Bootstrap Your Way into Business

Bootstrapping can be defined as “a collection of methods used to minimize the amount of outside debt and equity financing needed from banks and investors”. While bootstrapping involves a risk for the founders, the absence of any other stakeholder gives the founders more freedom to develop the company. In essence, bbootstrapping is getting a lot done on very little cash. For most start-ups, bootstrapping is an essential first stage because it:
• Demonstrates the entrepreneur's commitment and determination.
• Keeps the company focused.
• Allows the business concept to mature more into a product or service.
• Gives the concept a chance to be investigated by the market.
Bootstrapping means behaving very smartly at every cost point, given there is no external investment in the business. It means entrepreneurs consume business essentials only and are constantly looking for innovative means to substitute costs out of operations. It means resourcefulness. Bootstrapping can be beneficial because if the business fails to take off as planned, it is less painful to exit as the cash burn rate will have been low, so there are no significant losers. However, if the business takes off the rewards are not dispersed to third parties.

Bootstrapping Ideas
• Cash from savings.
• Borrowing against assets, such as your home.
• The careful use of selected credit cards.
• Keeping your day job, while starting the business in off-hours.
• Living off your spouse's wages while starting the company.
• Doing consulting work to provide start-up cash for the business and for living expenses.
• Rushing an early product to market to provide for early revenues and earnings.
• Running extremely frugal operations, allowing the company to grow on internally generated cash earned on the sales of products.
These are some tactics to stretch your bootstrapped cash runway:
• Lease or borrow the equipment you need to acquire new, such as computers.
• Buy fixed assets such as furniture used.
• Go as long as possible without paying yourself.
• Compensate advisers and consultants with equity, good will, and in-kind services.
• Call in past favors and rely on personal relationships to get things done for free.
• Use lawyers and accountants to help you with judgment issues, not basic education issues.
• Be frugal everywhere-drive instead of flying, choose cheap hotels, and use your personal computer and printer.
• Spend money on marketing only if you must.

Continue bootstrapping as long as possible, but know when it's time to seek investors.

Dangers of bootstrapping
While certain aspects of bootstrapping are clearly useful, it is important not to overstep the line. There needs to be some reasonable amount of cash available. Excessive thrift can be counterproductive and can send out the wrong signals to staff, customers and prospects alike. The objective is not to become compulsive in managing the costs or to expect a company to successfully develop on nothing. As always it is a question of balance. You do not want to lose credibility by being noticeably focused on bootstrapping, but you do want to manage your cash position to move the company forward.


Summary
Bootstrapping is an increasingly popular way to start a business, regardless of the economic conditions. Once the idea you are bootstrapping gains traction and revenue begins to increase, you may then need to switch out of bootstrapping mode. At this point it may be appropriate to seek external funding from the likes of VCs. However once you have proven the concept, the risk for investors reduces a little and hence you should capture more of the upside as you need to give away less equity. In short, the aim of bootstrapping is to keep a low cost base to ensure you can gain a foothold in some market and to generate a sufficient return so you can then assess how best to proceed.