Bootstrapping Techniques For Startups

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Bootstrapping Techniques For Startups

The term bootstrapping came from the 19th-century expression “to pull oneself up by one’s bootstraps,” which meant doing an impossible task. The earliest that idiom appeared was in 1834 in the Working Man’s Advocate. By 1922, bootstrap as a metaphor was found in the James Joyce novel, Ulysses, meaning to better oneself by one’s unaided efforts. The term eventually evolved to mean being self-sustainable or proceeding without external help. In the present day, bootstrapping is a general term and practice associated with creating businesses that rely on their resources and earnings. Startups, for example, take pride in telling that their operations are bootstrapped. Consequently, bootstrapping techniques for startups is a popular and valuable topic of discussion associated with creating and running startups.

Understanding Bootstrapping Techniques for Startups

According to Investopedia, 80% of startups are financed by founder’s funds. Bootstrapping techniques for startups are a common practice. But why would founders risk their own finances? What are the advantages of bootstrapping a startup? What are the disadvantages? What bootstrapping techniques for startups can be adapted to your own operations?

Pros

  • Founders maintain total control over the business.
  • More focus on developing the product rather than on pitching to venture capitalists and other investors.
  • You learn as you go. There is also more flexibility with methods and processes you can use when there is outside interference.
  • More freedom to work on the brand with no external pressures from investors to deliver or get the product correctly right away.
  • Bootstrapping brings conscious use of financial resources and therefore leads to smart spending habits.

Cons

  • The financial risk from using own funds to finance the business.
  • Bootstrapping means hard work, and for founders, it means doing so many things simultaneously. The risk of burn-out is high.
  • Limited growth as personal resources and knowledge may be restricted.
  • Pressure from family if there are personal assets in line.
  • External investors lend credibility to a startup, and without them, a startup may be deemed not credible.

Bootstrapping Techniques and Methods

According to Investopedia, there are several methods to bootstrap your startups:

  • Founder funding using personal income and savings.
  • Personal debt
  • Working for free – founders and key employees giving their time for free.
  • Keep operating costs or overhead to the bare minimum.
  • Minimizing inventory
  • Asking for a subsidy from the government or taking advantage of tax breaks.
  • Cash from sales.

Financial Bootstrapping Techniques For Startups

Practically all of a startup operation can be bootstrapped, but perhaps one of the most important to be bootstrapped is the financial aspect. In financial bootstrapping, startups must maintain low overhead costs, avoid expensive payments, and get favorable payment terms. Here are some tips for financially bootstrapping your startup:

  • Avoid renting your own office until you start hiring employees. You can opt for a low-cost co-working space instead. You can also opt for hybrid working where employees only meet for team meetings and team-building activities.
  • Do not spend a lot on office furniture. Consider buying second-hand office furniture, or if leasing is available, you can also consider this option.
  • Negotiate favorable payment terms from the supplier. If a discount is offered for early payment, prioritize paying those invoices. Payment terms like 30 days without interest are pretty standard but if possible, negotiate for longer terms like 45 or 60 days.
  • Trade-off or barter goods and services whenever possible.
  • Avoid credit card debt as they incur huge interests and defeats the purpose of bootstrapping, which is to remain debt-free.
  • Establish a system of review, prioritization, and payment for all your financial obligations. When cash flows freely, payments can be relegated like an after-thought, but in a bootstrap set-up, every payment matters. Small payments that go unnoticed, when accumulated, could have an impact on your cash flow.

Bootstrap Marketing Techniques For Startups

Aside from financial bootstrapping, you are more likely to hear the term “bootstrapping” in relation to marketing in the startup world. You can be creative and innovative in marketing your product or service without a huge price tag. Here are some best bootstrapping marketing techniques for startups:

