September 4, 2010
In a follow up to my previous blog post about "Bootstrapping Myths", here are some tips for those bootstrapped startups. I have applied many of these techniques myself, and hence suggesting the same:
1) Speed is critical
When you run a business, your expenses are ON. Your revenue is OPTIONAL (i.e. only available when you close deals!). And, you need to self-sustain within the given means. Therefore speed is critical. You need to experiment fast, learn fast and earn fast. If you don't, you will run out of the little cash box that you have, and the venture will be hit.
2) Start small
Do not hesitate to start small.
There is a fantastic concept called – "compounding". If a number keep doubling itself for 25 times, you will have a big scale. Therefore keep a goal to keep multiplying in a sustainable way. Remember the chessboard problem!
3) Execute, then plan
One common problem I have seen in most startups (or even bigger companies), that make them un-viable (read: un-sustainable) is excessive planning and very little execution. Things are changing faster than before, and therefore many ideas / thoughts get obsolete by the time they are executed. Therefore, prepare a gut based on some "core concepts" or "thoughts" that define your way of doing things (warning: be flexible about changing these core beliefs, if proven wrong!), apply this gut to the sketchy plan that you have on the paper-napkin, and take a call. Then learn from the outcome, feed the gut new info, and repeat the process.
If you do not go out and do things, you will never understand how it works. If you are putting together an assumption that you can get X number of customers by sending a blast mailer to 1 million users, then do a trial on 1000 and see if you get 1/1000th of the estimated numbers? If not, then re-validate your theory. If you keep thinking and guessing and planning, you will end up being in a dream land – with no fundamentals.
4) CEO = Chief Everything Officer
If you do not believe in the above equation, do not even think of starting a business (forget about bootstrapping it!).
You got to do everything that the business needs. It can start from cleaning your office to negotiating a deal with the biggest retail outlet in your town, from calling prospective employees to installing the server.
5) Barter / Trade
You will be amazed to discover how many things you can barter – and save cost and build strong relationships. Look at opportunities with your vendors where you can swap services / products. It will not only save you money, but will give you new customers / clients / consumers. Make sure that you:
- put a clear $$ value to your offering
- are not too pushy
- are offering something that is relevant to the other person
Barter / trade may not happen in the exact form as it used to happen in stone age. What you can expect is to get a "heavy" discount on your purchase bill from your vendor for the services you are offering. Also, you may not get barter deals from very well established players. You may have to look for vendors who are good, but do not have a very big order book – difficult but possible.
6) Negotiate, then re-negotiate
It is okay to negotiate. Many-a-times, we just feel embarrassed to negotiate. There is always a better deal / bargain / price waiting for you. You just need to take the initiative to offer a price that you feel is fair for the product / service (or what you can offer). Sometime, you may have to start below your comfort zone, so that both of you can meet at your comfort zone.
And yes, do not feel embarrassed to re-negotiate, if need arise. There is no set rule and the deal is not finalized, till you sign the dotted line. You deserve the best.
Just be fair!
Note: I strongly advice that you research the prices (caution: compare apples with apples – specially while buying services). Sometimes this can result in big savings.
7) Invest in technology
If technology can be deployed properly, it can save a lot of money. It can also improve organizational efficiency, which can become an important differentiator and help you garner more business. Spend time to understand different technologies available, which can reduce cost, enable collaboration, improve communication and make you look / work smart.
Technology need not necessarily cost a lot of money. Adopt open source and free software. There is one for almost every possible business application 🙂 Cheer up!
8) Extra-ordinary income
There are some indirect avenues from which your business can generate cash.
- Sub-lease part of your office space / give out desk space / invite others to come and work with you and share costs
- Do garage sale – do not hang on to things that you may not near in near future (specially computers!)
9) Get your accounting right
Everyone will probably suggest that – get a good accountant.
I will say that – spend time in learning as much about accounts as you can. Accounts let you see and listen into your business. If you do not understand it, you will be at a loss of control over your business. You should know your numbers like the back of your hand. And you should be constantly analyzing ratios (over a time line) like turnover, profit, current ratio, acid test ratio, solvency ratio, debtors / creditors turnover, etc. This will let you know the direction of your business, so that you can steer it clear of accident prone zones!
Set up management information system and decide upon core organizational metrics to measure key parameters such as sales performance, customer satisfaction, customer distribution, product quality, etc. And, take action to streamline things which look out of place. Else, all the effort is a waste.
Imp Note: It need not be the most expensive software system on the planet. You can simply use spreadsheets to manage that!
10) Sell without spending
There are several ways in which you can generate sales without spending a lot of money in advertising. You will discover your own set of tricks while you do business (relevant to your business). Some very common ways are:
- Social media
- Networking events
- Word of mouth referral
- PR / Media
These methods will result in lowest "cost of sale" and will give you your "most loyal customers". Keep your eyes (and mind) open to make deals. They will happen.
11) Hire for attitude / Appraise for performance
When you end up hiring – hire for attitude / talent. The degrees do not matter.
Spend time in developing them (I think this is why they call it Human Resource Development) – aligning them to company requirements / goals – and then measure their performance – and give feedback.
If you sustain the wrong people, they wont probably let your company sustain – hence killing the idea of "bootstrapping".
I hope these small random ideas about bootstrapping will help you in a small way. If you have an interesting tip to share, please post it as a comment, and I will be happy to include it. Feel free to share them!
Recently I was asked to speak about "Bootstrapping a Service Business" by Startup Saturday. Though I knew (fuzzily) about bootstrapping as a concept, but I never knew the real meaning. Strange!
"Bootstrapping or booting refers to a group of metaphors that share a common meaning: a self-sustaining process that proceeds without external help. The term is often attributed to Rudolf Erich Raspe's story The Surprising Adventures of Baron Munchausen, where the main character pulls himself out of a swamp, though it's disputed whether it was done by his hair or by his bootstraps." – Wikipedia
This definition busted two myths that I had about "bootstrapping"
Myth 1) Bootstrapping is for startups
The keyword is "self sustaining" and "without external help". Since many startups think that they need external help, this term might be used to tell (some of) them – you are on your own!
Besides this, bootstrapping is something that every business should practice. Even a Fortune 500 company can bootstrap! And it will be good for the economy. We will have a more stable economy, where people self-sustain without external help to the greatest possible extent. In my opinion bootstrapping results in self-check (real viability of the project) and makes the organization self reliant, result oriented (i.e. if there are no results – no profits – no turnaround, then you do not survive) and disciplined.
So, conclusion is – bootstrapping is for ALL.
Myth 2) Bootstrapping = cost cutting – low spend
Bootstrapping is NOT about cost cutting or spending less. It is about spending in areas, which get you best ROI. In other words – "Invest. Don't spend".
It is important to make clear demarcation between investment and expenses for your business. Choose your investments wisely and and be frugal with your expenses. Anything, which has a DIRECT correlation with increasing your revenues, or satisfying a set of clients, or getting better technology (to get you an edge), can be a good investment (in that order). Since you have to self sustain, if your cash reserves are low, do not look at long term revenue impact!
Anything that wont make a difference in your revenue (medium of travel, hotel etc.) is an expense. I do not claim this to be a perfect definition, but it should work in most practical cases.
Instead of "low spend", think of "being cash positive" – "being profitable" and "good ROI".
Last but not the least, bootstrapping looks less glamorous and exciting, but in my opinion, the returns are worth the effort. It helps you retain most of the control / ownership of the company, which you can later dilute to get better returns for the "bootstrapped" effort that you have put in. And, yes – it makes you wiser and a grounded professional for sure.
So, happy bootstrapping!