(as seen at Forbes.com July 28, 2016)
Bootstrapping is the process of using limited personal resources to get a business started, then reinvesting profits to grow it without the aid of outside investors. If done effectively, this is a great startup strategy – especially as you answer to no one but yourself.
The values in bootstrapping:
- It’s all on you, so you will work even harder for your success.
- You manage time more effectively.
- It forces you to focus on what matters.
- You own it.
With the exception of my current company, I have bootstrapped every business I started. For Efferent Labs, it is about scaling a different kind of business. The only way for me to do this is to take on outside investment.
At the beginning of Efferent Labs, we were bootstrapping everything. We didn’t start to take on outside investment until we were a winner in the 2014 43North competition. The boost provided by the $500,000 investment that came with the win, allowed us to supercharge our efforts and gain outside interest.
Stretching, Grants and Freebees
To get more with less, eBay has been a great friend of the company for purchasing and selling equipment. We have also been able to stretch our dollars with matching grants. This type of grant is a little easier and quicker to obtain than a federal grant, and is usually funded around economic development efforts in a city, region or state.
In a matching grant, you supply an application that justifies your need. If successful, you are provided a match (1:1, 1:2, etc.) that allows the completion of a specific project over a timeframe. Even with the required matching money, these grants are powerful financial tools for a startup. Most sponsors do not provide the cash directly to your company, but instead require that you directly pay your match money for them to manage. They, in turn, process invoices for the services, or supplies and equipment required, and pay the venders directly. This reduces headaches when tax season approaches.
When we needed expensive market research, we looked to a local university. The University at Buffalo is the largest institution in the SUNY system and has a great MBA program. We presented our needs to a professor and a team of graduate students who worked on our study as their class project. The team’s work would have cost us precious cash; however, using student resources only required us to use some of our time to guide them, and review their findings.
Another method many startups are successful employing is the use of stock options for compensation, or even goods and services. While this is trickier and poses additional risk, it is a very common tool. However, you must exercise caution, as issues can arise in determining the price and/or value of the options. This is where some investment in legal and financial services is critical. All parties suffer if the price is not set correctly.
This brings us to some key reflections from my bootstrapping experience:
- Be resourceful. Look outside the standard “corporate” way of doing things.
- Get out of the kitchen (or garage, or office) and network. It’s generally free, or very low cost, and you might find a person with the information, equipment or resources that can help bring you to market.
- Spend every dollar as if it were your own money, and as if it’s your last.
- Never buy what you can borrow.
These days, being an entrepreneur is all the rage. But despite its glamorized appeal, remember that the path to success is grounded in this hard reality – it always comes down to the Benjamins!