takeaway? Before getting things up and running too fast, give yourself the time it takes to learn about the financial structure of a startup or collaborate with a business consulting firm to grow strategically.
1. Crowdfund where you can
We all know about the realities of financing a startup in the early days. You can ask friends and family for a loan, take out a second mortgage on a property, scoop money out of your 401 (k), or any other type of risky loan situation you can arrange.
While all of these routes might be necessary, they should be done in tandem with a fundraising strategy. Platforms like Kickstarter, Indiegogo, and Rockethub are all great places to share your business and build capital on a budget. There is literally no free money out there, but receiving funds from your target audience comes with the least strings attached.
Bringing It All Together
Bootstrapping your startup is a nice primer for how you will operate as a CEO. Do you know how to turn $100 into $10,000? Growing a business on these bootstrapping principles will help you get funding and show you how much ingenuity and craft is needed to build a profitable business.
ABOUT THE AUTHOR
Jim Barnish is Co-Founder and General Partner of Morgan Hill Partners, an innovative management consulting partner that helps startup to scale-up technology and tech-enabled clients innovate and grow through Strategy & Planning, Executive Leadership, Product Excellence and Revenue Creation – delivering the right executive expertise and strategic playbook, at the right time, for the right outcomes. Jim’s 15+ years of experience as a strategic change leader in global and integrated operations, sales, and marketing uniquely qualifies him to lead Morgan Hill Partners associate operations and affiliate partnerships. Over the course of Jim’s career, he has successfully worked with companies undergoing accelerated business development, process improvement, change management and operational transformation initiatives. @jimbarnish