Wednesday, January 8, 2020

5 Strategies Recommended For Successful Bootstrapping

Bootstrapping-yoour-businessAs an advisor to entrepreneurs, I often hear the desire to run their own company, to avoid having someone else telling them how to run the business. They then ask me to help them find investors who can provide the funding they need. They don’t seem to realize that investors can be the most demanding bosses your ever had, since it’s their money you are using and potentially losing.

I have to explain that if you really want to exercise total control of a new venture, they you need to do it without external investors, bootstrapping your way with your own resources. Sure, this may limit the type and scope of your startup, but it’s the only way to get the control and freedom you want.

Although I’m a big fan of bootstrapping, I still recommend you use the same business discipline in starting and running a new company, as you might be forced to use with investors:

  1. Create and use a formal Board of Directors early. Although technically a board of directors or advisors is never required with bootstrapping, a well-experienced group of two or three outside advisors can be worth its weight in gold, to keep your focus on the right targets, and prevent you from making strategic and operational mistakes.

    I recommend that you keep your board diverse in age as well as scope of experience. Avoid family members and close personal friends. Although board members should be compensated to assure commitment, I suggest company shares rather than cash.

  2. Define a set of management objectives and milestones. Even if you don’t have a board of directors, you need to set some targets for yourself, so you can measure progress and declare success for both you and your team. For focus, the list should be short, maybe five or less, and updated on at least an annual basis, based on progress.

    In the first five years, these objectives should normally include when you intend to first become profitable, a scaling strategy and target, some short- and long-term milestones, and the key performance metrics you will use to steer and manage the business.

  3. Personally manage cash flow processing and procedures. With bootstrapping, you don’t have other people’s money to spend, and probably not as much of it. That means not delegating spending decisions, personally handling inventory decisions, and following-up on overdue receivables. You will also need a line of credit for financing.

    I strongly advise you create a separate bank account and credit card for your business, even though it is all your money. Use of a business credit card is actually encouraged, since this automatically provides the detailed reports and line of credit you need.

  4. Update board members and key employees regularly. If you want employees to stay committed, don’t keep them in the dark on status, progress against milestones, and the health of the business. For directors, your credibility and their ability to help is at stake. Running a business is not a job for an introvert who chooses to hide in an office all day.

    By law, board meetings may only be required once a year, but for small companies I recommend a frequency of at least quarterly, if not monthly. Email status reports to board members and key employees should be delivered more frequently, as key events unfold.

  5. Never keep bad business news a secret from your team. Too many small business owners try to spare their board members and employees any pain by not acknowledging key negative company, customer, or even outside events that have a potential substantial impact on the business. They find out the news anyway, and it only hurts your credibility.

    In reality, people assume the worst when they don’t hear from the leader, and may assume you are part of the problem. What they need and want to understand is the why, and what they can do to help. This transparency also keeps good people from leaving.

For many, bootstrapping may appear to be the hard way to start a business, but most entrepreneurs I know who started this way are happier and more relaxed than those who have to deal regularly with investors. In addition, by bootstrapping, you own all the gains from your efforts, instead of only a share.

Contrary to popular perception, a large majority of the fastest-growing private companies in the U.S. are still bootstrapped today, often starting with less than $10,000 of personal funds. So before you get frustrated by the “advantages” of outside investors, I recommend that you take a hard look at what you can really do with your own resources.

Marty Zwilling

*** First published on on 12/18/2019 ***



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