A Bootstrapping Guide: The average business owner who wants to start a new business is faced with the challenge of raising capital. Beyond personal savings, this search for money to invest in a business idea leads to friends. It leads to family, angel investors and venture capitalists as well.
When these sources are not forthcoming or do not amount to much, the search is extended. It is extended to business loans, possibly from banks. However, it is near impossible for a bank to fund a start-up. The start-up does not have a credit standing. It will be asked to provide collateral to secure the credit. It will be requested to present business projections showing how it will make money and how the bank will be re-paid. Its chance of securing bank finance is severely limited if it cannot meet these requirements in support its loan application. Because the bank, which is not a risk-taker, expects to recover its money, principal plus interest.
The frenzy surrounding start-ups looking for money makes it seem like that is the only way to finance a new business. Certainly not.
Instead of spending your time trying to raise money from friends, family, angel investors, venture capitalists, banks, etc., bootstrapping may be your best solution. Bootstrapping is when the entrepreneur or business owner starts a business with little capital, and tries to found and build a company from personal finances or operating revenues of the new business.
Should you decide to consider the bootstrap route, here are some tips to guide your journey in bootstrapping.
Do Low-Budget Market Research: If you need to research your market to further validate your product or service, don’t spend an arm and a leg. Go low-budget. Ask friends and family. Do random surveys. Talk to specialty groups likely to use your product or service. Touch base with potential channel partners about what they are looking for.
At the end of your research, ensure that you have a product or service that is ready for the market, before you continue spending money on many other things. You can then proceed to test, refine and deliver your product or service at a cost and price that will turn a profit for the business.
Your Goal and Your Plan: You should think about your goal and your plan. What type of business do you want to build and how do you create a plan for building it? What is your capital requirement and what will you use it for? Are you in a position to pour your savings into the venture? How much personal time, resources and money can you allocate to it?
Form Your Core Team: You need a small team of people with complementary skills and knowledge. Your core team should have members with diverse expertise to help you keep costs low by completing most tasks in-house.
Consider external partnering to increase the success percentage of your business. If your team lacks a certain skill, collaborate with a partner organisation.
Budgets And Milestones: Your budget will tell you where your resources (read: time and money) are coming from and where they are being spent. Prepare your budget upfront and watch it with an eagle eye. Always remember that cash flow is king. The business dies when it runs out of cash.
When you are bootstrapping, you are running by the clock. As the clock ticks and the days come and go, ensure that your priority activities are achieving the milestones that contribute to the goals you have set for the business.
Keep your eyes on your financial resources. Have time lines that monitor when start-up goals should be achieved, when a specified amount of money has been spent, or a pre-determined time frame has been reached.
Know how you plan to make money. Have a clear map of how your business will make money and how much money it is capable of making. Show traction. Prove that your business has customers who are willing and able to pay money for its product or service.
Be Lean And Focused: Life unusual is the heart of bootstrapping. The effort to achieve your business plan will inevitably take its toll. You will make some sacrifice in your lifestyle. Your bootstrapping toolkit must include micro-monitoring your expenses, being Spartan personally and professionally, and being a workaholic.
You will find yourself trying to do as many jobs as you can yourself and penny-pinching every purchase. Your challenge will be to focus on the things that are important — because you don’t have a lot of money — and build a resourceful start-up in a lean way.
This thinking will force you re-evaluate your need for money. Sometimes, when you think you need money for something, there may be ways to do that thing for free. Or, you can consider barter as a finance option.
Every kobo counts when you are bootstrapping.
Have A Body of Advisors: Skip the fancy footwork of setting up a Board of Directors. Form an informal Board of Advisors. Relate with them as your mentors who are better experienced in life and in the various disciplines of business, like finance, marketing, etc. Seek their wise counsel. Discuss your problems and challenges with them on a one-on-one basis.
Connect With Your Community: Support yourself with your business community, where you can mingle with other business owners. The life of an entrepreneur can be lonely, and filled with ups and downs. Meeting up with other entrepreneurs, whether bootstrapping like you or being seed-funded by investors, even from different industries, is always a refreshing opportunity to share your struggles and learn from each other.
Yes. Bootstrapping a business by self-funding your idea is a completely viable, but often neglected, option. Bootstrapping may take longer or lengthen the time to grow your business organically. But bootstrapping has the advantage of giving you more time to produce and refine your business idea, and gives you greater control of your business.
When you get your bootstrapping right, you will grow your business to a position where it will be making revenues, and it will be ready to raise cash to expand. You will find you and your business in a position of being attractive to outside investors who will be interested in investing in it because it is making money.
If you need help to bootstrap your business idea, consult the SME Clinic at https://smefinance.org/sme-clinic/. You may also email email@example.com or call +234 812 222 6222.