A few if not most startups don’t have the luxury of getting outside investment into their business right from the start, often it takes finances out of your own wallet to start a startup. It may be the right way to begin a business but bootstrapping is actually quite challenging, especially for first-time entrepreneurs who often have 0 funding, little to no direction and end up being all over the place.
To get funding, you need traction and to get traction, you need funding.
See the conundrum an entrepreneur falls into?
Thus, a potential plan for success is absolutely vital before starting any new venture.
Majority of the startups begin without capital funding from angels or VCs. It’s no joke! Statistics show that only around 0.5% of all startups are funded by VCs while a mere 0.91% receive funding from angel investors. Another startling fact – close to 550,000 new businesses are started every month. Hence, the chances of receiving funding are slim if not non-existent for most startups.
In other words, if you are serious about starting a startup, you need to dig deep into your pockets. If you’re successful (once you follow these tips we mention here), you will be rewarded both financially and personally. You will know what it feels like to work for something with your own blood, sweat and tears mixed into making and you will also retain 100% of the equity you have in your business.
Let’s dive right into the essentials of bootstrapping:
1. Do the basics: market research and a competitive analysis
This fact perhaps seems like common sense but a lot of entrepreneurs forget to do this critical step: carrying out a complete market research as a well as a competitive analysis. Before you start your business, you need to know you have a viable business-opportunity at hand. What if the product or service you think is brilliant is already being done by someone else? And if there are businesses who have already taken your idea to market, what will make consumers choose you over them? Why do you stand out from the crowd? What is it that you do different and better?
Entrepreneurs are coming out with original ways to learn more about the market. For instance, many successful software-as-a-service businesses marketed and sold their products before they even developed them. In other words, they knew the market was there for what they were bringing to the table. Not a traditional way to do your market research by any means, but definitely effective. Moreover, they have now established a solid customer-base before even starting!
2. Pick a trustworthy Cofounder
Two perspective and two sources of funds – that’s when you get another cofounder to partner with you in this venture (or multiple cofounders). With bootstrapping, the internal workload is quite a bit and hence, you need cofounders that can balance out what you bring to the table i.e. your skillset. It’s better to find someone who is good at something other than what you do, that way not only do you keep your expenses low but you are able to divide the all the work you need to do between the two of you.
3. Build a business model that generates fast revenue
You need to ensure that your business model not only generates revenue but generates it quickly. If you don’t have a consistent cash-flow, you will be sinking your ship really fast as you blow through your funds for things you need. As you do your research on a multitude of successful bootstrapped startups, you will find that a quick-generating business revenue model has been at the root of their success.
You need immediate cash reserves in the beginning of your business. There’s a lot more that goes into a business at its stages and you will find yourself burning through your reserves before obtaining any significant traction.
4. Remember, trade Equity for Expertise
Resource-starved entrepreneurs need to rethink what defines an investment as credit markets are still limited. A more recent development, the swap for expertise for equity is what traditional capital investment is involving towards. There are many companies out there that trade their services (such as marketing, accounting, sales etc…) for a bit of the equity pie in a startup that shows promise. A win-win for both parties.
5. Mentorship is key
There are entrepreneurs out there who have a lot of knowledge and experience in exactly what you do. They’ve been there, done that. Hence, finding the right mentor can make the difference in your business you were seeking. A mentor that isn’t your competitor but has years of experience under his belt will be generous enough to guide you through the steep learning curve most entrepreneurs have to go through with their first businesses.
Find a few in your industry. There are many entrepreneurs out there willing to share their knowledge but finding someone within your industry means you get valuable information you wouldn’t have learned from general business advice most entrepreneurs give. You can even offer to pay for the mentorship – the majority wouldn’t accept it but would appreciate the kind gesture regardless. When you do get a mentor to help you, acknowledge the time they are giving to you, especially if it’s free. And of course, when you’re a big-shot yourself, don’t forget to pay it forward and help another budding entrepreneur like yourself.
6. Get developers onboard for free if you can
Allow developers to be a part of your team for free if it’s feasible. For instance, Etsy, the large conglomerate that focuses on online retail of vintage and handmade products launched coding tools allowing outside developers to build new applications using Etsy’s programming tools. Not only had hundreds of developers started using the code to build new applications, lots of developers got recognition for the apps they created and were also owned 99% of the equity of those successful apps.
7. Investing in incorporating and a website domain is essential
Perhaps the major area where you want to invest your money and make sure you spend on quality instead of getting the cheapest price is securing a website domain and incorporation. Don’t go for a cheap option for incorporation just because you will save a couple grand – sure that couple grand could be used somewhere else. But believe us, you need to spend whatever money it takes to have a clean incorporation slate.
As for your domain, don’t wait until you get more traction. You will be surprised – when you get more traction – you also pay more money for the domain. Buy the domain from the day you begin to run with this idea. It helps you build your brand equity.
8. Test the waters
Test your minimum viable product – the MVP – in the market without sinking thousands of dollars into a research project that will get you nowhere. What is an MVP? It’s essentially making a product with the basic (or minimum) features needed to test the marketability of the product online.
You could do this in several ways. One way could be buying pay-per-click ads through Google or Facebook to see how viable the product is online (how many potential customers could you get?). You could try selling products online – like on Amazon or eBay – before you order a large quantity from a wholesaler and get things going. Another way you can test the waters is by creating a mock-website with possible features you want to include in the future and see what attracts your visitors.
This approach is fantastic for startups to not only see whether or not their idea is marketable but also see how marketable it is…i.e. how much are potential customers willing to pay for your service/product? The economic recession has brought out the creativity in entrepreneurs in new ways.
9. Allow your first customers and early adapters to generate a buzz for your business
There are so many ways you can create a buzz for your startup without wreaking havoc on your budget. Most people want to be “hip” and “cool” and show that they know about the latest products and services. Hence, getting out there with marketing can work to your advantage.
Try social media which is a cheaper, slightly more time-consuming option. It’s free most of the time and is an easy way to reach a larger audience. For some businesses, this can be the sole way they earn business. Think Facebook, Twitter, or Snapchat. Offer discount coupons, use hashtags showing your product being used by other customers, provide interactive games with prizes at the end. You simply need to cater to a consumer’s narcissistic side.
10. Don’t give up
Is bootstrapping an easier option? The honest answer is: NO.
But neither is a startup. Neither is having your own business. And when you’re just beginning, there will be a lot of obstacles you will have to overcome. Moreover, when you’re so small, people are not willing to buy what you’re selling. Hence, building on genuine personal connections along the way will greatly help you get to where you need to be. Add the human touch, give people your genuine story, why you believe in your product and service and why it deserves a chance. You will be surprised at how the “human factor” can really appeal to other business owners.
Lastly, don’t give up. Don’t get bogged down by the tiny details, keep moving. And don’t take rejection personally, it’s just the nature of the business. Persistence is key. Knock on every door, dial every number, and talk to every person that comes your way. You never know who can help you and how.