Bootstrapping. Some entrepreneurs do it out of necessity. Without significant capital or willing investors, there’s no other option. Other entrepreneurs bootstrap their startup by choice, and not just to minimize risk. When you bootstrap, ideas matter more. Innovation matters more. Teamwork matters more.
I’ve done it both ways. I’ve used venture capital to start successful businesses. I’ve also bootstrapped successful businesses. I decided to bootstrap my current company because the business model didn’t require enormous amounts of capital or extensive research and development — and because bootstrapping made us be more creative and smarter about how we tested ideas.
But I also like the shift in perspective bootstrapping creates. VC-funded businesses are all about growth. Bootstrapping creates a different sense of urgency; not only do you need to go to market quickly, your primary focus must be on revenue. (Without revenue you simply can’t keep the business going for long.) And since revenue is the lifeblood of your business, you must create a sustainable business model.
So how do you do that? How do you get to that all-important break-even point, and then profitability, without taking major risks that will ruin your bottom line?
1. Focus on providing value to your customers.
Bootstrapped startups can’t afford high customer acquisition costs. (In its prospectus, Blue Apron, the meal kit delivery service, says it was spending $94 to acquire each new customer. That takes venture money — and a lot of it.)
Keeping your cost of sales low means not only being creative in how you acquire new customers but also making sure they stay customers.
That means providing real value. Provide genuine value — provide a product or service that customers can count on, that solves a problem or meets a real need — and your customers will also do some of your marketing work for you. They’ll talk. They’ll share. They’ll become brand evangelists.
And that means they’ll help you focus your spending in the area it matters most: On the value the customer receives.
2. Be creative–and thrifty–in how you test ideas.
The minimum viable product approach popularized by the book The Lean Startup is a great way to test big ideas and small ideas.
The key is to learn as quickly as possible, and the best way to accomplish that is to test small and test often. Want to provide a new service? Create a streamlined version and ask a few customers to try it out. Want to test a new marketing strategy? Do what Facebook does, roll it out in a limited way, and then evaluate the results.
You’ll notice a common theme in the above: Ask your customers. Don’t just come up with creative ways to better serve your customers. Ask your customers what would help them, what would reduce a pain point, what would make their lives easier… and then find inexpensive ways to test what you come up with.
When you’re bootstrapping, you can’t afford to bet the farm on one big idea. It’s much better to test a number of small ideas. One of them might turn out to be the “big idea,” but even if it doesn’t, the aggregate of all your small ideas might be just as valuable.
Speaking of betting the farm…
3. Don’t take any major risks that will impact revenue.
It’s tempting to try to hit a homerun, but resist that temptation if the cost of striking out will put a major dent in revenues.
As a bootstrapped business, your goal is to always live to fight another day. (And yes, I did just mix metaphors.) You can’t grow your business if your business is out of business.
Once you develop a steady stream of revenue, then you can start testing ways — ways that involve somewhat larger investments — to grow your business. But even then, stay creative and thrifty. Never spend more than is absolutely necessary, even if you have money to spend.
Speaking of spending money…
4. Never spend beyond your means.
Always ask yourself one question: “Will the money I spend touch the customer?” If it won’t, don’t buy it.
One example: Offices. If you’re in financial services, your office environment speaks to your credibility. if you run a restaurant, none of your customers should ever know you even have an office.
Spend what money you have where it makes the biggest difference: To your customers. Startup success isn’t defined by offices or amenities or choosing to do less with more. Always do more with less, because for a bootstrapped company, success is defined by profitability.
Never spend any money that won’t help get you there.
5. Be relentless in pursuit of your goals.
For example, almost every start-up dreams of finding an enabling customer, but those are tough to land. If your goal is to land 100 small customers in your first month, don’t get distracted. Do everything you can to land those 100 customers. Prospect where you have a reasonable chance of success. Later, you can leverage your growing customer base — and what you’ve learned from acquiring them — to land bigger fish.
Set goals, and then be incredibly persistent in achieving those goals.
Not sure what your goals should be? This will get you started: Provide real value to customers, be thrifty with spending and extravagant with ideas, test and test and test… and most of all, seek profitability.