Whilst all businesses and startups require funds, some require less than you may initially think. That’s where bootstrapping comes in, but before we jump into the ins and outs of bootstrapping let us first understand what bootstrapping actually is.
In short, bootstrapping usually refers to the starting of a self-sustaining process that is supposed to proceed without external input. In the startup world this means that your startup or venture will have to make do with whatever cash you have and push ahead without any outside investment.
This usually means spending only on what is absolutely vital to your startup’s survival. So no fancy penthouse offices, expensive espresso machines or sitting under olive trees all day and hoping for a German bail out.
This bootstrapping business doesn’t seem like much fun. What about the fancy entrepreneurial lifestyle? Screw bootstrapping, let’s get some funding and bump up our burn rate. Unfortunately it’s not that simple. Unless you have connections in the right places, as a first time entrepreneur it’s going to be difficult to get funding if you haven’t got any previous work you can show off in your portfolio. So sometimes your hand will be forced into bootstrapping as it may be your only option. Other times bootstrapping is the right act in order to get improved terms when you do raise funds at a later time.
Here are our 10 top tips to keep you startup afloat on a tight budget:
1.Pick the right co-founder
It’s important to pick the right co-founder regardless of your funding mechanism. However, if you’re going to be bootstrapping your choice of co-founder becomes even more important than usual. Since you’re going to be on a tight budget you will need to do as much work as possible in-house, and by in-house, we mean by yourself. So the more skills your co-founder has the better. If he can navigate his way around Photoshop, handle social media, build your landing pages etc. this is a big plus. Also, if you can find a co-founder that is capable of doing tasks that you can’t, that’s an even bigger plus. Basically you want someone that can complement your skills and this minimize the work that needs to be outsourced. A co-founder that has a bit of cash saved up is the cherry on top.
The takeaway: Find a co-founder with a big basket of skills and knowledge as a lot of work will be done in-house.
2. Keep your eye on the money
This may seem obvious but it’s a point that is often overlooked. Don’t make company payments out of your personal bank account. You will promise yourself that you’ll keep track of expenses and write everything down in an organised excel spreadsheet. From our experience that’s a habit that you will quickly drop. Personal and business expenses will quickly become intertwined. This is bad as you will quickly lose track of your spending. The solution? Create a separate business account with your co-founders that will be used exclusively for business expenses. This way you can easily keep track of where your money is going.
The takeaway: Don’t mix your personal expenses with your business expenses.
3. Cut costs
This point is pretty self explanatory. You need to be cheap and save. Negotiate hard on your contracts. Also, if you’re negotiating a one time contract with a side you won’t cross paths with again in the future, negotiate even harder. If you’re negotiating with a side that will share a long term relationship with you, back off a little. Other than that? Buy cheaper pens, buy cheaper paper for your printer, fly in economy class and stay at cheap hotels on your business trips. If there is any way at all in which to get something you need for free, try it.
The takeaway: Buy the cheap stuff (without killing quality).
4. Remember that nothing is impossible to learn
If you don’t know how to do something you have three options. You either drop the idea, you outsource it or you learn how to do it yourself. Many entrepreneurs lack coding knowledge yet also lack the necessary funds needed to hire a proper coder. The solution? Learn to code yourself. We recently shared a list of awesome recourses that allow you to learn code for free. Also, the big advantage to learning code yourself is that down the line when you do eventually hire coders you will understand what they are doing and thus be more involved and more respected.
The takeaway: If you don’t know how to do something learn how to do it.
5. Make sure your business will be able to generate an income sooner rather than later
Not all businesses are equally suitable for bootstrapping. For instance if you want to start an automotive company bootstrapping isn’t the right way to go. Platforms in modern cars cost hundreds of millions to develop and take years to become profitable. You can only really bootstrap your way to success in a business that will generate cash as quickly as possible. You need a cash flow as without it your startup will sink.
The takeaway: Make sure your business will be able to generate a cashflow as quickly as possible.
6. Don’t accept no for an answer
Since you’re bootstrapping you’re probably a small company. When you’re so small, many vendors and suppliers will refuse to work with you. For instance you need business cards, you think 400 will do, but all the printing companies have a minimum requirement of 1500 cards. This is going to be a problem. How can you get around it? Tell them the truth and try and use the emotional card. Tell them you’re a small company bootstrapping your way to success and ask them to reconsider and make an exception. Usually this won’t work, but sometimes it will. You’ve got nothing to lose.
The takeaway: Let vendors know you’re bootstrapping and ask for special treatment.
7. Be passionate about your idea
You need to truly believe in what you’re doing and be fully committed. If you can’t sleep at night because your on a constant adrenaline rush you’re working on the right project. If you’re properly motivated you won’t let anything stop you from achieving your goals and you’ll always find a solution. If you’re not fully committed to your venture you’re going to have an even harder time bootstrapping.
The takeaway: Don’t get involved in a project you’re not passionate about.
8. Be willing to put in the hours
Steve Jobs famously slept under his desk during the early years as going home was a waste of valuable time. Hard work and long hours are the basis for any small business – even more so when you’re bootstrapping. Hiring external help and outsourcing projects isn’t on the agenda for a bootstrapping company so you need to be willing to pull a few all nighters when necessary.
The takeaway: Make sure your ready for fewer social events and parties with friends.
9. Prioritize your tasks
Since you are limited by both time and money you need to separate the important tasks from the less important. Everything needs to be prioritized. Sure, putting an extra 8 hours into a graphic for your press kit will make for a better graphic. But will it make a better press kit? Will anyone really notice if you spend half that time on the graphics? And will they even care? More time and money will always lead to better results, but sometimes you can get similar results with significantly less time and money. Learn to tell when you can cut a few corners and when you can’t.
The takeaway: Sometimes you can cut corners and sometimes you can’t. Learn to identify the situations in which you can.
10. Consider sharing equity.
We are all reluctant to hand out equity. But think of it this way – Would you rather have 100% of nothing or 30% of a profitable business? If there is no choice, sometimes handing out equity as a form of payment to potential employees is the way to go, although this should be your last resort. If you do end up offering equity be sure to offer a generous package with both the amount of equity and the vesting period.
The takeaway: 30% of something is more than 100% of nothing. Consider paying employees in equity if you have no other options.