Tuesday, April 23, 2013

8 Secrets for Maximizing Startup Equity and Control

bootstrap-startupWhen someone asks me for the best way to fund a startup, I always say bootstrap it, meaning fund it yourself and grow organically. Bootstrapping avoids all the cost, pain, and distractions of finding angels or VCs, and allows you to keep control and all your hard-earned equity for yourself.

A few years ago I interviewed a serial entrepreneur, Rich Christiansen, who has done almost 30 businesses wholly by bootstrapping. He published a book with Ron Porter, titled “Bootstrap Business”, that provides a wealth of practical examples and advice on this subject.

The essence of his approach is to dedicate yourself to becoming a frugal minimalist in everything you do. I like his approach, and have extracted some tips from his book and other sources on how to do it:

  1. Use a virtual office. Rent is one of the biggest expenses for any business. If you can, start your business in your home office, basement or garage (Bill Gates, Steve Jobs, and many other legends used this approach).

  2. Think minimum spending. Spend the absolute minimum for what you need (equipment, software, and services) to keep your business running. Don't justify over-spending initially with "long-run" thinking. If you do, there probably won't ever be a long run!

  3. Reinvest gross profit. Most startup founders already do this, rather than take a salary, to improve their offering. Take little to no net profit. Simply take enough to live on, but not to the point of your detriment.

  4. Act big, behave small. Create the illusion of ‘big’ without the large building and large staff. Use voicemail, a world-class website, and personal customer service, with small expenses, to beat your big competitors.

  5. Do it yourself. Network big to get connections and ideas, but do the work yourself. Every outside hire increases your cost and risk. Hire experts, not help. Low paid help isn’t cheaper if it takes them twice as long to do the job, or they do the job wrong.

  6. Don’t plan for failure. Planning for failure almost invariably leads to failure, or at least has a way of undermining your resolve. The tough times are what separate the survivors from the many strewn casualties lying alongside the startup highway.

  7. Creative marketing. One of the keys to keeping start-up costs low is to find creative and affordable ways of doing what you need to get done, rather than just spending cash. All you need is a blog, Twitter, email, some business card stock, and a little creativity.

  8. Don’t think about the exit. As soon as you bring in investors, they force you to plan for an exit (merger or sale) in three to five years. It’s critical to them, since that’s the only way they can realize a return on investment, but it limits your options for growth and change.

Sometimes the tiniest details will throw your startup company into disaster. Understanding your business totally will give you much better operational control. In most cases there is a direct correlation between the quality of your decisions and the size of your revenue stream. For minimum risk, you must understand fully this cause-and-effect correlation.

In summary, watch your costs, trust your gut, and drive forward with all the passion in your dream. The growth may be slower with bootstrapping, but it’s all yours.

Remember, the goal is to keep venture capitalists or any investors from sinking their teeth into your business. When you let them on board, you lose control of your destiny. Isn’t this contrary to why you signed up to be an entrepreneur in the first place?

Marty Zwilling


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