Turning your startup into a successful company without taking outside capital is a daunting task; but it is possible, if you’ve got the time, dedication, and resourcefulness to make it happen.
Many successful startups have raised a significant amount of venture capital before going to market, but money raised is really more a metric of progress than success. Most startups don’t have the luxury of receiving funding from venture capital or angel investors. For many entrepreneurs, this means using their own capital in the form of savings and loans, or relying on friends and family members for financial support. When initial cash flow is tight, you’ll need to make every dollar count in order to stretch your budget as far as possible.
Welcome to bootstrapping: starting a company with little to no money by utilizing readily available resources
Whether it is by choice or necessity, bootstrapping is not for the faint of heart. You’ll most likely have to forego a salary and pay your team with equity instead of cash. You’ll have to rely on yourself and your small team for nearly everything, learning as you go and only outsourcing when it makes financial sense. It is not the fastest way to get your product to market, but it may be the only option you have to develop your concept.
Many startups have been tremendously successful without raising capital. For a few examples, check out 37Signals. Some companies like Campaign Monitor were able to bootstrap because their founders had the background necessary to build and design the product, as well as funds from other businesses to fund it. Admoda also became successful by bootstrapping, turning down nearly $40 million of funding along the way. They avoided the need for outside capital by putting up the original investment and reinvesting their profits.
These companies managed to achieve success, but they had to make sacrifices in order to make it happen. To give you the best chance of success, we’ve put together some strategies to help you bootstrap your startup.
Find out if Your Market Exists
Before investing any of your time or money, do some legwork to determine if there will be a market for your concept. This can be done by asking potential customers how they would use your product, how much they would pay for it, and what features they would like to see. This input will help validate your model and ensure a demand for your product before you spend the time and money to build it. Getting input from potential customers will not only provide information about your market, but it will also help you decide which functionalities you need to develop before releasing your product and which features can wait until after.
Working with little to no cash means being as efficient as possible. As discussed above, start by developing critical functionality first. After taking that to market, develop the next feature while keeping additional features in mind. Thinking about the future version of your product will save you headaches and backtracking down the road.
Limit Team Size and Outsource
Salaries or wages for team members are some of the biggest expenses of startups. You can limit these expenses by only hiring the people you absolutely need until you have a positive cash flow. These employees will likely have multiple job functions, often adapting and picking up new skills as they go. Relying on your team for additional job functions will require them to give more of their time and effort, so you may need to increase their stock options to make it worth their while.
Sometimes projects require skills your team doesn’t have, or they may be short-term and don’t justify an additional employee. In these cases, outsourcing some work may be your best option. Outsourcing allows you to utilize multiple specialists on a contract basis instead of paying one employee to be a generalist. However, outsourcing may not always be the answer. You may find it more difficult to communicate with someone off-site, and some job functions are more easily outsourced than others. For example, you might find web design and programming easy to outsource while other functions such as marketing are more easily completed on-site.
A few useful sites for finding freelance work are Elance and Freelancer. These sites allow you to post your projects and have freelancers bid on them, or you can contact someone directly if you have the time to search for the best candidate.
Interns are a great low-to-no cost option to help you reach profitability. They get involved with numerous aspects of your startup and receive hands-on experience, while you test out potential future team members and receive free or inexpensive labor.
Most interns expect little in return other than the experience they gain from working at your company. Most are happy to receive a modest wage and/or course credit. Generally, there are very few hoops to jump through in order to qualify an internship at your company for course credit. You’ll make it much easier to secure intern work just by signing a few papers and writing the occasional one-page progress report.
PR and Marketing
If you’re truly bootstrapping, hiring a PR firm is out of your budget. Even if you could fork over the money for professional PR help, you’re still not guaranteed to receive mentions in a magazine or blog. We recommend outsourcing press releases, but reaching out to reporters and news sites on your own. Because you and your team know your product better than anyone, you’ll be able to come up with more accurate pitches and find more appropriate media outlets.
Reporters are always looking for a good story, especially when it comes from the CEO of a company. When it comes to contacting reporters, you can go to them or let them come to you. When contacting a reporter directly, you might have to use google to search for their email address or try to connect with them on Twitter. Conversely, sites like Help a Reporter allow you to provide a quote in hopes a reporter picks it up and uses it in their story.
Social media sites, like Facebook and Twitter, are cost-free, widespread networks your users will expect you to have. The chances of your PR and marketing efforts taking hold will increase with an online presence here and if you have the time and resources, you can become a thought leader in your field by blogging on your website and other sites related to your industry.
If you don’t think you have the time to be a thought leader online, developing and maintaining a social media presence will still make your company appear to be more legitimate and will make you easier to find online. This basic presence should only require a few hours a week and can easily be assigned to one of those interns.
Bootstrapping can be a long and hard road, but it can also be a rewarding and beneficial experience. Showing how much you can accomplish, with limited capital, says a lot about your talent and commitment to your product. Once you’ve proven yourself in the market, you may need to seek funding to ensure sufficient growth – this year, ten years after their founding, Campaign Monitor closed $250M with Insight Venture Partners.
Even if you do take on outside capital, maintaining a bootstrapping mindset will help you keep costs down as you continue to experience success.