Bootstrapping refers to starting and growing a company with minimal external capital or resources. Bootstrapping entrepreneurs don’t rely on outside funding. Often they use their savings, personal credit, and revenue generated by the business to finance operations, develop products or services, and acquire customers.
This article belongs in the validation category because funding is often a measure of the viability of an idea. When that funding does not come from outside investors but from within your own resourcefulness and grit, you’ll see from the grassroots whether or not your business idea will stand up in the market, well-funded or not.
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What Bootstrapping Requires
Bootstrapping often requires a significant amount of creativity, resourcefulness, and strategic decision-making to make the most out of limited resources. It can involve various tactics such as leveraging free or low-cost tools, outsourcing non-core functions, and focusing on revenue generation from the outset. Bootstrapping can help a company maintain control over its operations, avoid diluting equity by taking on investors, and demonstrate financial viability to potential investors or lenders down the road.
How to bootstrap a startup while simultaneously searching for funding:
Determine your startup’s goals and target market
Assuming you’ve already done the work to identify your target market, you must come to the table with a clear idea of what your business goals are. That intersection of product-market fit will help you focus your efforts on the key areas that are most likely to generate revenue (and attract investors).
For example, let’s say you’ve soft-launched a new online project management tool after market research revealed the need for a new affordable tool for small teams. You’re seeing the signs of product-market fit:
- High user engagement: You see that users are actively using the product and returning to it regularly to manage their projects.
- Low churn rate: You have a low churn rate, indicating that users see the value of the product and are not leaving after a short period.
- Positive reviews and referrals: You receive positive reviews and referrals from your users, indicating that you are providing value and meeting your customers’ needs.
- Increased revenue: You see an increase in revenue as more small businesses sign up for your product and start using it to manage their projects.
You’ve got a great start, but what’s the point? More profit, yes. But if your goals are to hold the highest market share for project management tools in the SaaS space, you’ll operate differently than if you are aiming at a more achievable (but still profitable) 10% growth rate, year-over-year.
Create a budget
Once you have a clear understanding of your startup’s goals and target market, you can create a budget that reflects your business’s financial needs. This will help you determine how much money you need to raise and where you should focus your bootstrapping efforts.
My favorite tool for budgeting is Quickbooks, largely because I use the software for all my accounting, payroll, and tax preparation needs. There are many useful tools out there to help you set up, manage, and maintain a proper business budget.
I’m constantly shocked by the number of business owners who fly by the seat of their pants as they are getting started in the business. Racking up tens of thousands on a business credit card is not uncommon as each justifiable expense is made, believing that someday soon the cash flow will pay for it. If you ate off of smaller plates from day one, focusing on maximizing resources from the start, your lean machine could fly further faster.
Maximize your resources
When you’re bootstrapping a startup, you must make the most of your resources. Maximizing resources is essential because bootstrapped businesses are cash-strapped businesses! Here are some examples of how bootstrapped businesses can maximize their resources:
- Use free or low-cost tools: Instead of investing in expensive software or hardware, bootstrapped businesses can leverage free or low-cost tools to manage their operations. For example, they can use free accounting software like Wave, free email marketing tools like Mailchimp or ConvertKit, and free project management tools like Trello.
- Outsource non-core functions: Outsourcing non-core functions can help bootstrapped businesses reduce overhead costs and focus on their core business activities. For example, they can outsource tasks like website design, bookkeeping, and social media management to freelancers or virtual assistants.
- Leverage open-source software: Open-source software is another great resource for bootstrapped businesses. It’s free to use and can be customized to fit the specific needs of the business. For example, businesses can use open-source content management systems like WordPress or Drupal to build their websites.
- Optimize remote work: Remote work has become increasingly popular in recent years, and it can be a great way for bootstrapped businesses to maximize their resources. By allowing employees to work from home, businesses can reduce their overhead costs and operate more efficiently. They can use video conferencing tools like Zoom or Skype to hold virtual meetings, and collaboration tools like Slack to communicate with their teams.
- Use cloud-based services: Cloud-based services are another great resource for bootstrapped businesses. They offer scalable and cost-effective solutions for managing operations and storing data. For example, businesses can use cloud-based accounting software like Xero or QuickBooks to manage their finances, and cloud-based storage services like Dropbox or Google Drive to store and share files.
Prioritize revenue generation
One of the key benefits of bootstrapping is that it forces you to focus on revenue generation from the start. By prioritizing revenue, you can build a sustainable business that is attractive to investors.
Prioritizing revenue from the start when bootstrapping a business means making the generation of revenue the primary focus of your business operations from day one. This approach is critical because when you’re bootstrapping a business, you need to generate enough cash flow to cover your expenses and sustain your business over the long term.
It’s surprising how many business owners fall in love with their product or their processes, only to neglect the main purpose of their business: revenue generation. While I do admire owner-operators who truly love what they do, the business is a means to an end, not the end itself.
In Mike Michalowicz’s pithy little book, “Profit First,” he proposes a profitable business model from day one, helping set up finances from the first bit of cash flow so that year one shows a profit, no matter how small your startup may be. I’ve used Michalowicz’s methods in my accounting, and while most bankers look at you funny when you have small amounts in each bank account, the peace of mind and profitability of your business is worth their confused looks.
Build a strong team
As you bootstrap your startup, you’ll need to surround yourself with a team of talented and dedicated individuals who can help you achieve your goals. This might include co-founders, advisors, or contractors.
Hiring talent is a daunting task when you’re getting started and beginning to grow. But money is not the answer in hiring, creativity is.
Here are some creative ways to build a strong team around your business without hiring them on a salary:
- Internships: Internships are a great way to build a strong team without committing to a salary. You can offer internships to college students or recent graduates who are looking for experience in your industry. This can be a win-win situation as they gain valuable experience and you get assistance without the high cost of hiring an employee.
- Equity or stock options: Offer a share in the success of the company instead of a salary. It’s important to work with a legal professional to ensure this is appropriately structured and complies with securities regulations.
- Freelancers or contractors: Freelancers or contractors can be a cost-effective way to build a team around your business. Hire freelancers or contractors on a project-by-project basis, allowing you to control costs and scale up or down as needed. This can also be a great way to access specialized skills and expertise that you may not have in-house.
- Bartering: Bartering can be a creative way to build a team around your business. For example, if you’re a web developer, you could offer to build a website for a local business in exchange for their help with marketing or social media. This can help you build a network of professionals who are willing to help you grow your business in exchange for your skills and expertise.
- Mentorship: Mentorship can be a powerful way to build a strong team around your business. Seek mentors who have experience in your industry and can provide guidance and support as you grow your business. This can help you build a network of professionals who are invested in your success and can provide valuable insights and advice.
Network and pitch to investors
While you’re bootstrapping your startup, you should also be networking and pitching your business to potential investors. This will help you build relationships with key investors and increase your chances of raising funding when you’re ready.
Don’t give in to perfection syndrome, where aspirational goals paralyze you from getting your business out there. Beta testing has become the norm for businesses of all kinds, and getting the first or second iteration of your product or process in front of people can get you further down the road. Don’t wait for others to pass you by.
Bootstrapping in Short: Be Persistent
Bootstrapping a startup while looking for funding can be a long and challenging process. It’s important to stay persistent and continue working towards your goals even when faced with setbacks or obstacles.
