You’ve got to admit, these babes look pretty badass, don’t they?!? Like they are ready to kick some major a$$… fearing nothing… ready to get down and dirty… ready to win. If you know anything about me, then you will understand why I am drooling all over this, but I digress, let’s get to straight to business. So what is bootstrapping anyways?
I don’t know about you, but many of us were not born with silver spoons in our mouths with trust funds or super rich parental units that are ready to dole out some serious moola (aka $$$) to help launch our potential million dollar business ideas.
I would venture out to say that funding is the #1 deterrent for why most entrepreneurs are unable to get their start up off the ground. Where is the money? SHOW ME THE MONEY (insert my best Jerry Maguire rendition here). So, needless to say, this is one of the first critical decisions you’d have to make, whether to seek outside funding through venture capital investors or to self fund (aka rely on your personal savings, beg and borrow money from friends and family, max out your credit cards and sometimes, extreme yes.. you may have to go live at home with your parents).
Bootstrapping is when you self fund and start your business with virtually nothing (fumes sometimes) and stretching out whatever startup dollars you have as far as it can take you to finance and grow your startup into a successful enterprise. There is no right or wrong way to go about funding your business but I believe that bootstrapping is the best option as an entrepreneur who has invested significantly in my own companies. No one said it will be easy or that it will be a sexy, glitz and glam life 24/7.
Bootstrapping WILL force you to become a better, stronger entrepreneur with a more vibrant business when your are spending your OWN money. It’s called discipline.
A few years ago, I left my thriving career in Brand Management at Kraft Foods. I wanted to build MY company from scratch with MY vision. For me, bootstrapping You! Lingerie and now Preggo Leggings meant that I’d have complete control over the vision of both my brands. I wanted the flexibility to make the right decisions, move at my own pace free from an investor’s influence. When it’s you calling the shots, both innovation and decisions can be made faster. Did you know that several large brands we all know today began as bootstrapped ventures – Microsoft, Coca Cola and Apple and many startups today still follow this popular path. So if you are considering going this route, you are in good company!
Keep in mind that bootstrapping isn’t only limited to the startup/beginning state of a business. It is also a way for you to treat your moola at any stage of your business growth and it’s a cost effective way to maintain a positive cash flow. For example, I started You! Lingerie with personal savings my hubby and I had accumulated over a few years while we were both working in corporate America. I wanted to focus on pleasing our customers and creating products that impacts lives not spend time trying to convince some investors that my business will be a viable one. And we turned out okay and we are profitable. In the beginning, You! Lingerie and all of it’s operations also resided in the basement of our home for almost three years and the team consisted of me and my sisters, a play to minimize overhead cost.
It is very easy to waste time on things that will not drive revenue when you know there is money in the bank just waiting for you to spend it. On the other hand, a bootstrapper will hustle, will grind to create a product that sells. There is always a sense of urgency when it’s your own money. A lack of funding has a way of making you prioritize. With bootstrapping, you are forced to start small by testing your ideas carefully before making the move to scale up. You will learn the most about your business this way and when you make mistakes (because you will, all entrepreneurs do), it won’t be a in a significant way.
You learn how to be scrappy!
For you, it may mean, still rocking with your day job to accumulate extra savings that you can use towards your startup. And keep in mind that the goal is not to continue this two-jobs gig forever, once you have tested your idea and know for sure that there is a market for your products, you must set realistic timelines and expectations so that you will know when to make the leap to working in your business full time. For some people, it’s when they have X amount of dollars in their savings or when they are selling X number of units on their website or it could even be a set date. Either way, you must plan for it. As a bootstrapping trep, the idea is not to have a life that isn’t worth living, where you are eating ramen noodles everyday, working 80 hours weeks or sleeping on an air mattress. YIKES, that will be torture. I believe that if you have a great idea and you plan, spend your time and execute it well, you will be successful. You will be a badass.
If you are planning to go the bootstrap lane or if you are already started, here are some common misconceptions or mistakes (Boo-Boos as I like to call them sometimes) that many entrepreneurs make (myself included).
