Usually, bootstrap capital is sourced from savings accounts, credit card lines and, when possible, a supportive network of friends and family. Such capital is scarcely sufficient to launch the business, let alone support operating cash flow needs. The self-sustaining term rightly refers to ‘pulling oneself over a fence by one’s bootstraps’—an absurdly challenging exercise in self-levitation.
Undeterred, entrepreneurs continue to try their odds at clearing the fence. What follows are a series of bootstrapping do’s and dont’s to consider when guiding your business over the fence.
Do #1 – Focus on team and culture. Recruiting top talent requires you to differentiate your business model as well as your company’s culture, as well as career advancement and long-term economic opportunities.
Create the workplace you would seek as a prospective employee. Consider implementing perks for a healthy work-life balance and encourage inclusive and engaging company outings and events. Consistent internal messaging, performance benchmarks, mutual accountability and transparent communication are key factors in recruiting and building a strong company culture.
Do #2 – Follow the money. You don’t have the luxury of steering the ship in the wrong direction too many times. Set yourself up for long-term success without losing sight of the profitable opportunities that exist in the short-term. Address opportunities in a manner that maximizes risk-adjusted returns. Choose the opportunity that begets the next opportunity and build your business one success at a time.
Do #3 – Under-promise and over-deliver. Entrepreneurs with “big, revolutionary ideas” can, along the way, drink too many gallons of their own Kool-Aid when it comes to the sheer awesomeness and market acceptance of their idea, business model and direction. Successful entrepreneurs water down their Kool-Aid with a realistic understanding of market cycles, budgeting and forecasting. Set milestones that you can meet. There is nothing worse than falling short of your revenue projections. There is not much that beats projecting $500,000 in revenues and hitting $700,000.
Do #4 – Seek deals because every penny counts Whether you are purchasing hardware, hiring talent, underwriting new business development, protecting your intellectual property or undertaking a myriad of other costly commitments, remember that your capital is precious; count your pennies and make sure you live within your means.
Do #5 – Be agile and wear heavy armor. The paradoxical challenge of preserving agility while sporting armor may not appear to be a daily dilemma; however it is endemic in effective business strategy and implementation. You must be flexible in executing a business plan while staying true to its thesis. It is never sufficient to simply check the box; sometimes a business needs to adjust, even take a step backward, in order to effectively pursue its long-term goals. Sometimes a business needs to adjust its goals to reflect the knowledge that comes from experience. Learn, respond and progress.
AND A FEW DONT’S
Don’t #1 – Don’t lose the bootstrap mentality. Growing a business under the pressures and challenges of limited resources teaches valuable lessons. All-too-often these lessons are forgotten in the heady moments of early success — spending discipline is abandoned and capital is left unguarded. Yesterday’s mindset guided today’s success. Keep that mindset headed into tomorrow.
Don’t fear the “big boys.” Only the paranoid survive, so don’t get cocky. Bootstrapping is an advantage, not a handicap. While your competitors are likely losing money in hopes of one day acquiring critical mass, you remain disciplined. Do not chase loss-leaders, nor back down from the competition because they have raised venture capital or private equity. Remain strategically focused to invest wisely in your IP, talent and key customer relationships.
Don’t #3 – Don’t overspend on customer acquisition. The easiest trap to fall into is spending too much on customer acquisition. Many companies with tremendous momentum fall off the map and share a common affliction: their customer acquisition cost outweighed the lifetime value of the customer. It’s vital to your survival to keep the payback period within a manageable timetable.
Don’t #4 – Don’t focus on where you are going to be in 5 years. Early-on, you’ll likely redline your balance sheet and cash flow, driving oh so close to the edge of the cliff. To avoid a fatal accident, get your business model to work now. There are cases of businesses that had the sponsorship of elite venture capitalists even though they had no developed revenue model. You are not that business. Build your product or service offering and deliver it to one. Don’t lose sight of the present while dreaming of the future.
Don’t #5 – Don’t forget to hedge your bet. Staying focused while keeping several balls in the air is critical. It is highly likely that in 12 months, your business will be substantially different than it is today. The world changes, your competitors change and your customers change; and you will need to change. The more often you refine your strategy, the less likely change will be traumatic. To grow a truly great business, you will need to reshape a good business time and again.
Previously on GeekWire: Startup Spotlight: This 25-year-old Web entrepreneur built a profitable business on a shoestring