Small Business Entrepreneur Blog

Bootstrapping a business is to start a business without external help/capital. Startups that bootstrap their business fund development of their company through internal cash flow and are cautious with their expenses. At least this is what Wikipedia says.

It has never been easier to start a business ever before. Especially if you can build something online, software or services you can keep your investments low. You just need a computer, internet connection and knowhow on what you want to do (no, I’m not talking about getting rich quick online businesses type of thing). But even if you start small and don’t really need to invest much there are rules that can make you successful. Or not, I should know about this as I had my own bootstrapped company back in the days which I exited 2008. So let me say what I have learned, it might help you.

1. Things are harder than they seem at first. Have at least 6 months to a year funds to cover your living costs. Chances are that if you passed the entrepreneurship fear of failure moment, you’re not even close to realizing how hard is to run a business. Let’s say you are a programmer and have this exceptional idea of a software product, but is it build it and they will come? My experience says … no. Because you also need marketing, sales and all the rest that comes with a business. Or maybe you make some sort of a business plan that in 6 months you will break even and don’t worry about it afterward? Wrong again, first you might not get it done in 6 months but a year, then the economy is changing. You never stop fighting for your business (unless you are extremely lucky, but most people aren’t).
2. Don’t mix personal finances with business finances. Separate costs and accounts. I know that if you are bootstrapping you are basically paying for everything from your pocket, right? Things is that before you know it, you will need let’s say a new PC, a new desk or a new phone. Things get messy when you’re running out of funds or even worse if you have partners with you in the business. How much have you invested? How much has your partner did? Did you make a profit, or is it just because you paid from your own pocket for the furniture? Or in reverse, you overspend for your own things and company funds are depleted. The surest way to kill a business. Don’t buy a Mercedes from your first year of operating a business even if you do well. It means you didn’t use the funds to grow your business wisely. It might not mean much as I’m saying it, but you’ll get to feel the pain when your competition will invest more than you do in marketing or production.
3. Evaluate your own work and consider it a cost. Ok, so besides the very few cash investments you do to start a boostrapped business what else do you do? You work your butt day in and day out without getting paid (because your pay should also come from your own pocket which makes it a non-sense). Problem is that on one hand if you don’t know how much your own work worth you’re probably not selling it at the right price (if you never lose a customer it’s usually a sign you are going under the market price and unless you have a technological reason for it most likelly is because you don’t put a price on your own hours). And on a second hand, if your work doesn’t have a value, you’ll also forget to pay yourself and guess what, you will end up with no personal funds (because you used them all to start the business and live for the last 6 months) and with a business in trouble. Best way to deal with this is to consider how much you have been paid at your previous job (or at least the industry standard if you didn’t have a job before), add the hours and see at the end of the month how much your work costs. You might end up closing down your business and get back to a regular 9 to 5 job if you’re not making close to what you would be paid on a regular job, but that’s better than ending up in debt and bankrupt.
4. Outsource things that are outside your main competence. Yes you heard me right, money are tight and I’m saying you should pay someone else to do stuff you could eventually do yourself? Yes, you could do them on your own, but my experience says that if you are a marketing guy you should try to code your own site. Of course, you could do it, but even a small 2 hours task could easily become a 10 hour task because you don’t know to code. And coming back to the “evaluate your own work” thing, if your work is $70 an hour, then the cost of doing that easy thing on your site just went up from $140 to $700. Outch!
5. Under-evaluate money coming in. Let’s say you just signed 2 contracts, $2.000 each for the coming month. This should cover your month’s expense so why should you under-evaluate? At least 2 reasons. One is that even if you signed 2 contracts, one might not happen, or even if it does, it might take longer to finish than you thought, and guess what, you’ll get $2.000 next month. So what are you going to do this month to cover your costs? And second, $4.000 seem enough to cover your own costs right? Yes, but $4.000 is not so much after you pay the taxes, cover the Internet bill and the rest. And what happens if your PC broke down? Trust me, even if you sign big contracts it doesn’t mean you’re safe. They usually take more work than you think, and you never know what else comes along and better be prepared by under-evaluating your income.
6. Family support. Ask for it before you start. You know, the thing is that starting a bootstrapped company is far harder than starting a regular company with outside funds. You start on your own, have long hours each day, money are tight, and most likely you don’t have that much staff to share responsibilities or at least brainstorm things. It’s going to take a toll on you, both physically and mentally. Don’t let it affect your family balance, because in the end, even if the business turns belly up, is far more worse to lose your family and business altogether.
7. Don’t overspend. Keep money for the worse to come. You know what will happen? After months of hard work, tight money and stuff you might just get to do a little better. Then you’ll get to some sort of shopping spree, after all, it’s all your hard earned money, you should indulge yourself right? Well, yeah, but unless it’s really going to help your productivity in a real clear out loud way, don’t do it. Don’t just buy that Mercedes because you deserve it. Things will eventually turn worse at some point (you go up hard and down fast, that’s a business life) and guess what. Your Mercedes won’t help pay the bills.
8. Focus on your business strengths, don’t try to make everybody happy. Truth is that no business or company will make everybody happy. And I know that your pride is to make happy customers, but it might get costly trying to do everything. Instead focus on what is your business absolute best, and make this for your happy customers. It’s far more important to have some very happy customers than having pleased customers but not happy ones.
9. Get a partner. But he should know what he is getting into. It’s a bit hard to find a partner for a bootstrapped company, because it’s hard to find someone that thinks like yourself and decide to put his own money into a business, not getting paid and hope for the best. Thing is that if you’re starting on your own, there is nobody saying when you’re doing things wrong. Or you might just run out of ideas – your brain can only cope with that much when it comes to creativity. Might also help when you’re feeling down.
10. Have an exit plan. It doesn’t sound good to have this one as the last point because it somehow says your business will eventually go belly up. That’s not what I meant, and this is entirely after you to make it run. But if the things get nasty the thing that could turn a simple failure into a disaster would be to not have an exit plan. An exit plan might mean getting a 9 to 5 job. So leave the door open when you’re quitting the job to start on your own. Or selling the business might be even better. You just need to build your business in a way that is “sellable” at some point. Keep everything in good order both financially and legally and build value besides your own work. Build a brand, a customer base, everything could be an asset when selling.

Addon rules. Still golden.

1. Luck. Never underestimate the importance of luck when starting a bootstrapped business. If you don’t want to call it luck then call it perfect alignment between market demand, timing and your products or services.
2. It’s never too soon to start improving your business. I’m just going to give you a link to something I wrote earlier.
3. Trust in yourself. Sometimes is everything that you got. I have a list of interviews I did with entrepreneurs, you’ll be amazed how many “impossible businesses” turned millions.