What is one important thing a business needs to survive? The answer is obvious…money. If you are like other entrepreneurs, you have thought about how to obtain these funds. There are banks, angel investors, credit unions, and the SBA. But before you go asking for funding, ask yourself, do I really need to get outside funding? Can I make it with bootstrapping?
No…bootstrapping has nothing to do with a leather boots, or buckles, at least not in business terms. According to Bill Clark, author of 7 Tips for Bootstrapping Your Startup, “Bootstrapping means starting a company with little or no money, but utilizing the resources readily available to you.” You essentially rely on yourself and the resources available to you. Using bootstrapping means that you are not seeking outside funding from investors or financial institutions.
At times, this form of financing is best for a startup company. It keeps you from having any financial obligations to others and paying interest on loans. It may be more difficult than getting a large sum of cash into your business account, but it can be done. With a startup, bootstrapping may even involve you keeping your day job.
One thing to think about is that there have been companies that managed to successfully operate using bootstrapping. Rob Walling mentions several companies in his article titled Ten Highly Successful Bootstrapped Startups. Companies included in the list are Goldstar, Carbonmade, Litmus, and Github.
Founders Paul Farnell, Matthew Brindley, and David Smalley started Litmus in 2005 with a used computer and $800 dollars. While still in college doing freelance web design they realized that there was a need for a faster and less expensive cross-browser testing tool.
Charging from the start, their initial version allowed users to see a web site on only a few different web browsers. Within a few months they had received positive feedback and around a 100 paying customers.
Included in that first version was a “coming soon” section, listing additional features that they had planned on adding. Instead they ended up listening to what their customers wanted and adding completely different features.
Rob Walling, Ten Highly Successful Bootstrapped Startups
Bootstrap Survival 101
The key to bootstrapping is to use all resources at your disposal, keep a tight budget, and constantly keep track of your cash flow. Cut all unnecessary expenses so that you can save money. Ask yourself, do you really need the fancy cappuccino machine in the break room or the name brand toilet paper for the bathroom? Probably not.
Bootstrap financing really begins and ends with your attention to careful management of your financial resources. Be aware of what you spend and keep your overhead low. If you need to go the top-dollar route, make sure you can justify the expense. Don’t choose an overly expensive office or location unless it’s really going to pay off in increased sales. Take a look at secondhand furniture–if it works for your office, buy it. Barter for goods and services when appropriate. Buy on promotion to take advantage of better prices offered for a limited time.
In the 7 Tips to Bootstrapping Your Startup, Bill Clark offers some bootstrapping strategies entrepreneurs can use to their advantage.
- Test the Market: Determine if people will buy your product/service before you spend the money on it.
- Efficiency: Be as efficient in your business operations as possible.
- Keep the Team Small: Hire only the people you absolutely need.
- Use Interns: Interns can be very inexpensive and are eager to gain experience in the field.
- Marketing: You can outsource certain marketing aspects, but if you can try to get some done yourself.
- Outsourcing: If you can’t hire full-time, outsourcing may be the best option when bootstrapping.
- Social Networks: You can connect with your customers using social media at little to no cost.
Remember that it is possible to start a business without outside financial assistance. Just prepare for inevitably having to stretch your finances and resources thin.
Did you bootstrap your business? We would like to know. Tell us about it in the comments.