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6 Tips for Bootstrapping Your Business

Posted by Seth Elliott On April - 14 - 2010

Finish LineDSWS8QF8XU4B Today it’s easier and cheaper to start a business than ever before in history. The technological advancements of the last ten years, particular in the internet and telecommunications, have brought the capital needed for core business formation to unheard of levels. However, growing your business is a different story.

Many businesses do require a certain amount of capital in order to grow and succeed. We’ve addressed financing you business in various other postings – today let’s focus on the mystique of bootstrapping.

Bootstrapping is the time-tested art of doing more with less. Bootstrapping efforts are a substitute for capital formation strategies.

Naturally, bootstrapping is not new. Many entrepreneurs have grown successful businesses that utilized bootstrapping techniques early in the company’s lifecycle. Indeed, on estimate suggests that more than 80% of companies use some form of bootstrapping when launching, and more than ¼ of all small businesses in the U.S. were started with $500 or less.

Here are 6 top tips to help in your successful bootstrapping efforts:

  1. Do It Now. Rapid response and action are watchwords for effective bootstrappers. Choose a product or service offering that your target market will be ready to accept – one that doesn’t require extensive research and development or substantial marketing expenditures. One way to do this is using the techniques outlined in our Entrepreneurial Quick Start Guide posting.

  2. Guard Your Cash. It’s tempting when starting a venture to build an infrastructure that anticipates growth – don’t do it. Remember, bootstrapping means doing more with less. That includes holding back on your staffing needs and other business expenditures until you have the customer base to justify the expense. In a similar fashion, you may choose to initiate your business as a part-time endeavor, maintaining personal income from your current employer. Seek any opportunity to conserve cash in the bootstrapping phase of your business.

  3. Pursue Profits. This is the other side of the Guard Your Cash coin. Similar to real estate, a small business is about 3 things: sales, sale and sales. Everything in your business should be focused on producing durable and profitable income streams. That starts with customers that pay for your product or service. You should set as your goal to achieve and maintain profitability, with positive cash flow, from the day you launch your enterprise. Of course, positive cash flow demonstrates a satisfied customer base – who show their pleasure by continuing to use your products/services and pay their bills in a timely manner. By the way, these are precisely the characteristics that funding sources prefer to see when financing a business.

  4. Barter. Bartering, the act of trading goods and services without the use of money, is often an underutilized strategy by entrepreneurs. Of course, barter shouldn’t be your first thought when initiating a sale (clearly, that would violate the Pursue Profits requirement). Nonetheless, you may be surprised to discover how much that you need to run your business is available through creative exchange. Bartering used to be much more difficult than it is today – finding a supplier that provides something you need and require your product/service is the key. The internet has vastly facilitated that process. Of course, you can list services for barter on Craigslist and similar websites. To really take advantage of this process, you may want to consider using a formalized exchange. Barter Systems Inc., Merchants Barter Exchange, Itex and a number of others offer you the opportunity to exchange products/services in a structured fashion. One other point – a barter customer is still a customer, so bartering can allow you to exchange for goods or services you need, while building your customer list.

  5. Finance Without $. One specific subset of bartering is exchanging equity for services. Many entrepreneurs are familiar with this concept and have used it to great effect. Some of your service providers may be willing (subject to applicable security laws) to receive stock in you company as payment (full or partial) for their activities. Consultants, lawyers, financing intermediaries, and accounting professionals are particularly suited to this approach. However, don’t neglect architects, advertising/marketing agencies, designers, and other vendors.

    Of course, simple equity in your business may not be attractive to service providers. Don’t give up. Think about structures that might be of interest. Perhaps you should create a class of stock that pays dividends tied to business performance? Maybe you can create a revenue or profit sharing interest that provides significant potential returns? It’s important to get creative in these circumstances.

  6. Scavenge. The old adage “one man’s trash is another man’s treasure” can prove particularly relevant when bootstrapping your business. While I’m not suggesting that you found your business upon the concept of searching through junkyards, rummage sales and the like (though many entrepreneurs have build successful Ebay businesses doing just that), you do need to have a scavenging mindset. Focus on purchasing used equipment wherever possible. In many cases, you may be able to lease used furniture, equipment, etc. for significantly less than you imagine. Additionally, examine the possibility of sharing equipment (and expense) with other non-competing enterprises. You can go even farther. For example, you may be able to arrange to use other companies’ resources during off-peak hours for low rental costs (or even for free). Another example of an “outside the box” approach – propose to your clients that they purchase major capital equipment needed to service them and lease the equipment back to you. Practice this type of unorthodox thinking in order to reduce your capital expenditures.

These half-dozen tips are, naturally, just the beginning. What other suggestions do you have for successfully bootstrapping a business to profitability?

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About the Author

I have spent the last 15 years advising entrepreneurs on starting and growing their businesses, as well as assisting in financing those growth efforts. I have also been an entrepreneur on several occasions myself. By writing this blog, I hope to provide actionable advice on how to achieve your goals and become more successful.
  • Shannon DeRouselle

    Very insightful and to the point. Thanks.

  • Shannon DeRouselle

    Very insightful and to the point. Thanks.