There is no doubt that starting a business is exciting! Whether it is something that you’ve dreamed about for years or life led you in that direction, it is undeniably gratifying to know that you are building something from the ground up. It is exhilarating, fulfilling, time-consuming and let’s not forget costly. Yes, we can’t forget the numbers. Even if it is something you absolutely love doing, as long as you plan to approach it as a business, it will come down to the bottom line.
So how are you going to manage your money?
There are many sources of funding out there; and it is best to weigh the options, develop a strategy and determine what will work best for your business. You can get grants or business loans and even funding from angel investors or venture capitalists. And of course, there is the option of reaching into your own pocket and funding your venture yourself.
Let’s focus on the latter, often called bootstrapping. Bootstrapping is essentially taking a self-sustaining approach and maximizing available resources without having to reach out externally. So with this option, you’re getting your business off the ground with your own capital and reinvesting your profits into your business as it grows.
Of all, this is probably the most gratifying approach because it taps into every business owner’s desire to not just survive, but to thrive. It pushes you to make every dollar count and to also think about your return on investment. How are you going to sustain and generate new business? How can you turn your $100 into $1000? How can you cut costs so that you breakeven? When the going gets tough and you are personally vested, you will find a way!
Putting all accounting jargon aside, a business exists for the purposes of generating profit and you generate profit by maximizing your revenue and limiting your expenses. Three things are essential if you are bootstrapping — generating cash flow, saving, and being a penny-pincher when it comes to expenses.
Here are some ways you can maximize your bootstrapping efforts:
Big picture thinking. Before you step forward, always step back and think. In business, you want to think about the details, which are important, but you also want to think about the “big picture.” Your business is a unit. Your expenses aren’t mutually exclusive from your revenue streams so think about the effect that aspects of your business have on others. In fact, you may need to spend money to make money. So force yourself to think about your business as a cohesive unit at all times.
Get creative. What can you do yourself that you can avoid spending money on? Marketing and advertising are two key areas where you can cut down your expenses. These days, you don’t need an ad in the newspaper or a billboard to get the word out about your budding business. You can create a Facebook Page and get a Twitter account in a matter of minutes; and they are both free! Certainly these are in-line with your cost-cutting initiatives. An added bonus of online tools is that they help you expand your business’ reach beyond your local community. So what can you roll up your sleeves and do yourself? Maybe create your own business cards using Microsoft Word or PowerPoint. Maybe using a blog to connect with your customers instead of snail mail.
Differentiate your product or service. Taking the time to focus on your work product and your customers will go a long way. The truth is, maintaining a repeat customer is a lot cheaper than finding a new customer. Not only does finding a new customer involve money, but it also involves your time. Repeat customers will not only be your largest customer-base over time, but they will also bring you new customers via word of mouth at no cost to you. Yes, this means free publicity. This too is in-line with your cost-cutting initiatives. So make that extra step with each of your customers. Go the extra mile in giving them a personal experience and value. And be sure to follow up, because the sale doesn’t end with the actual transaction. Find out how they like your product and ask for their feedback. If there are ways that you can improve, they will know best.
Barter. Be keen to your strengths and be honest about your weaknesses. You can’t physically do it all. So when another business is also looking to keep their expenses low, create opportunities to work together. Maybe bookkeeping is their expertise and they’ll be willing to help you with that in return for your service. Keep track of the people in your network and make a list of the areas in which they excel. And if you’re unsure of what you have to offer, ask! There is no exchange in money but quality service will be exchanged, resulting in a win for everyone.
Visualize the numbers. At the end of the day, you will need to look at the numbers. You have to keep track, and you need to see what your money is doing. Cash flow management is so essential when you are bootstrapping so if this isn’t your expertise, leverage tools that make it easier for you. These days, you can track revenue and expenses with your phone or online without having to be in the details yourself. Whether you’re hands on with this or not, make sure you’re armed with enough knowledge that you can accurately assess your financial situation. Evaluate your results and be creative about incorporating additional cost-cutting measures.
Dasanj Aberdeen is an entrepreneur who embodies the combination of left-brain logic and right-brain imagination as a businesswoman and artist. She founded TheAfter5Edge.com as a platform for encouraging others to optimize their potential by discovering and leveraging their strengths to obtain their competitive edge. She is a graduate of the Wharton School of the University of Pennsylvania. Follow her on Twitter at: @TheAfter5Edge.
Dasanj,
Good points about bootstrapping. Some think of boostrapping as a negative thing because you don’t have much money. But some of the greatest marketing campaigns and biz success have been as a result of this method. One that comes to mind is FUBU and their creativity of geeting LL Cool J to wear a FUBU hat and say “For Us, By Us during a Gap commercial! Cheers
Torrey,
I’m glad you brought up the negativity associated with bootstrapping. No matter what the perceptions are, it is effective; and more importantly, it is cost-effective. Every business, big or small, wants to be economical so taking measures to make this a reality is definitely not something to be ashamed of. And similar to the instances you mentioned, when bootstrapping is well executed, it makes for a great story! How awesome is it to know you went from grinding all the way to thriving?!?
