Raising money may be a sort of validation for your idea but it’s not a metric of success. And contrary to what pop tech culture may try to sell us, a lot of successful businesses are being bootstrapped to profitability from day one.
Bootstrapping is hard but rewarding. Nothing is more satisfying than people paying for your product because they are happy with it. It’s not easy though and a lot of entrepreneurs would rather get institutional funding as a soft cushion when launching out or scaling.
For those who choose the path of bootstrapping, here are 22 things to remember:
1. Be dogged
When you are starting out, vendors and suppliers won’t want to work with you. Don’t let this discourage you. It will take some extra effort to get what you need. Don’t be afraid to share your story and appeal to people’s human side.To succeed as a bootstrapped startup, takes almost superhuman perseverance but it pays off in the end. Don’t take no for an answer.
2. Hunker down like a hermit
Not a literal hermit but you may have to forgo some luxuries and finer things of life. If it’s not absolutely necessary, it can wait. Don’t worry, if your gamble pays off you’ll be back to living the good life in no time. But while bootstrapping, adopt the frugal lifestyle.
3. Use shared office spaces
Working from home is draining and isolating. Camping out at a restaurant or coffee shop can be expensive in the long run (those cups of coffee start to add up after a few weeks) and so you end up looking for an office space. Instead, use a coworking space.
New ones seem to pop up everyday and they are quite affordable. Alternatively, you could find another start-up that has extra space and make a deal to share with them. It’s a lot cheaper than paying for your own office, and comes with networking opportunities. Leadspace is one of the new co-working spaces in Lagos.
4. Bootstrapping is not consulting
A very common bootstrap strategy is to begin by selling services to fund the development of the product. But this is counterproductive as it divides your focus. In fact, if you ask entrepreneurs who bootstrap, they’ll tell you one of the reasons they didn’t chase investors was because of the time investment it required.
Getting rid of distractions and focusing on how to build the product, how to scale, and how to become self-sustainable are priority one when bootstrapping..
5. Don’t believe what you read/see
What you read in the press about fantastic fundraising and entrepreneurs is storytelling: the press writes what people want to read, what people will share, stories that sell. And we love reading such stories. So they keep feeding them to us. It’s an endless loop. Do not believe it, do not benchmark yourself with it, do not compare yourself with them. You’re both playing two different games and you’re in this for the long haul.
6. Be creatively cheap
Having no money means you are forced to use your imagination to solve problems. Having too much money makes you stupid. At the beginning, your budget is a “mistake” budget i.e. you’re still at the heavy experimenting and iterating stage. While you are learning and making all those mistakes, limit your spending. For example, stick to the free versions of tools you use.
7. “No money” opportunities
It is counterintuitive but with no money, you have access to things you will not be able to get after that. For example, you’ll call in every favour you can and rent and borrow and share resources with others for as long as possible, all because there’s no extra money to spend. This is also the period where you’ll make some of your best hires, and these are people who’ll be willing to work cheaply because they are in love with the project.
8. Get discounts and hand-me-downs from well-connected friends
Know anybody who works for Jumia? Perhaps they can get you special deals on laptops or other needed hardware. You could also look to other startups if they want to sell old hardware, brand new machines are rally expensive. You just need something that works and when you have money coming in, you can upgrade.
9. Watch cash like a hawk
Spending out of a personal bank account is sloppy and risky. Instead, fund a bank account specifically for the business. By creating a separate business account, you can track and learn what adds cash and what diminishes cash from the business. Monitor it like a hawk.
10. Do things that do not scale
Go to market as soon as possible. Every entrepreneur would love to start at scale but it is impossible. The first few days of launch will demand a lot of manual energy. Ensure to find a cheap, unscalable solution.
11.Use your network to prove your product
If you had external funding, your pride and ego may make you want to test run some ads in order to test run the idea. But you’re bootstrapping? You’re not yet rich enough to afford an ego. Go to your friends, convince each and every one of them about your product. That’s your test audience and focus group all rolled in one.
12. Be aggressive
The only way to bootstrap a company is the collision methodology – do not wait for people to come to you; go to them. Force them. Focus on people you know to get your early traction.
13. Follow your KPIs weekly
You need a KPI dashboard to know if you are on track, if what you’re doing is working or not.
14.Pay with risk
Cash now is more precious than cash later. Right now, you do not have cash, so pay with agreements, promises and IOUs, preferably conditioned by milestones. If you are successful, the service provided was an investment and they get returns. If the business fails, you don’t owe anything. This way the service provider is aligned with your interests. And never pay people with equity because equity is forever.
15. Pay late, collect early, sell high, buy low
Startups are afraid to pay late – they always pay their bills first because they are nice and inexperienced people. Be shameless. By the way, be hardcore with your bank. The only limit is to never put yourself at personal risk and to never accept any personal loan.
16. Skip the seed round for better valuation, more time saved
Seed rounds usually cost a lot: around 20-30% of your company for a very small amount of money. That money can be built from revenues. So skip the seed, go directly to a 1-5M first round for the same 20-30%. This completely changes the final ownership you can get.
Also, since you’re still green in the industry and you don’t need a lot of money yet, anyone can be an investor which opens you up to all and sundry. Skipping the seed round keeps you from committing to toxic investors.
17. Hire only who you can trust; hire to do something you understand
You must know every function before thinking about delegating it; then when you are comfortable with the work, you can hire someone who is better than you.
18. Delegate what you know best
This way you know whether or not your employee is any good. Focus your attention on what you are not good at, find a solution, then delegate it.
Your ultimate goal is to delegate everything! Do not keep the most important things for yourself just because you are good at it, or you will become the bottleneck of your company.
19. Beware of interns
Interns are great in a growing environment but they are liabilities when you’re yet to attain product-market fit. This is because you do not yet know what you are doing and you’re delegating to people who are even worse. Remember: if you bootstrap, you cannot afford to make any management mistakes. They cost too much.
20. Do not do stupid things – outsource
Grunt work i.e. repetitive tasks, can be time consuming. And since there’s no intuitive (or spur of the moment) decisions to be made, they can be outsourced. This frees you up to focus your energy on other activities that demand your attention.
21. Money talks
Successful bootstrapping (real users, real traction, real revenues) puts you in the best position when negotiating with investors later. There is no such a thing as a negotiation if you do not have leverage.
22. When to end the bootstrap
Understand that you do not decide when to raise funds. No one is waiting for you. The good moment to end bootstrapping is the moment the bootstrap ends :). If your company is growing and succeeding, trust me, the investors will come knocking.
Bootstrapping a business is difficult, but it’s doable. With grit, hard work, collaboration, and contagious passion for your company, it’s an investment that will pay off for your company in the long run.
Featured image via converzion