  • Incentivize customers by setting up a rewards program.
  • Offer free samples of your products or free access to your services. The “freemium” subscription model – where everyone is given free basic access, then customers are asked to pay as they unlock premium features – is one way to get customer adoption, especially for a direct to consumer (B2C) business model.
  • Build and maintain an email list of your customers to regularly reach out for product releases, company updates and sales promotions.
  • Do not shy away from asking satisfied customers for testimonials that you can use in your website and marketing materials.
  • Hold special events for customers to showcase your products or services, offer promotions, and create a unique customer experience.
  • In the age of influencer marketing, partner with social media influencers who have a vast reach and audience to showcase your product or services on their respective platforms. Just be mindful of the costs involved.
  • Maintain a social media presence on the platforms where most of your customers are also present. Be active, engaging, and creative in your content.
  • Create and maintain a blog. In the blog, you can offer advice, write about the sector you are in and position yourself as a thought leader. Interact and comment on other blogs, especially those on products and services that are complementary to yours.
  • Reach out to products and services that are complementary to yours and offer to co-promote with them.
  • Attend your industry or sectors events as an attendee to promote your products or services through networking. You can also network with key players in your industry as well as check out the competition.
  • Reach out to free press and platforms that can showcase your product or content.

Examples Of Bootstrapping Technoqies In Startups

There are many well-known examples of successful companies that have bootstrapped their operations in the beginning. Let us look at some of them:

Spanx, Inc., a famous brand for women’s hosiery and pantyhose, is often cited as a perfect example of a bootstrapped company. Sara Blakely founded Spanx in 2000 using her life savings of $5,000. She got the idea for Spanx after experiencing discomfort with the hosiery she was using while selling fax machines door-to-door under the heat and humidity of Florida. Blakely researched and developed the products of Spanx. She made all the sales and marketing herself initially and enlisted the help of family and friends. By June 30, 2018, Spanx’s estimated revenue is $400 million. It has over 750 employees worldwide and has stayed private since its foundation.

GoPro, Inc. is another company that famously bootstrap during its early days. Founded in 2002 by Nick Woodman, GoPro manufactures action cameras and develops its own mobile apps and video editing software. Woodman sold bead and shell belts for under US$20 from his VW van, then later sold fashionable camera straps to raise money for capital. His parents also invested over $230,000. In 2014, GoPro went public and is currently listed in the Nasdaq, trading as GPRO.

Plenty of Fish(POF), an online dating service based in Vancouver, Canada. Founded in 2003 by Markus Frind, POF’s business model is premium membership plus advertising. Frind ran the platform independently from his apartment until 2008, when he acquired an office and started hiring employees. On July 14, 2015, Match Group (owner of Match.com, OkCupid and Tinder) bought Plenty of Fish for $575 million. The headquarters are still in Vancouver, but POF now has a presence in the United Kingdom, Ireland, Australia, New Zealand, Spain, Brazil, and the United States.

GitHub is a web-based hosting service for software development projects using the Git revision control system. Founded by Tom Preston-Werner, Chris Wanstrath, and PJ Hyett in 2008, it became a subsidiary of Microsoft in 2018. The founders started GitHub as a side project for the weekends, with the founders coughing up the domain’s costs. When GitHub transitioned into a full-time operation, the founders financed the set-up costs using their own funds.

Patagonia, the American company that sells outdoor clothing and is famous for its environmentalism, is another example of a company that bootstrapped its early operations. Founded by Yvon Chouinard in 1973, Patagonia started when Chouinard started making metal pitons (metal spikes that secures mountain climbing rope) from old harvester blades. He tried them out himself by using them in his climbs. When the pitons started selling, thus became the beginnings of Patagonia. Chouinard built his shop from his parent’s backyard and sold the climbing gear from the back of his car. The first company was named Chouinard Equipment which later evolved into present-day Patagonia. Chouinard never took outside investments, relying on the company’s growth from selling innovative and environmentally-conscious outerwear to fuel the growth of Patagonia. Today, Patagonia remains a private  Certified B Corporation (a certification recognizing social and environmental performance) with hundreds of stores in over ten countries across five continents and factories in 16 countries.

The Allure Of Bootstrapping In Startups

If you think about it, there is a touch of legend to bootstrapping in startups. A lot of mega tech companies at present will have some history of bootstrapping in their early days. Facebook was started in a dormitory, and Apple had its beginnings in a garage. Google founders famously used credit card debt to purchase their hardware. Bootstrapping is often cited as “bragging rights” among startups and their founders.