1. YOU DIDN’T DO THE “MATH”
This seems like a no brainer. Running out of cash is THE #1 cause of death among many startups. Did you know that 82% of all startups die in their first year? WHOA, right? That’s a lot of new companies that go to their graves probably before their time. And this is not just a rookie mistake, many experienced businesses suffer from poor cash flow too. Here are important tips to managing your cash flow: keep your eyes on your expenses and keep a super duper tight lid on inventory build-up, aggressively manage what comes in and what goes out the door so they match up well and have an emergency fund just like you do for your personal finances. Many entrepreneurs (especially when you are the creative type) tend to not enjoy the accounting/numbers aspect of their business because it is not as “sexy” and “glamorous” as the product creation part of the business – but this is a VERY crucial way to understand the health of your business. Too many great entrepreneurs with amazing ideas fail because they simply were not financially feasible. Always do the MATH and plan appropriately. If you cannot, then hire someone to do it for you, it is so so important!
2. ROME WASN’T BUILT IN A DAY, UNDERSTAND THAT PROFITS TAKE TIME
Ummm, what do you mean profits might take time?. I hate to break it to you but as much as it is every entrepreneur’s dream to have a profitable business from day one, you must realize that profits take time. This is a common misconception for bootstrappers.
You just launched your business and you are super excited about your new products and how it is going to revolutionize your industry. But let’s face it, no one knows who you are. You have to build your brand. You have to become an expert in your field. This takes a long time. And because you might not really know what you’re doing for a while and doing a lot of trial and error, to figure out what marketing strategies will work and stick, it costs money and takes time. It is so common to underestimate expenses and how much time it takes to start seeing ROI for your business.
But wait, you have seen or heard about businesses that start seeing profits shortly after they began. Sure, it’s possible. The newest brand in my portfolio, Preggo Leggings was profitable within a few months after we launched it. We often read about these types of anomalies, businesses that make hundreds, thousands or even millions of dollars in profit during their first year. But those cases are rare. Anomalies. That’s why we are reading about them as they are the ones that get all the media attention. Most new companies require much more time than that. But patience is the name of the game. Be patient, be consistent, grind, hustle and you’ll start to see success.
3. MAY DAY, MAY DAY…KNOW WHEN TO EXPLORE OTHER FUNDING OPTIONS
So just because you started your business with personal finances does not mean that you should feel stuck if you need help growing your business. There are other options to help you grow your business outside of venture capitalist investors where you lose complete ownership. Options like crowd funding (which has become very popular and many businesses use today), corporate foundations, incubators and even bank loans.
Crowd funding helps you raise small amounts of money by soliciting the help of large numbers of people via a list of rewards per donation typically through the internet. (I will cover crowd funding in another post).
If you choose to go the bank loan route, you have to remember that showing profits on your books is actually a very good thing when approaching a bank. It proves that your business is viable and decreases the perceived risk for the bank. Many bootstrappers in an attempt to minimize taxes and keep their out of pocket costs low will show losses or just breaking even year after year. This makes their growing business less “bankable” when they need access to conventional sources of funding, likes lines of credit or term loans.
4. PRO BONO WORK CAN ONLY TAKE YOU SO FAR. PAY YOURSELF, YOU EARNED IT!
You put in your blood, sweat, tears everyday to grow your business but yet you work for free. This is probably the most common mistake made by bootstrapping treps. It is definitely understandable because I too was guilty of this when I started my business. I worked free of charge for the first few years of my business. My rationale: I would rely on my hubby’s income to support our family. I was hardwired to work hard, make the money, grow the business, then reinvest it all back into the business even though I was paying the employees who worked for me.
It wasn’t until I recognized that I had to pay myself like a regular employee that I realized my bootstrapping mistake.
If you don’t pay yourself a fair market wage, you are essentially saying that your time and all that you do for your business is not of value.
Maybe not as soon as you start your business, but as a business owner, you have to pay yourself as the best employee because you bring the most value and it shows that you treat your business with respect. Over time, you will start to resent your business because it will start to own you as opposed to the other way around. Plus you when you need to hire someone to replace you or hire more help, it will be easier to make that transition in the books. And in the worst case scenario, if you need to close down your business, you would have little or nothing to show for it in your personal bank accounts. Planning well and knowing when it is time to say, “why am I doing this?” or “what do I have to show for all this hard work?” is very important.
What do you think about this short list of bootstrapping mistakes/misconceptions I have shared above? I’d love to know what you’ve learned along the way about growing your own business from scratch – please share your tips and advice with your fellow treps. Let’s talk. Leave a comment below! 🙂