Bootstrapping does not mean that you are low on funds or have no cash — rather, it means that you can learn how to maximize the value of each dollar you spend within your organization to provide the greatest return; it is critical to the success of any startup.
Having run businesses for over ten years, I have had to bootstrap absolutely everything from legal, marketing, technology, finance, construction, etc. It is obvious that cash flow is critical to the success of any business. Bootstrapping, in the business definition, refers to starting a business without relying heavily on external help or capital. Startups that take this approach have to find other ways to grow rapidly, garner crowds through the use of tools and to quickly see a rapid return on investments made. Quite a few startups within the last decade have used bootstrapping with successful results. Apple Inc., Facebook, and Dell are just a few famous names, but there is a sizeable list of businesses that have succeeded using bootstrapping.
With that said, we had recently built within our family business eight prototype machines for production as well as many other minor components — all built from scrap metal we obtained from the local scrap yard.
We were quoted 10,000 dollars for dust extractors. My uncle picked one up for less than 500 dollars at the same scrap metal yard and, with some TLC and duct tape, made it work as we needed it to. Thousands of incremental improvements to the machines and overall processes were made. Initially, the cost of production was prohibitively expensive. Fortunately, a self-directed apprenticeship mixed with curiosity led to a significant reduction in the amount of processes required to achieve the finished product and in the process itself, which decreased the cost of overall production significantly.
We also utilized parts from local hardware. Local engineers would precision-engineer certain parts and, at times, give us three to six months to pay for the goods. Our best friends, by far, were the local scrap metal merchants. So many valuable machines and parts were acquired from them. We hacked the machines and parts together to make a fully functional machine that could genuinely generate cash flow.
Admittedly, the machine broke down some four or more times per day. We were literally making square pegs fit round holes through the majority of the process, but it did the job in the end. With that effort, we were able to validate the demand within the marketplace and prove our ability to both create value and produce products for three of the largest construction suppliers in Kenya.
Most of the IP was developed by my Uncle, and all of it was done on what amounted to a shoestring of a budget — therein lies the philosophy of bootstrapping. It comes from making the most of what little you have. It took seven years to build the business up to where it is today. Countless all-nighters were pulled, and we all dealt with copious amounts of financial pressure and stress. Fortunately, the light at the end of the tunnel is brighter ever. Cash flow, while still an issue, is becoming more consistent as a whole. People are starting to take notice, whereas many times before they would typically not answer any phone calls or reply to any emails.
There is no doubt that it is a tough process that requires a good bit of persistence, determination and skin as thick as the metal we worked with; size matters.
In the context of size, you have to be aware of the size of any firm you might wind up dealing with as well as what they bring to the table other than the select skills. Ask yourself: do these firms provide you with credibility or are they simply there to fill a void where skills are concerned?
As a rule of thumb — if you do not need to leverage the credibility and the skill is not core to your business, then you can go with a firm on a lower tier; if you yourself are a low-tier firm, go with a low-tier firm as well. If you are a mid-tier firm, go with another mid-tier firm, and if you are top-tier, then go with a top-tier; all fairly straightforward. The major factor in decision making is finding the best firm that can give you even more than what you need, beyond the skills you need filled in the first place, as mentioned before. Do research into their core value — a core value will tell you what a company ultimately stands for, what its values are and how its employees reflect them. You can typically look up a firm’s mission statement to get a good idea on what you are dealing with: customer’s first, loyalty, etc. You want them to understand what is important to you. Find a good match by investigating what is important to them.
Keeping up with the spirit of bootstrapping, do your best to make it another firm’s interest to do the work for free. That might sound impossible, but remember that my business was founded off a machine basically built from scrap metal, duct tape and a lot of hard work. While it might be difficult, there are instances where firms will offer free work in exchange for something you might be able to offer. Sometimes, you can even find someone interested in learning the work, the project or someone who just loves the idea — get them on board with your business as much as you are and you’ll get fantastic results.
We engaged a business automation and engineering firm to develop machinery on our behalf, as an example. At the time, we didn’t have the money, so I gained their confidence via a story. The story was: we’d require at least thirty of the machines built and we were looking for a company that could supply these machines to our suppliers. If they made the initial machinery, then we’d further engage them to produce the remaining thirty plus machines for the global market. The firm ended up spending around $20,000 of money on the development process on behalf of our company. Although they didn’t do the best work and we had to completely reengineer their machine from scratch, it still provided value to us and we will be able to honor our agreement to use them to produce the machinery in the future. If both sides can get value from the agreement outside cash, than you almost can certainly find bootstrapping techniques to get your business kicked into gear without having to rely on outside capital or aid.
