When you are looking to start a new business, you have many different options on how you’ll finance getting it off the ground. When you take a hard look though, all of the different methods basically boil down to three main categories: outside investment, taking a loan, or bootstrapping.
All three methods have their own innate pros and cons. And, not every method makes sense for every business model.
For example, a software startup might require outside investment because they need rapid growth in order to keep competitors at bay. But, a microbrewery in a small town without much local competition won’t have the same pressure and can make due with a loan or even bootstrapping.
Bootstrapping though requires a very strategic business plan as every dollar counts much more than when you have outside funding.
Advice for Improving the Chances Your Business Will be Successful
When you are lean on cash, every choice matters. Here are some tips to help you make the most out of what you have and to take your business to the next level.
Accurate Projections are Paramount
For those who are new to starting a business, two terms you will quickly get aquatinted with are cash flow and burn rate. In fact, it’s arguable that these two terms are the most important aspect of your new project. They may even be more important that the actually quality of your new product or service.
Cash flow is basically the money that is going into and out of your business. You can have a positive cash flow, meaning more money is coming in. Or, you can have a negative cash flow meaning more money is leaving.
As a young business you’ll most likely have a negative cash flow to begin with. However, since you are bootstrapping, you are going to need to get to a positive cash flow as quickly as possible.
Burn rate is how quickly you are spending the business’s money.
By understanding your cash flow and burn rate you will be able to make accurate projections on how you long you can keep the lights on and whether you are going to start seeing growth or not. Accurate projections allow you to make educated choices and can very well be the primary determining factor on if you succeed or go bust.
Of course, you will want to offer the highest quality product you can, but this won’t matter if you run out of money and go belly up.
Bring Back the Renaissance Man or Woman
VC funded companies can run in the red for years and often go on hiring sprees right from the get go. But, when you bootstrap you do not have the luxury of hiring a big staff.
As much as you would prefer to work on your business and not necessarily in your business, that’s usually not a reality for young bootstrapped upstarts. You are going to be the executives, management, and staff all in one.
That doesn’t mean you won’t ever be able to hire help, but it does mean you will have to be a little more involved in day-to-day operations than an executive of a large well-funded firm is. You will also need to roll up your sleeves and put your nose to the grindstone.
Brad Dery of NDS Digital explains, “When we started our firm, we primarily focused on website design. But as we wanted to expand into marketing services, I had to personally learn enough about SEM, SEO, and social media to feel confident when pitching the new services to clients as well as hiring the right people to fill those new roles.”
When you are a big firm with lots of money to burn, you can have a big sales team and a group of recruiters vetting candidates, which allows you to focus on the company as a whole. But, when you are bootstrapping, you will have to get a lot more granular in what you are involved with.
When cash is tight, only hire when you cannot do something yourself.
Maybe the most understated character trait of an owner of a successfully bootstrapped business is sheer relentlessness. It’s going to be almost impossible to make it through the first year of your new bootstrapped business without the drive and determination of someone that just simply refuses to accept anything but victory in every negotiation they enter into.
When you are bootstrapping, every dollar counts. Negotiate everything. From your utilities to your business supplies to your rent, you need to work as hard as humanly possible to get the best rates you can.
Even if you are not comfortable with playing hardball while negotiating, you need to realize that every time you find a way to get a lower rate on something you need in order to keep your business going, it at the same time improves both your cash flow and your burn rate.
Another way to think about it is saving $500 on expenses is the same as earning an extra $500 from your products or services. It may not feel like it, but as far as your bottom line is concerned it is.
However, becoming relentless isn’t just about getting the most bang for you buck. It’s also about winning new customers. Sitting back passively hoping to have someone try whatever your new business is offering is a recipe for failure. You need to become your business’s biggest cheerleader and promote yourself wherever possible. And, you need to learn to never take “No” for an answer.
Bootstrapping a business if not for the faint of heart. It takes a lot of work and many sleepless nights to have even the slightest chance at becoming successful. You can take measures to improve the chance of your success though.
As long as you have a sound business plan, keep your eyes on your money, aren’t afraid to roll up your sleeves and learn the business from the ground up, and work hard for every dollar, you will be on the right path.