Bootstrapping marketing techniques for startups have become sources of stories where startups’ creativity, resilience, and agility shine. Bootstrapping is indeed accepted if not celebrated in the startup world. It is recognized as a test of endurance, stability, agility and even creativity.

Preparing For Bootstrapping

If you think of bootstrapping your startup from the get-go, you need to brace yourself for what comes ahead. Bootstrapping is not for the faint-hearted, unimaginative and those lacking grit. The best way to weather bootstrapping and get your startup thriving is to prepare. Have a plan in place. Be prepared by doing your due diligence on what outright costs are associated with getting your product or service into the market. Which processes and the tasks resulting from them needs to be prioritized? What are the costs involved, and how can you lower them? Here are some best practices you can adopt in preparing for bootstrapping:

Research

Sifted pointed out that research is important to identify the growth opportunities and get to know your market. In researching, the following questions can be taken into consideration:

  • What’s the purpose of your startup?
  • Whom will your product/service serve? What problems or pain points will it solve?
  • How will your product/service help them?
  • How are you going to market your product/service? What type of marketing will your customers respond to?
  • Who are your competitors? How are their offerings different from yours?

Money Management

From the beginning, you have to think of money as your most limited resource. You will need to structure your processes around this fact. So, any money saving practices should be clearly laid out. Practices like how to keep your overhead low, saving on office rental by going remote and being conscious with how you spend your money. Even with the money-conscious mindset, you should also be aware of loosening the purse strings when the occasion calls for it. There will be times when you need to spend for the sake of growth. Weigh these moments carefully.

Customer Loyalty From The Beginning

Think about building customer loyalty early. Happy customers will evangelize about your products/services, and unhappy ones will not be quiet about them either. Customer loyalty programs and customer engagement will vary with the type of startup you have. Whatever the case, make sure that you allocate sufficient resources to provide the highest standard of customer service from the beginning.

Acquiring Assets

We are not talking about the assets that will require a considerable capital investment. This runs counter to what bootstrapping is all about! Some assets can be acquired with little capital investment. For example, it is acquiring talent. Acquiring talent to fill the knowledge or skills gap can be bootstrapped as well. Many online sites cater to talent for startups, and in terms of remuneration, startups can issue shares to make the compensation package more attractive.

Another example is building good relationships with third parties like suppliers, vendors and even clients. This will not require much capital yet will be very useful to a startup’s success in the long run. The same can be said for tools and resources that can be used to streamline operations. Project management and marketing platforms can be used for free for small companies just starting. There are many team management and collaboration platforms that small teams can use for free. Platforms like these help in effective team communication, especially with delegating tasks and keeping track of the progress of team goals.

The Bottom Line On Bootstrapping Techniques for Startups

When bootstrapping, it does not mean you are absolutely alone and cannot seek help and advice outside your family and friends. The bottom line is that if it does not cost you money (or cost is not much, anyway), you can ask for help from your network as well as from other startup founders. Even if there is a cost involved, you might want to consider bringing in a qualified accountant or finance person from the very beginning to keep you informed on tax-saving measures and the like. Speak to people who can advise you on best bootstrapping techniques for startups to avoid traps and pitfalls that may end up costing you money.

Before you bootstrap, the most critical question to ask yourself relates to your risk appetite. How much risk exposure can you take? If you are going to fail and lose all the personal investment you give to your startup, will you be able to take it? Some can go all the way, but this does not mean you should avoid thinking about these questions and not mentally prepare yourself for the challenges that bootstrapping will bring. If you plan to seek the help of family and friends, especially financially, have that conversation on the risks involved ad their expectations. It may be a difficult conversation, but it needs to be done.

Scaling Partners – Who We Are

At Scaling Partners, we are experienced at scaling startups. With our scaling as a service, we partner startups with processes and insights that they are missing and the people who have successfully scaled their businesses. As growth strategy consultants, we provide a tailor-made approach for your business. Our end-to-end fundraising service makes raising investment easier.

We offer a mentoring service that pairs you with mentors who have already been there and scaled their businesses successfully. We can give you a Chief of Staff, who will ensure your ideas become actions and help you grow your business faster. We also have investor services that help investors scout for investment-worthy late-stage startups that are not visible in the press or scouting databases.

Image by StartupStockPhotos from Pixabay

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