Bootstrap may or may not be a term that you’re familiar with, but if you’re a business owner, you already live the concept of bootstrapping every day! “Bootstrap” is used to describe the act of self-funding a venture with little to no outside capital assistance.
In this blog series, we provide some quick tips for those considering to boostrap or seek outside funding in order to:
- Help you look under the hood to find -and fix – problem areas that could become more problematic if you don’t fix them before your growth accelerates!
- Create a budget worksheet to assess the current state of your finances and forecast the ever-changing needs; and
- Learn about two methodologies you can use to create budget scenarios to weigh whether or not you should bootstrap or seek outside investment.
At some point early on in the process of considering to start or grow your business, funding considerations must be made – and luckily, there are several things you can do right now to determine the best way for you to fund your company’s growth. There are pros and cons to various methods of financing your business.; so, let’s look at a quick comparison for two challenge areas that different amongst bootstrapping and outside financing: demand and accountability.
|Risk||Could slow or prohibit growth if the company can’t financially support a quick pivot or increase in demand||Usually is the final decision maker when it comes to capital investments into the business or a pivot into adjacent markets|
|Reward||Not beholden to investors or an outside investor||Keep up with demands to pivot or grow before the company has solvency|
Already leaning one way or another? Before you make your final decision, let’s walk through the areas you probably want to tidy up in your business. This will help you to determine the best course of action. And who doesn’t love a clean house?
First: WhERE TO START BEFORE YOU Get Into Growth-Mode
Whether you decide to solicit external funding or bootstrap your own company, the business should ideally be as lean as possible and constantly invest time into optimization and the development of subject matter expertise.
At C2, we call these issues “stress fractures”. Every business has these stress fractures – from budding startups to public enterprises and multinational nonprofits. Now, the key here is that we want to be able to have a healthy enough idea (solvency) that we can grow without constant mitigation. In other words, you want to be healthy enough to be able to grow without selling. In the business world, if you try to sell more or do more on top of your antiquated systems, tools, or communication issues, the problems – or stress fractures – simply become bigger and more expensive to fix.
A quick word on why this is where we recommend you start. Have you ever tried to set a goal only to find out there were other issues that needed to be addressed before you could achieve that goal? For example, if some friends called and said they are coming to visit you on a vacation, how much cleaning do you have to do in your house in order to be “guest-ready” for a visit? Ideally, we want to know which areas need attention and fix – or clean – them up before we try to add more people or stuff to the equation.
So, to start budgeting, let’s take a good look under the hood and find all of the areas that we need to prioritize for clean up. Here are the key areas that we notice successful entrepreneurs focus on tightening up before growth modeling and stratecution of new initiatives:
- How can we be more human-centered? Find your startup tribe – the group of volunteers, friends, or freelancers who are willing and able to help you get this off the ground and grow. Give your founding members a voice in the development and advancement of the product or service.
- How can we be more insight-led? Implement a business process methodology like Lean Startup – and use it. Using this methodology, establish CSFs (critical success factors) and KPIs (key performance indicators) and then set a regular cadence to evaluate your progress, pivot when needed, and keep stratecution top-of-mind.
- How can we be more brand-focused than transaction-focused? Find the archetype that best aligns with who you authentically are (hero, just plain folks, caregiver, etc); use that to consistently build a brand for the business. It will help you to find and connect with the early adopters – your customer tribe. These are the folks who “just get it” and will be important to helping you organically spread the word.
- How can we maximize our digital footprint? Build and optimize your digital footprint so that it is a content producing machine. Most importantly: develop a great website foundation with product or service landing pages, a few videos, and some relevant initial content to initiate your sales funnel. Develop a strategy for search engine optimization and set up directories like Google My Business. Produce weekly content for your blog that you can cross-promote on social media (especially LinkedIn) and other relevant social media sites. Post daily on your LinkedIn and promote your own content by sharing it with groups, friends, on your business page, your personal page, etc.(Some content will initially be curated until you have the resources to produce daily content).
- How can we earn the reputation of being a subject matter expert? Remember, as an entrepreneur, the business = you; so, your opinion, authority, subject matter expertise, and experience all matter. Join LinkedIn groups related to your industry and target market so that you can start building relationships and sharing content with your new tribes Set aside time to comment on social media articles on LinkedIn, Facebook, Instagram, and even questions on Quora (not just “great article” or “great question”) with something meaningful that includes your point of view – without being self-promoting. This will help you build authority in your areas of subject matter expertise (SME).
NOW, Let’s Create a Budget, Shall we?
The first thing we need to do is to make an assessment of your current state of finances. This will be used to create a financing worksheet where you can easily compute various scenarios in order to analyze how much you need, how much you have, and how much your business can self-fund.
Before we take the plunge into developing your budget scenarios for bootstrapping or outside financing, let’s jump right in and talk about those big, beautiful, round numbers. In order to get a handle on what we’re starting with, let’s go grab some data to calculate:
- Revenue – monthly average (take the total amount of revenue expected based on the active, signed contracts per month and average it so that you settle on a reasonable monthly average)
- Costs – monthly average. (take the total spent on overhead, including salaries, rent, tools or equipment, travel, 3rd party costs, etc. per month and average it so that you settle on a reasonable monthly average)
- Revenue gap (subtract the average monthly costs from the average monthly revenue to determine the difference between the two figures)
- Cash on hand – monthly average (make a note of the amount of cash you have socked away in the ole savings account for one month)
[Here’s a template that you can use: link to Google Drive]
planning + management tools to bootstrap your business
Now that we’ve got that out of the way, let’s look at some options for planning and management.
If you want to have a self-sustaining business, pick a methodology that will help you prioritize profitable growth and efficiency over arbitrary growth. Your strategy and stratecution will be much more digestible to develop and sustain, and your business will be healthy enough for outside investors to take a look at your book at any time — no more surprise houseguests without a clean house!
Bootstrap planning: Agile Financing
Consider borrowing from Agile principles to focus on profits and smart investments in an iterative, continuous cycle of retrospective planning and tinkering.
It’s ideal for businesses who are in the stratecution phase of the investment where they have already done the “housekeeping” of taking an assessment of and fixing the more vulnerable areas like communication and process and a ready to execute. This can be a more flexible approach to budgeting and managing growth investments on an ongoing basis, as opposed to only once a year (annual budgeting). However, this doesn’t take the place of an annual budget or initiative planning.
Strategy requires more upfront planning and occasional retrospective analysis to make sure you’ve established the right initiatives and are on-track. Stratecution, on the other hand, is on-going and requires continuous retrospection and pivoting to make sure you meet your objectives.
Bootstrap management: Lean Startup
As mentioned before, having a framework or methodology established early on in your startup is critical for entrepreneurs to develop alternate scenarios for growth. Once you’ve established the scenario that you’re going to advance, let’s look at one easy and effective way to track and measure your business performance: the Lean Startup methodology. This is ideal for businesses that need a process to use for iterative product or service development and its practices can be applied to general business management, as well
When you’re ready, I hope that you also consider the numerous “free avenues” for you to network and gain exposure in your quest to “bootstrap my startup” before you seek outside funding. It’s bold. It’s a longer game, but much more meaningful when you’re in the trenches every day with your tribe.
Bootstrap or not, when you’re ready to take your emerging business to the next level, give us a call. We love to help entrepreneurs to build something of enduring value. If you are committed and focused on the infinite game, and authentically and consistently show the world who you are and what you have to offer, you’ll experience legitimate, intentional growth.
And remember: you’re worth it. Investing in yourself is the ultimate gift.