The Art and Science of Bootstrapping

We've all heard the expression “to pull oneself up by one's bootstraps.” And certainly every small business owner can identify with the phrase. But do you know what bootstrapping actually entails and what impact it can have on your business? In his newly revised book Raising Capital: Get the Money You Need to Grow Your Business (AMACOM, 2005), Andrew J. Sherman explains the basics: “Bootstrapping is the art of learning to do more with less. During the prelaunch phase of your business (and for some time following launch), raising capital may be difficult, so bootstrapping becomes a substitute for—or addition to—your capital-formation strategies.”

Over 25% of all small companies in the United States were started with an investment of $500 or less, says Sherman. And the National Federation of Independent Business (NFIB) estimates that over 80% of all start-up companies use some type of bootstrapping techniques in order to launch their business. In fact, household names such as Domino's Pizza, Hallmark Cards, Lillian Vernon and Hewlett-Packard were started by bootstrapping entrepreneurs who invested less than $1,000. Each company learned how to survive, writes Sherman, by being creative and aggressive and by learning to get by on a shoestring budget.

Here, adapted from Raising Capital: Get the Money You Need to Grow Your Business, are “Ten Proven Bootstrapping Techniques and Strategies” that will increase the odds of your start-up surviving and thriving.

1. Launch your company without delay. Choose a product or service that your target market will be ready to accept, without unnecessary research and development or excessive advertising and promotion. Focus on projects that will immediately generate cash flow without concern about long-term interests.
2. Focus on cash flow. Keep your staff focused on those activities that produce income or expand market share, and try to direct all expenditures to these areas as well. Recognize that raising capital is secondary to producing profitable and durable income streams. Set your goal to achieve and maintain profitability form day one.
3. Be frugal, but not cheap. Learn to distinguish between costs that can be avoided, like lavish office space, and those that are necessary to build a foundation for growth, such as the proper computer system. Being frugal means being creative as to how and when employees will be motivated and rewarded.
4. Leverage your assets. Strategies like franchising, licensing, joint ventures and strategic alliances all facilitate growth, yet conserve cash.
5. Trade equity for services. It's possible to conserve cash by paying lawyers, accountants, advertising agencies, investment bankers, consultants and other suppliers with company stock. When service providers are part owners they may have a greater sense of loyalty and a higher level of commitment to the project.
6. Be a junkyard dog. The bootstrapper understands the meaning of the phrase “one man's trash is another man's treasure.” More than one successful entrepreneur has built a business by searching through junkyards, trash containers and rummage sales to find the equipment and supplies he needs. Also look for opportunities to use resources during cheaper, off-peak hours.
7. Make the best of what you've got. Many have referred to it as the art of “stretching a dollar,” but there's more to it than that. Do your parents own a mountain cabin? Perhaps they'd let you use it to reward employee's extra efforts.
8. Distinguish between perception and reality. Don't spend money where it doesn't show. Chances are, if you spend money on nice letterhead, quality business cards, a good voice-mail system and a creative Web page, your customers will never know that you are sitting on a twenty-year-old chair at a card table in the basement!
9. Use the resources of others. Many early-stage business owners gain access to the resources they need by finding companies that are using their assets seven days a week, twenty-four hours a day. By structuring a deal as a joint venture, you may be able to reach your customers without signing any long-term deals.
10. Be creative and be prepared to sacrifice. Yes, you must be creative and aggressive in your cash management strategies. But sometimes the solutions you seek are right in your own backyard, hidden within your existing relationships with customers, suppliers, advisers, government agencies, universities and business networking groups. We live in a country that lauds entrepreneurs and loves underdogs. People generally want to help people who are trying to help themselves.

Click here to read a sample chapter from Raising Capital.

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You can learn more about launching and growing your business at these AMA seminars:

• AMA's Finance Workshop for Nonfinancial Executives
• Recruiting, Interviewing and Selecting Employees
• The Voice of Leadership: How Leaders Inspire, Influence and Achieve Results
• Successfully Managing People
• Developing and Executing a Customer-centric Strategy

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