Not all startups have the luxury of getting investors right off the bat—sometimes it takes bootstrapping a business by funding it out of your own pocket.
While this is an honorable way to start a company, bootstrapping is more difficult than it might seem. First-time entrepreneurs often have trouble getting funding without first showing some traction and a plan for potential success.
When my cofounder and I created our startup we used $10k of our personal funds instead of immediately seeking outside investors. It took 10 months to go from $0 in revenue to a $300k run rate, but then only six weeks to get funding once we showed that traction. If entrepreneurs play their cards right, they can achieve significant growth and a payoff that’s well worth the wait.
Bootstrapping a business is a lesson in hard work and flexibility, but ultimately it can help accelerate a company’s success. From our experience, we’ve pulled together our top 10 tips for surviving the bootstrapping journey:
Having two perspectives heading the company can be critical. When bootstrapping, the vast majority of the work is done internally, so cofounders need to complement each other’s skill sets. If you’re good at different things, you have a better shot at being able to do everything between the two of you, keeping expenses low.
Not all businesses are equally ripe for bootstrapping. The most successful bootstrapped companies have a business model that generates cash as quickly as possible. Without any cash inflow, you’ll burn your reserves before gaining any real traction.
Spending out of a personal bank account is sloppy and risky—instead, fund a bank account specifically for the business. By creating a separate business account, you can track and learn what adds cash and what diminishes cash from the business. Free tools such as Mint can help track spending and calculate burn rate. Watch your cash like a hawk, daily.
Without a salary, you won’t have money to spend—so don’t expect to live a posh life when first starting your company. Consider every purchase and only spend what’s necessary. If possible, bunk with a family member or friend to decrease rent expenses and come to terms with the idea of a less-than-lavish lifestyle.
When bootstrapping, hiring out for a job you could do yourself is an avoidable expense and a wasted organizational learning experience. For example, I delivered lunches myself for three months before hiring our first driver. This saved us $1,200, which may not sound like a lot, but it was actually 12% of our capital.
If you don’t know how to do something, learn it. Neither my cofounder nor I knew how to write code, but we didn’t have money to hire an engineer. Kevin learned how to code himself, and programmed a website in just a few weeks. Building our own code allowed us to iterate quickly because we knew the technology inside out. Don’t be afraid of learning new things; you’ll be surprised by your abilities.
Being fancy doesn’t always get the job done. Pick functional over posh office space. Start with the free versions of QuickBooks and Dropbox. Print free business cards. Consider refurbished computers instead of the newest MacBook Air. Use a free banking service. Saving on little things goes a long way.
Incorporating and securing your website domain are major exceptions to the "price over quality" rule. We initially used an online incorporation service, but ended up with complications that cost more in the long run. If you intend to get VC funding, it’s better to have a clean incorporation record.
Regarding your domain, don’t think you can buy it later once you have more traction. It turns out that once you get traction, the price increases exponentially. Buy the domain outright from the beginning, and start building brand equity around it from day one.
Remember, your goal is to get as much traction as possible to raise a big round. While you chase revenue, you will randomly encounter tricky opportunities that achieve a significant bump in growth at the expense of modifying your operational model or product offering. Evaluate these opportunities before jumping on them: Seize them if they’re aligned with your long-term goals, and decline if they’ll become a huge distraction from achieving further growth. At an early stage, what might appear to be a revenue touchdown may distract you from building a real replicable business.
When you’re so small, vendors and suppliers won’t want to work with you; it will take a personal touch to get what you need. Work to build personal connections with partners that may help your business in the long run. This may help obtain the resources your startup needs to get moving, at a price that won’t break the bank. Don’t be afraid to share your story and appeal to people’s human side. To succeed as a bootstrapped startup, you have to persevere for the answer you need.
Bootstrapping a business is difficult, but it’s by no means impossible. With the right amount of hard work, collaboration, and passion for your company, it’s almost easy to give up a chunk of your personal life today for the sake of your future. Ultimately, bootstrapping is making an investment in yourself that will pay off for your company in the long run.
—Rodrigo Santibanez is cofounder and leads Operations at EAT Club, the leading business-focused online lunch delivery service. Originally from Mexico, he worked in operations and finance for consumer goods companies prior to receiving his MBA from Stanford GSB in 2010.