Bootrapping your start-uo
Guest blog by Liz Ernst
Bootstrapping your start-up
Whether you’re in the idea phase of starting a business or you’re in the early growth stage, you’re probably already thinking about finances. Launching and operating a business requires money, and how you choose to fund your venture requires thoughtful consideration of your options. Bootstrapping your start-up
Your choices include seeking investors, securing a bank loan, or bootstrapping. Bootstrapping, if you can do it, means you are self-funding your startup using personal finances and company revenues. While bootstrapping requires discipline, hard work, and dedication, the advantages are very appealing: you can avoid interest payments on a loan, retain creative control of your business and preserve your equity in the company.
Advantages of bootstrapping
Any approach to funding a startup has pros and cons, and bootstrapping is no exception. While it puts strict constraints on your start-up operating budget while increasing your personal liability, the advantages of self-funding are particularly appealing.
Bootstrapping allows entrepreneurs to maintain complete control over their business without sharing ownership with outside investors. Entrepreneurs set the pace of production, sales and marketing efforts and aren’t obliged to outside investors pushing pursuit of revenue before a product is ready to go to market. Bootstrapping your start-up
Bootstrapping entrepreneurs can prove value without giving up equity. Taking the opportunity to drive revenues and increase funding before valuation is the most positive scenario a successful start-up can ask for.
Entrepreneurs who bootstrap aren’t beholding to the impulses and influences of investors who don’t have the day-to-day understanding of the business. They can focus on the essentials rather than being at the beck and call of investors demanding their money be spent, which can result in waste. Bootstrappers learn to become analytical in their spending, which is a critical skill entrepreneurs should learn. Bootstrapping your start-up
Bootstrapping encourages creativity since it drives entrepreneurs to work intelligently and efficiently to maximize profits, fund future growth, and manage growth conscientiously.
Plan early, save some working capital
If you’ve decided to bypass outside funding opportunities, you’ll need to plan early. The rule of thumb is to save enough money to cover expenses for one year before launching your business. Set up a savings plan to which you can contribute a set portion of your salary each month, or moonlight and set aside earnings from a second job.
Saving enough to cover your first-year expenses is the best possible scenario, but if that isn’t do-able, figure out if you will be able to continue working your day job after launching your startup until it becomes profitable. Other options might include taking a part-time job or freelancing until your start-up begins making money.
Other options for creative financing you may want to consider include:
- An online crowdfunding campaign
• Search for a local, government or private small business grant
• If you own a home, consider a home equity loan
• Examine other investment approaches; for instance, offer an investor a percentage of your business’s future earnings in exchange for funding
• Borrow from your retirement savings
Stick with your budget
Once you launch your start-up, having the discipline to stick to your budget will be crucial. The first year especially is likely to be tight, and you’ll need to make sure your monthly revenues can cover your expenses. You’ll need to avoid temptations to invest in additional staff, inventory, equipment and the like that isn’t absolutely necessary. Until the business is turning a sound profit, you will need to be hyper-cautious about your spending.
For the first year, focus on balancing revenues and expenses. Extending beyond your financial means too early can sabotage your company’s success, and even cause it to fail. Avoid expenses that aren’t easily canceled or reversed, such as leasing commercial space, hiring a team of experienced professionals or locking into purchase orders you’re not able to fulfill.
Of course, there will be some unavoidable expenses, so assess the benefits of each one to make sure it’s going to provide the best ROI. For instance, will hiring a freelance writer to generate blog content be a better option that PPC advertising? For every expenditure you consider, determine which offers the best return on your investment.
By optimizing the expenses that are unavoidable, get in the habit of cutting corners wherever you can.
- Use inexpensive or free software and apps when they’re available
• Don’t pay yourself a salary until your business is turning a profit
• Buy used/pre-owned equipment or borrow equipment instead of buying new
• Seek opportunities to share equipment with other small businesses
• Design your own business cards
• Exchange services with other start-ups
• Secure trade credit to pay for goods later (30, 60 or 90 days post-delivery)
Limit hiring, consider outsourcing
Hiring staff is a hefty business expense, so limit your hiring to only critical positions. Do take advantage of outsourcing freelancers and independent contractors wherever possible. Outsourcing is a great way to get seasoned talent at a low cost to help with specialized tasks such as web development, content writing, blogging, social media management and advertising.
If you must hire regular employees:
- Hire recent graduates with potential over seasoned pros to save on salaries
- Expand your staff slowly, and keep employees on a part-time basis for as long as possible
- Hire family or friends or family who will work at below-market salaries
- Offer to pay employees with company shares to save cash
Marketing on the cheap
While marketing is critical to your ability to differentiate your company, brand, product or services from your competitors, bootstrappers probably won’t have much time or money to invest in it. Here are some ways to save on marketing your start-up: Bootstrapping your start-up
- Know your market and your competitors: Make yourself aware of your competitors, everything from their pricing to their social media audiences. Free tools such as Google Analytics can help.
- Outsource a skilled PR freelancer to get your story out to the media to create local and national buzz. Find someone who is experienced no only in press releases writing and distribution, but in writing informative, engaging search engine optimized blogs and website content to attract audiences to your website.
- Make use of social media. Most small businesses use social media market their products and services, connect with customers, attract new customers and network with influencers. Social media offers a host of opportunities to grow your business’s customer base and spread the word about what you offer.
- Email marketing. Email campaigns can help with locating prospective clients or customers, upselling, or sending a newsletter. Emails can boost sales while building trust and loyalty among customers.
Don’t underestimate the value of investing in the loyalty of early customers to grow your startup through word of mouth to help build a strong foundation for your business. Bootstrapping your start-up
Utilize your website’s “About Us” page to tell your company’s story, profile your team, and put a human face on your company. Start a conversation by encouraging customers to share their stories and commentary on your blog.
Take advantage of negative customer experiences by turning their experience around and gain a glowing customer review. Let’s say a customer’s package then stolen from their doorstep while they’re not home. Even though your business is not at fault, by replacing the item at no charge you’ll earn the gratitude of the customer and quite possibly a great review on Yelp or on your website. Bootstrapping your start-up
The Bootstrapping Edge
Bootstrapping requires discipline, perseverance, and some sacrifices. But the experience will make you a better business owner.