This article states you can “track revenue and expenses with your phone”….can anyone elaborate how, or suggest apps/websites?
Thank you
Great question, Doug. Thanks to technology, it has become very easy to keep up with your business while on-the-go! If you’re an Apple fan, Freshbooks helps you keep track of expenses and even send invoices to clients while XpenseTracker helps you track expenses and mileage. The mobile application from mint.com allows you to see all of your balances and transactions in one place. Expensify is available for Blackberry, the iPhone and Android and allows you to take pictures of receipts and create expense reports. Intuit GoPayment allows you to accept credit card payment via your Android. There are just so many options! It comes down to assessing your business needs and going from there.
Essentially, this article offers the bottom line nuts and bolts of approaching entrepreneurship. I would add that bank loans, credit cards and various debt-related vehicles count as bootstrapping because the entrepreneur is on the hook to ensure that money is paid back or risk losing the collateral. Outside of an equity investment, I would put most efforts into the bootstrapping phase, however creative they may be. And I LOVE the suggestion to get creative.
There are, of course, limitations to our own creative abilities. So, I would add recruiting as an essential basic component to successfully build a business. I LOVE the Barter advice as well, which dovetails with recruiting. Every entrepreneur has to be creative in connecting and collaborating. And when such connections warrant, recruitment of new team members to add value to the company is a good move. Especially in the marketing department.
Another addition is Time Management. I like the advice on visualizing the numbers. I’d like to add that the numbers on the clock are important as well. And sometimes (many times) entrepreneurs, myself included, can get caught up in time sucks. They seem important in the moment, but what value in the end do they generate? Sometimes we can determine whether a discussion, a conference, an investment in a relationship, etc., are time sucks. But when we can, recognizing and avoiding time sucks is an activity as valuable as tracking revenue and expenses.
Good article.
Mike,
I really appreciate your input and perspective. I think creativity is very fundamental to entrepreneurship; because where society didn’t created a way, an entrepreneur is willing to challenge the status quo, venture out and create one. This is inherent in the way entrepreneurs think and act.
Limited resources, namely human capital and time, can only lead to so much productivity. So I’m in agreement that as the business grows, an honest assessment should be done to consider adding more resources. At this point, it is important to know what the existing strengths of the business are and what additional ones are needed. As an extension of this, it is crucial to hire people who are experts in their realm.
A lot of bootstrappers struggle with time management. You can have an excellent system tracking your revenue and expenses, but after 5 hours of doing this, what is the status of your business development goals? It is important to keep a big picture perspective and constantly ask what value is being added with each task. Time is limited, valuable and there will forever be that option of being a perfectionist versus being efficient.
Another suggestion I have for bootstrappers is for them to use different times of the day to their advantage. Certain tasks can be left to early morning or late night hours as they do not require any interaction. On the other hand, generating new business is essential for the survival and growth of a business and will require daytime hours. With that in mind, it is best to prioritize tasks in order to minimize opportunity costs.
I really enjoyed thinking about and responding to your points!
The biggest advantage of bootstrapping is that it’s makes you focus on sales FAST! Makes you cut through the clutter of bells and whistles. Makes you focus more on clients needs to be met than selling your great idea, and being stubborn about it.
Very true, Alain. Bootstrapping makes you focus on cash flow and cash management. And you’re constantly reinvesting what you earn with the intention of creating more. Knowing there are no additional funds to fall back on motivates and drives you to achieve more.
Great article! So true, “When the going gets tough and you are personally vested, you will find a way!” What I love about self-funding a business is that you own it! An investor will always want more. Often times decisions are made based on what’s best for the investor, but not necessarily what’s best for the business. Also, love the idea of bartering for services! We created our service specifically for small businesses. No one provides web conferencing for small business with an emphasis on premium product for small business pricing! So important when bootstrapping a business to search for companies that can relate to your small business needs and expense account!
Great and honest article. As a “mumpreneur” I’d add that achieving separation is essential – you can’t focus 24/7 on a business without some degree of burnout, so being able to relax and switch off the business brain is key. It took me a long time to get there but it keeps me fresh with ideas and energy.
Great article! The point I would add is to be willing to invest money in products/services, etc. that will have a return on investment. So many times, I see business owners penny pinch their way to strangling their business. They will, for example have a $600 iPad that they use for watching videos and yet are reluctant to spend to get a professional looking logo, or create a website that screams “I made this myself!” I am as frugal as they come, but will happily spend good money on anything (training, virtual assistant, professional development, computer equipment) that will help me save my most valuable (and non-renewable) resource, TIME.
You covered so many key aspects of starting a business from the ground up! If you can manage a little it will be easier to attract resources that will help grow your business. Investing in your own business also allows you to better understand what you need vs. want and how to adjust when the revenue stream is slower than expected. Additionally, you can more accurately determine the value of your products and services (which is a challenge).
Each point was well stated. Visualize the numbers (both in the beginning stage and throughout). If we don’t project wisely and make quick adjustments the other sections will not matter. I appreciate the idea of bartering as well and believe that if we value each other more in the small business community, our businesses would thrive. Word of mouth and networking is powerful.