If you are thinking of bootstrapping a new startup, consider these five tips to help you reach your goals.
16 Sep, 2017ENTREPRENEUR.COM
I'm a major advocate of bootstrapping -- I believe the lessons learned along the way are priceless, and owing 100 percent of your business is well worth the struggles and challenges. With that being said, bootstrapping is also extremely difficult.
I've personally bootstrapped every business I have started. For me, not having a pile of debt or the stress of investors breathing down my neck allowed me to remain laser-focused, even when times were difficult.
It's not easy rolling all the money back into the business, rather than your pocket. If you are thinking of bootstrapping a new startup, consider these five tips to help you reach your goals.
I feel that some startup founders focus on the things that don't matter in the beginning. A fancy office space and ping-pong tables are cool, don't get me wrong, but they can be an unnecessary expense in the early stages. That money could be used for customer acquisition and marketing, for example. To cut costs significantly, consider using a coworking space. Aside from the monetary savings, there are many additional benefits.
"Working in a coworking environment can help you become a better decision maker. In order to scale and move into your own office space you will need to quickly identify your minimum viable product (MVP). Coworking spaces offer an environment that allows you to put your head down and focus on building without the stress of long-term commercial office rent," says Shannon Wu, founder of Mr.Progress.
Consider a coworking space even if you have the funds to spring for an elaborate office. When Gary Vaynerchuk started VaynerMedia in 2009, he did so out of another office. He bartered his time for that space, and at that point, he was already rich. He could have started in any office space he wanted, but he opted to eliminate that overhead in the beginning.
As Mark Cuban says, "Credit cards are the worst investment, unless you pay them off every 30 days. Even then, don't do it." When times get difficult financially, one of the easiest ways to alleviate the situation is to break out the plastic. Credit card debt can quickly add up and impact you negatively, including ruining your personal finances.
"The major benefit of bootstrapping is that you retain ownership of the entire company, and since you aren't raising capital, you want to remain as debt-free as possible. Piling up credit card debt is the fastest way to get in a hole, which might then require an investment in order to bail you out. If you want to continue to own your entire company, avoid credit card debt," advises Robert Rodrigues, founder and COO of Power Digital Marketing.
If you do find yourself buried in credit card debt, focus on paying it off as quickly as possible. You will perform much better and be able to think much more clearly with that weight off your shoulders.
There are some amazing PR firms out there that create a tremendous amount of buzz and exposure for startups, but if you are bootstrapping, a $10,000 or $20,000 monthly PR retainer is going to be out of the question.
There are plenty of ways to generate valuable press for your business if you are willing to roll up your sleeves and do the work. Dedicate time to replying to daily queries through free services like HARO, and network with as many journalists that focus on publishing content related to your industry.
"When you don't have the luxury of a budget for PR, it all comes down to hustle. You have to be able to both lean on your existing network and not be afraid to reach out to new leads. Often the only obstacle between your business and free publicity is your own fear of rejection," suggests Darius Eghdami, CEO of FansUnite.
Avoid emails. Journalists are bombarded with emails daily, and yours will likely just blend in with all the others. Instead, get active on Twitter and try to get your foot in the door that way. Twitter is short and sweet, and it's the social network that almost all journalists monitor daily for breaking news.
When the money is rolling in, some expenses become an after-thought. If you let your guard down and start freely spending, it can cause a problem down the line if business slows or you face a challenge. Being financially responsible is key.
I recently spoke with a startup founder that was trying to get their digital marketing strategy ironed out. They had over a half-dozen tools and products that they were paying $1,800 a month for, and they weren't using them. That's $21,600 a year, just wasted, because of careless spending. They were experiencing sizable growth, so they stopped evaluating every expense. You should never ease up when it comes to reviewing your outgoing expenses -- that wasted money could be better utilized if it were put toward an emergency operating expense fund.
You also develop a business survival mindset when you are constantly cautious about expenses. "Bootstrapping is one of the most valuable stages a founder goes through. When every single expense is scrutinized, one must creatively find unconventional ways to solve complex problems and doing so builds the resourceful gritty mental habits required to build a successful company," says Zain Dhanani, CEO of Tinsli.
Related: You can now find jobs on BEAM
The number of startups that raise a lot of money, blow through it and then fail because they can't raise additional money is absurd. VC money isn't free money -- it's far from that. Running out of money is one of the most common reasons for failure.
"Many brilliant entrepreneurs become blinded by VC dollars and forget that revenues minus costs must equal a profit. Entrepreneurs need to realize VC dollars aren't free -- they get paid back first no matter what the outcome is. Bootstrapping might result in a slower growth curve, but it often results in a much better financial outcome down the road," explains Ryan McQuaid, CEO and co-founder of PlushCare.
Venture capital money can be a good tool for some, but it's not always fully understood. For something large-scale like Snapchat, yes, VC money is needed to handle the rapid scale. Startups on that level are very few and far between, which means most can succeed through bootstrapping.