Spend slowly and test, test, test:
With your first money you should be putting together a demo/proof of concept as fast as possible without frills and waste. You then need to test that demo on the market and find out which business model will work for you and your potential customers.
This process can be done on a shoestring nowadays with cheap hardware and free software – also many models are pay as you go with very low entry points – so you should be able to check out your idea and get some momentum on very little money.
At the end if this process you can think about more funding and move on to the next stage – for some that maybe large amounts of VC capital – but for many it will mean Angel funding and more bootstrapping for now.
At this stage you often change your ideas, your marketing approach, or your pricing policy. Trial and error is the order of the day and so much less costly and less confusing than trying for a ‘big bang’ approach.
There are other benefits too. Keeping things tight means you don’t hire expensive people on big salaries with long notice periods. You use friends, consultants, and people who believe in your concept and your business. Such an approach binds people to you and often brings great loyalty.
Work from your back bedroom / share some space / resources:
I am sure you must know of vast numbers of businesses that have started in their ‘back bedroom’, I certainly have and then taken over my whole house before moving into cheap offices. This is a huge saving in the early days where every ‘penny saved is a penny earned’ – you are paying your rent/mortgage already so use that cost to your advantage.
Bootstrapping means that you try not to enter into onerous contracts, for example, on property. If you can’t work from home you try and sublet from people you know or even borrow office space paying weekly or monthly.
So you have the idea, get into building something as fast as you can, don’t worry about making it pretty, get the thing prototyped ASAP. Then keep improving from there. You may even have to create several quick and dirty attempts at the idea and subsequent demo – do it fast and and do it cheap.
Once customers and investors can ‘see’ what you are doing that will make it easier to get money and also to get some direction with the actual full project build later.
Doing it fast and cheap means you can do it a bit of trial and error without suffering and you will need to a fair bit of change during the early stages – doing it this way means you don’t use all your time/money on a single approach and therefore reduce the risk of failure.
Friends and outsourcing:
Don’t be afraid to drag your buddies, family and people you know into giving you a hand. This could be with building your product/service, giving advice, helping with research and the business plan, finance and accounts…the list is endless.
You will be surprised how many people will ‘wade in’ and help you if you just ask them!
Another big benefit of working with people you know is that it can be much faster to get things done – you know them and what they can do – the downside is that they make very poor ‘critic’s as they don’t want to hurt your feelings so use them for everything but that. Let the market be your critic, get potential customers to tell you what they want and listen to them.
Beg, borrow and purloin:
Yes, I know this can be hard for some people but it’s worth trying to get things for free or at the very least trade for things. You will be surprised what you can get for helping others out.
Also, many people have time, equipment and resources they will give you if you ask very nicely – or they may lend them to you – or sell them very cheaply.
I find with new suppliers that the promise of a long term relationship, if genuinely meant, often means great prices and good business terms. This works especially well with people like printers and marketing companies who value a long term opportunity.
Over the years I have got free support, computers, software, marketing, legal and accounting advice and much more – as I have become successful I have stuck with those people that helped me and returned the favour 10x over so everyone wins.
Get customers to pay up front:
When it comes to finance you don’t need a costly firm of accountants to tell you what your bank balance looks like – as an ambitious entrepreneur you should know it off the top of your head.
Once again, many people are afraid to approach a customer and ask for their help.
I have often got a customer to pay in advance, I usually offer special terms or a discount and they use this to justify helping me out by paying me cash up front.
This is an excellent outcome for two important reasons, the obvious benefit of much needed cash and the less obvious confidence boost it gives other customers, investors and staff. If your customer will risk giving you money early they must think you have something very special right?!
Collect any receivables fast:
Many early stage businesses are so busy doing stuff they can forget the basics – cash is king – so get your hand on any money you are owed as fast as you can. Try and shorten payment cycles to 7 days instead of 30 days.
You must collect monies owed to you quietly and firmly but with a friendly manner – at least at the beginning.
Time is money:
Learn to prioritise your time. Time is money so you don’t want to spend your efforts with time wasters and people who haggle on everything and then refuse to pay. No – you toughen up and learn that judging people is a key ingredient in the business, no matter how big you become. But when you’re small you do it because you have to!
Find other innovative ways of finding money for your business from other people:
In many cases you can also find ways to get funding from other sources, if you need a large amount of capital equipment you may be able to get manufacturers to provide these on special terms or fund them for an equity stake – very popular in the dot.com boom.
You can always make use of other finance options such as factoring your debts or getting very keen customers/potential acquirers/business partners to help.
Think outside the box and ask your accountant for ideas!
In simple terms, try and save as much money as possible – run all purchases through the logic "do we really need this?" Try not to pay for anything, try and barter or trade for things in the early days. Don’t get the latest flash office, car, gadgets – try and ‘make do’ if you can until the cash flows are coming in.
For most people in the early stages cash burn is a killer – don’t let it happen to you!.
In the final part of the series I outline when to stop bootstrapping.