Bootstrapping a startup is usually in the top 2 of any entrepreneur’s list of most stressful problems leading up to launch.
If you can resist the urge to spend money you don’t have or hold out on taking out loans for amounts you aren’t 100 percent sure you can pay back, then your startup is doomed from day one.
Pure and simple.
After all, as the saying goes “No money, no honey.” And the honey in this case is the cash that’s keeping the doors open, lights on, product development moving forward, and keeping the marketing plan in play.
Budget is one of a very few factors in your business that you can completely control day-in and day-out, contrary to what many a newbie startup owner might tell you. Lack of resolve and poor planning can quickly stifle growth, while cutting expenses wherever possible will keep you out of the red indefinitely – if you have a solid business plan.
How to bootstrap your startup to success
Our friends at Funding Note, an online publication offering business funding and financing information for startups and established businesses, suggest these five simple ways to help slash expenses while bootstrapping your new business:
1. Pay employees (mostly) in equity rather than cash.
This isn’t such a hair-brained idea, you know. Of course, some employees won’t touch an equity share in lieu of salary with a ten foot pole, but listen: If they’re not invested in your company and committed to making it work, you probably don’t want them helping you to launch and/or bootstrap your startup anyways.
Make them work toward the bigger picture with you. Ala Mark Cuban and his broadcast.com employees or multi-millionaire David Choe who painted some murals at Facebook’s early headquarters for stock options that amounted to some $200-million after the company’s IPO.
If you find yourself on the fence about this, thinking that you might be giving up more than what the employees are worth when your company goes public, think again! That’s just silly talk. You can’t grow without investing in your staff, and you’re asking them to give up the higher salary they could command elsewhere for their skills to help you build your company from nothing.
2. Make sure you’re later embarrassed by your first release.
Reid Hoffman, co-founder of LinkedIn suggests getting your product to market quickly, without being obsessive compulsive or trying to polish it too much:
“If you are not embarrassed by the first version of your product, you’ve launched too late.”
The goal is to be first, or one of the first. You won’t know how to fine-tune everything until you get feedback – lots and lots of feedback! Use outsourcing sites for designing and building your brand, rather than paying development firms thousands. You’ll just have to go back and spend more money later when it comes time to put the final polishes on.
Remember, you need feedback before the millions start rolling in.
3. Validate your brand first, before wasting cash on marketing.
You’re sure you have a winner. But how sure are you? Likely not 100 percent. Why spend money on marketing when you haven’t even talked to the people who’ve bought from you, or who may be willing to buy from you in the future? That’s just flushing cash down the proverbial toilet.
Perform customer interviews, hold promotional events on the cheap where you can talk to people, host feedback groups to see what people are saying about your brand and its products or services. Call it guerrilla marketing if the lack of radio ads and Google Adwords buys makes you feel like you’re being too cheap.
Save the marketing budget until you have a verifiable in demand product.
4. Set the right budgetary mindset and encourage innovation.
Let your team get to know you as firm, yet fair. And most important: Understanding, yet frugal. Let everyone know right from the start that you’re not interested in spending money on fad software, cool trinkets, expensive dinner nights, etc. You’re running a startup, after all.
The hidden benefit is that you’ll force your team to learn to work within a comfortable budget, encouraging them to find innovative ways to make things happen without a no-limit credit card or expense account they can turn to whenever the office needs something.
Set the tone early and you’ll be able to pay them a better salary sooner, while having money set aside for more strategic growth strategies that may require cash on hand.
5. Always ask this question before spending…
“Is this an investment that’s going to pay me back a profit, or something we could use later on?”
See, most of the frivolous stuff is easy to identify and reject. You know you can do without a Keurig for now – you’re a startup after all. A company gym? You don’t even know where you’ll be a year from now.
But what about a brand new printer when the old one just needs a (ahem) cheap set of cartridges? Nope.
And do you really need a new laptop with a 6-core processor when the 4-core you’re running right now is still a total beast? Nada.
How about company t-shirts, do you really need them at this stage? Maybe. If the price is right. There’s no better form of cheap guerrilla marketing than that which advertises your brand during off hours and even while you sleep. It all depends on just how cheap they are and how tight your budget is at the moment.
Share Your Own Bootstrapping Strategies
We all know just how important it is to be able to grow a startup on an extreme budget. Millions and billions are made in such ways. Nearly all the big brands out there today were built from the ground up, with very few early investors to help them get on their feet financially.
Luck does play a part, but a good financial plan and the resolve to stick to that plan are what will allow your brand to grow the quickest.
Remember, spend your investors’ or borrowed money carefully. Make sure that every penny count toward your startup growth. Manage your capital burn rate, and make sure that your startup survival is on the top-most of your priority list. Don’t make those dead unicorns your role models.
Share your own bootstrapping strategies and stories in the comments below!