Many aspiring entrepreneurs think that great businesses begin as a pitch meeting with an imposing but infinitely wealthy angel investors. On the other hand, many young entrepreneurs have romanticized the idea of building an empire out of the change in their pocket, naive to the true complexities and expenditures of their business. These lines of thinking may make it seem impossible to create a startup that is both bootstrapped and successful. However, the success of bootstrapped startups like GitHub, Shutterstock, and Shopify demonstrates that with careful planning and a boundless work ethic, you can build a lucrative business on your own terms without initial venture capital.
For the uninitiated, a startup is “bootstrapped” when it begins without the help of any outside investors or capital. There are only two certainties that apply to bootstrapping: it requires enormous amounts of work and it’s a high-risk endeavor. Before deciding whether or not to bootstrap your startup idea, it’s important to weigh the pros and cons.
The most immediate advantages to bootstrapping are that you’ll own 100% of your business and have complete control over the professional and creative direction of your company. For some entrepreneurs, not having investors breathing down their necks and micromanaging them is a deal-breaker, as it allows them to completely focus their efforts on the success of their business. The main disadvantages of bootstrapping are the pitfalls that come with not having a large amount of money at your disposal: cash flow shortages, stunted initial growth potential, and a lack of powerful, connected investors to help with sales channels and infrastructure.
If you believe in the value proposition of your business enough to fully commit to bootstrapping, here are some essential tips that will help you navigate the market and avoid an untimely downfall.
Pick a co-founder who complements your skillset
Without a huge vault of venture capital, you won’t be able to assemble a team of specialized top talent right out the gate. As such, the majority of the work required for your startup will be done internally. Pick a cofounder that has a different skill set than yours so that your company will be able to cover as much ground as possible in terms of specialized tasks.
Beyond their skillset, your cofounder needs to be someone you can trust who shares an obvious passion for the business you’re building. While it’s good to share ideas for the future vision of the business, it’s even more important to have alternate perspectives on all of the early crucial decisions your business will have to make.
As a bootstrapped startup, you don’t have the luxury of indulgence. You need to quickly get used to the idea of a reduced (or nonexistent) salary for the first several years of your business. 75% of startup founders in Silicon Valley have a salary under $75,000, and 66% make less than $50,000. Bootstrapped startups are anything but a get-rich-quick scheme.
When planning out the logistics of your business, go for lower costs whenever possible. Though the savings may seem small at first, the money saved will be invaluable when put towards expenditures like marketing or branding. For example, skip the trendy office with all the bells and whistles and rent out a coworking space. Utilize free digital services (ie Mint for budgeting) and free versions of essential software (like Photoshop or Dropbox). Don’t spend money on premium services or superfluous nonsense if you don’t foresee a significant return on investment, especially given the tight budget you’re likely to work with. Always focus on the essentials.
Invest in your brand
Branding is one of the most important parts of your business, especially if you’re bootstrapping. Bootstrapped startups need to be able to cost-effectively attract attention from target audiences and differentiate themselves from their competitors. If your brand is strong enough to draw new users, they can become brand advocates: satisfied customers who love telling their friends and family just how happy this brand makes them. When these brand advocates tell others about their beloved brand, the resulting referrals are 150x more likely to convert than normal leads.
How does one get their brand to the point where brand advocates are screaming their names from the rooftops? To get your brand to stand out among its competitors, you need to emphasize your business’s unique value proposition, mission statement, and personality. Dollar Shave Club has become a top grooming brand among millennials for its pragmatic branding that emphasizes the low cost of membership. The Make-A-Wish Foundation’s mission of wish-fulfillment for children with critical illnesses reads loud and clear through their branding. The playful name and imagery of Mailchimp is inviting to customers, encouraging them to slow down and explore all the features the website has to offer. There’s no one-size-fits-all when it comes to branding. Listing out your company’s core values, unique selling points, and personality quirks can help you determine the tone and direction that would be best for your brand.
Utilize the gig economy
You and your cofounder probably expected to “wear many hats” when getting your bootstrap startup off the ground. However, there are some hats that simply won’t fit no matter how hard you try (it’s not like you have the free time to try new hats all day either). If you have jobs that need to get done but lack the time or skills needed to work on them, consider outsourcing.
The online freelance industry is booming. Using sites like Freelancer, Upwork, and PeoplePerHour, you can find skilled individuals that can do specialized tasks at a much lower cost than hiring a full-time team member. Freelancers can quickly and cheaply patch up holes in your team’s collective skill set to tackle anything from web design to brand copywriting.
Make sure to balance between outsourcing and in-house work. While freelancers can be an incredible source of high-quality work, excessive outsourcing can eat up tons of money. Make sure your outsourcing strategy is balanced and cost-conscious.
Carefully keep track of all expenses
This may seem like a no-brainer, but you’d be surprised at how loosely many entrepreneurs keep their books. Bootstrap startups can lose tons of money through the gradual accumulation of small expenses, including everything from coffee to office supplies. Keeping rigid financial records will help you visualize your business’s long term financial trends, making it easier to identify areas of unnecessary spending. Maintaining clear, organized records also makes your company more available to opportunities from big companies. Julie Aigner-Clark, creator and founder of the bootstrapped infant education startup Baby Einstein, said on the DealMakers Podcast that her immaculate bookkeeping made selling the company to Disney a painless experience.
Nailing down a system for financial record keeping early is essential for the health of any bootstrapped startup. If you drag your feet in creating and maintaining accurate records, every piece of financial data that you analyze, make decisions from, and present to investors will be based off of false information. And of course, strict bookkeeping is crucial if you want to protect yourself from the unholy wrath of the IRS.
Pull yourself up by your bootstraps
To many entrepreneurs, there’s no goal more satisfying than building a successful business from the ground up. As long as one is aware of all the risks, bootstrapped startups can give you numerous advantages, if you have the knowledge and work ethic to navigate all of the roadblocks you’ll encounter. There will always be things that pop up that you never would’ve accounted for, but with proper planning and responsible financing, your bootstrap startup can achieve sustained success.
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