Ultimately, bootstrapping serves four core purposes:
❖ Spending money and prioritizing spending on high return value activities that add to:
- Activities that are integral to your operations
- Your valuation
- Your ability to generate greater immediate cash flow
- Add to the perceived value of the company
We then went one step further and developed a methodology for spending money under the idea of bootstrapping:
1. Is the activity a core business activity?
2. Will it increase the overall valuation of the business?
3. Could the money be better spent elsewhere?
4. Can you offer equity in return for the services?
5. Can you strike a barter deal for the services?
6. Can you delay payment on the invoices?
7. Can you bring them new clients in order to pay off money owed to them?
As another rule of thumb, you should offer equity as an absolute last resort. I had a rule that I only offered equity to partners who could provide ongoing value to the company and who were aligned with the vision, mission and values of the company — referring back, once more, to the rule of investigating a firm’s mission statement as a means of finding compatibility.
I had the option recently to issue equity to a contractor, as an example. However, there was a misalignment on how we each perceived work ethics. For that reason, I decided that issuing equity to the contractor would prove to be a mistake and did not consider the contractor a long term part of the vision of the company.
Many have issues when it comes to solving problems that result from the bootstrapping method. The best advice is simply to be creative with how you come up with solutions. One example is looking at cross promotions, which is a cooperative agreement to market one another’s products between two or more companies. This is just one solution of course — there is always more than one way to find an answer. Leveraging the 80/20 rule, also known as the Pareto Principle, has been instrumental in our ability to scale here. This rule focuses on considering the following question: What is the 20% of the business that results in 80% of the profits? For businesses that are relying on bootstrapping, this principle helps keep the focus on where it needs to be, to increase the return and valuation of your company without losing unnecessary time. Everyone within the company can benefit from learning how to prioritize and focus on what matters the most. For my business, it was in the production of the machines by any means necessary, to grow interest in the product and begin formation of the business development.
Developing a value based company was previously mentioned, as well. Having the values of your business in mind not only helps in driving the overall principles, building the company and creating the company culture. It also saves time when it comes to accessing relationships both with outside firms as well as internal employees — recognizing someone who’s values are not similarly aligned will save you time and allow you to remain focused on the 20% that matters. Another tip that many bootstrapping successors live by is the creation of communities. This relates both internally and externally, as investing in every aspect of the people you work with can build stability, interest and relationships that may otherwise have been difficult to establish. As we had trouble getting people to pick up the phone or reply to an email initially, as mentioned, it has become that much easier now that we have an ever progressing and growing community.
Another question to ask is: can you get the work done for free? It goes without saying that you should never spend money on anything unnecessary. Some time ago, for example, I prepared a jewelry website that I ended up spending over 3,000 dollars on, as well as over ten months of development with six different firms working on the site simultaneously. We were basically chasing our own tails. One firm would take over the other , become accustomed to all of the code from the previous site and spend the next few weeks attempting to fix problems left by the last developers; rinse and repeat. The site was too complicated, had too many chefs in the kitchen, was full of bugs and we hadn’t even validated the demand for the jewelry yet.
Too little, too late, I finally decided to scrap the site and recreate it on my own. In twenty-four hours, on my own, I was able to recreate what had initially taken ten months. That story isn’t for bragging, but rather to show that you just have to know what tools to use and how to use them in order to get through the stress of bootstrapping. I fully admit to not being a great programmer, but I spent a lot of time in the past learning different systems, and that skill ultimately proved advantageous.
Another rule of thumb is not to pay for the professional version of software suites or solutions you are using until you have validated your products / services and can justify spending that additional money to white label their solutions. It is quite easy to burn a lot of money on low-value solutions that are ultimately inconsequential to the success of your company.
Remember: square pegs don’t always fit round holes, no matter how hard you hammer. We initially created an e-commerce website in Wordpress and not too long after that, we began to bleed money to make Wordpress an e-commerce site. Although there are a plethora of plugins out there that can turn your Wordpress site into an e-commerce store quickly, sometimes it is just best to choose a more appropriate tool for the job such as Magneto or Shopify. When you are starting out and validating your product, I recommend sticking to Shopify and then upgrading to Magneto as you scale up. The software should be working for you, not against. You can also sometimes save days on something that you can get someone to write a script for at a low cost, as one final example.
When it comes down to bootstrapping, it is all about doing more with less. Whether it is working with the scraps you can find in addition to your own blood, sweat and tears, or finding people willing to get on board for a low cost, bootstrapping can provide incredible growth and a return on cash flow unlike other business ventures or approaches. With persistence, determination and creative problem solving, there are plenty of opportunities to kick off your business by the proverbial straps of your boots.