Bootstrapping is an increasingly common way of running a business. It’s about starting your first business without the traditional war chest your parents would have had. But there are a few rules to bootstrapping your first business that you have to follow if you’re going to make a success of this.
Don’t Bootstrap What You Don’t Know
When you don’t know what you’re doing you can employ an expert to fill in the gaps. When you’re bootstrapping you don’t have this luxury so you need to understand your niche.
Stick to an area you know so you can barter services and do much of the work yourself. This will limit the amount you have to spend.
Make Your Team Work for Equity
You don’t have the cash to employ anyone so you need to use something else to attract people to your cause. The way to bootstrap a business is to offer equity instead of cash.
It means that you have to sacrifice a portion of your company and its profits, but if it fails you know you haven’t invested a lot of money for no good reason. It works both ways.
And it also makes your team feel like a part of the company.
Your Plan Should be Budget-Based
Most businesses will think about what they want to achieve. They’ll think about their wishes and ambitions. A bootstrapped business has to think in exactly the opposite sense. They have to concentrate on cold, hard numbers.
Your plans should be based on the limited budget you have. Aim to achieve what’s realistic not necessarily what you want. Only when you start acquiring funds, later on, can you start to think about your wishes.
Use the Power of Remote Working
One of the biggest expenses of running a business is the office. It’s always nice to have an office when you start your first business, but this is not something you need to spend money on in this day and age.
Use a remote working setup until you have customers. You can use programs like Skype and Slack to function as a team in the meantime. You may even find that it’s a more cost-effective working arrangement in the long-term. Check out five other things not to waste money on.
It’s All About Cash Flow
Cash flow is the number one reason why businesses fail. Even a successful company can have a huge number of customers and lots of orders and it can still go bust. The reason for that is cash flow. They might not get paid for 90 days and in the meantime, they don’t have the funds to continue functioning.
When you’re bootstrapping you need to keep an iron grip on your cash flow. This means requesting shorter payment periods and demanding that money up front for big orders. It may seem harsh and you may turn away some businesses, but you can’t afford to do anything different.
Most new businesses need extra cash at some point. No matter how well you plan unexpected expenses seem to pop up. Business owners usually turn to credit cards as their first option. If this isn’t an option, online cash loans may be your best route.
Optimize Different Revenue Streams
You don’t just have one type of revenue stream to take advantage of. Smart businesses use multiple streams. Take advantage of them, including:
- Subscription fees.
- One-time sales.
- Advance sales.
- Long-term packages.
But is Bootstrapping Really the Right Option?
Bootstrapping presents its own set of unique challenges you’ll have to deal with. The difficulty you’re always going to have is money because you have no room to maneuver. That can make it seem like the wrong option.
A lot of entrepreneurs may start bootstrapping, but they’re also working on ways in which they can attract funding. Starting your business and bootstrapping can actually make it easier to acquire funding because you’ve already demonstrated that your business idea can work.
Remember that this isn’t a decision that’s going to determine your destiny for life.
Last Word – What’s the Right Choice for You?
Bootstrapping is tough and it’s not easier than running any other type of business. You need to have a solid plan and a team that’s in this for the long haul.
Take a look at your options and gauge whether it’s the best use of your time. If it is, go in with all guns blazing. But if you’re not completely sure you should turn the other way.
Do you think bootstrapping a business is the right option for you?