This is an article that I found interesting for my startup financing plan. It appeared in Mashable and was written by Bill Clark, the CEO of MicroAngel Capital Partners, a venture firm that gives more investors access to alternative investments. He also gives investors the ability to invest in startups online through crowdfunding. You can follow him on Twitter @austinbillc.
Most entrepreneurs dream of taking an idea and turning it into a successful company, but that takes time and capital investment. Most startups don’t get funded by venture capital or angel investors; the money often comes from your savings, credit cards or friends. Because initial cash flow may be tight, you need to keep your budget realistic in order to stretch every dollar. That’s where bootstrapping comes in.
Bootstrapping means starting a company with little or no money, but utilizing the resources readily available to you. This means keeping your budget low, not taking a salary, working with your team to develop your product for sweat equity or outsourcing some functions altogether. It may take you longer to get your product to market because you are relying on yourself for everything, and often learning as you go. It is, however, a way to keep developing your startup concept.
There are plenty of startups that have been successful without taking outside capital. 37Signals has profiles on a few of them. Campaign Monitor was able to bootstrap because the founders had the background necessary to build and design the product. They also used the profits from their consulting business to fund the project. When Admoda started, they set out to bootstrap from the start, avoid the need for investment, make a lot of money and have fun. The founders put up the original investment and then reinvested the profits to avoid taking outside capital.
How can you learn from those examples and get your bootstrapped startup on the right path? These strategies can get you started.
1. Test the Market
Before you spend money on anything, you should talk to potential customers about their level of interest in your product. Ask them how they would use it, what features they might like to see and how much they would consider paying for it.
This will help validate your model and justify spending the time and money to build your company. It will also help determine which functionality you need immediately, versus what can wait until you gain more traction.
To bootstrap, you need to be as efficient as possible. That could mean doing small, inexpensive marketing tests until you find the best results. When designing your website, first add the most important functionality in order to get a product to market, but to minimize your later work, make sure to consider additional features.
3. Keep the Team Small
A large team could drain your cash more quickly than any other expense in your budget. Until you have a positive cash flow, only hire people you absolutely need. If necessary, give current team members multiple job functions, and offer stock option incentives instead of cash.
Using interns at your startup is a win/win for both parties. The intern gains valuable experience working at a startup and you get support at little to no cost. Since the team is small, the intern might have more influence than they would at a larger company, becoming involved in many aspects of the business.
For your startup, interns provide free or inexpensive labor that leads to quicker profitability.
Hiring a PR firm can be very expensive, and there is no guarantee that they are going to get you featured in a magazine or blog. Try outsourcing your press releases, but contact reporters on your own. Find stories and outlets that are related to your project and come up with a simple pitch for a story idea.
Use the free service MediaSync to get a reporter’s email address and contact him or her directly. Reporters are interested in hearing from the CEO of a company, and if you have a good story idea, they will respond. Help a Reporter is another site worth mentioning — reporters search for experts like you to quote in their stories. It never hurts to make yourself available.
If you don’t have the capital to hire an employee on a short-term project, consider outsourcing the work. You can easily outsource your web design and programming, but you will need to weigh the pros and cons of not having that person on-site.
Some websites that can help in your search for off-site talent include Elance and Freelancer. On these sites you can either post your project and have people bid on it, or you can search through the talent and contact potential candidates directly.
7. Social Networks
Use Facebook and Twitter to connect with your customers. Both are free networks that you can use to promote your business to a broad audience. Become the expert in your field and blog on your website or other sites related to your industry. This will keep customers coming back often, meaning higher potential for sales.
Bootstrapping your company can be a rewarding and beneficial experience. It demonstrates how you can accomplish a lot with a small amount of capital. Once you have proven your product in the market, you may need to take on outside capital to help with the growth period. But continue to manage your growing budget as if you’re still bootstrapping; it will help you keep costs down and stretch your money toward success.