Posted by: Daniel Boterhoven on Sat Oct 29
Bootstrapping is the process of funding a new business venture with your own finances or revenue. It involves little or no outside capital, with the primary benefit being that you don’t have to give up any equity.
Bootstrapping is not for everyone. Those that are not in a stable financial position should avoid it, and you will need some cash reserves built up to be able to do it properly. Also, if you have access to capital elsewhere and don’t mind giving up some equity, there are other options out there which may be more suitable for you.
Aside from retaining equity, there are other benefits to bootstrapping.
An important part in planning your startup is figuring out where you want to be in a year or even in three years from now. Knowing where you want to be will give you a target that you can work towards. It may be a revenue figure, or it may be a milestone to gain investment from a well-funded entity.
Targets like these give you something that you will focus on as a founder. For example, if you’re looking to hit a revenue target, then you won’t need to really worry about preparing a slide deck and speaking to venture capital firms. Instead, you will want to focus on your marketing strategy.
Likewise, if you’re looking at gaining funding after your initial bootstrapping stint. Then you’ll need to build your business in a way that is enticing to investors.
So, a key to successfully bootstrapping a startup, is to begin with the end in mind. Write down where you’re looking to be as a business at certain points in the near to medium-term future. Once you have these targets set, you can put a plan in place to achieve these goals.
A solid plan forms the foundation of any business. You don’t need to spend time crafting up a detailed business plan in the traditional sense. In fact, in the startup space, there are other, simpler options that will still give you a flexible and effective way to plan your bootstrap strategy. The Lean Canvas model is one. Others include the Magic Triangle, the IBM Component Business Model or the Cause Effect Analysis.
Your plan should include key details of your business model, such as:
Your plan should be created with your target milestones in mind. The plan should ultimately be a way for you to connect the dots – from where you are right now, to where you will be when you reach your goals.
This plan shouldn’t be changed regularly, but once you’ve hit your first set of milestones, it will help to revise it. Also, if you’re struggling to achieve your goals, a plan overhaul may be necessary. Don’t do this too quickly, though!
It’s also important to be realistic with your budgets. Do your research beforehand to get a good idea of what it costs to both build and market your product. It’s common to budget too much for development and too little for marketing, or vice versa. Make sure you do your research.
Typically, a startup will leverage the use of a technological advantage at the core of its business model. The development of such technology, in the form of a Minimum Viable Product (MVP), is nearly always the first mission of a new startup.
But when you’re bootstrapping a startup using your own cash reserves, it would be very important to be prudent with costs and budgets. There are ways to keep costs down in development of technology for your startup. These include:
Spend some time considering these points when designing your MVP. With the limited resources that you have available, you need to work smarter than someone with deep pockets!
It’s a good idea to place your product into the hands of some early adopters as quickly as possible. The reason for this is that you will receive feedback earlier on in the product development process. This will help with your feature prioritisation.
Soft-launching early and spending some time refining and updating your product will help to make it more market-ready. Once you’re starting to get some good feedback, and your limited group of customers are using your product regularly, you will be ready for a larger scale launch.
If your bootstrapping strategy is to avoid external investment at all costs, then you will probably want to start charging for your product at this point. This will at least offset some of your operating costs, and you may even be able to claim back some of your initial investment before long.
It’s smart to have already started your marketing campaigns well before this point, even before the soft-launch. This will build hype, and will place you in contact with an interested group of early adopters to learn from.
Following the launch, you will need to transition into an iterative product development cycle. This will allow you to analyse customer product usage and feedback, and improve the product accordingly. This is where the revenue will be needed, so you can start depending on your own financial backing less and less.
A clear plan, set around a realistic, yet inspiring set of goals, will form the foundation of your startup. From this, your pathway should become clearer, and you will be more likely to accomplish what you want to on your more limited budget.
Being shrewder in your budgeting and project management will help to keep balances in check. And learning to adapt to your customers’ interests earlier will help avoid wastage of your valuable resources.
Bootstrapping a startup forces you to work smarter. And when your own finances are on the line, you will be motivated to create a leaner and more expenses-savvy business. And hopefully, a more profitable one.
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