Tweet

The Forgotten Side of Bootstrapping a Business

Written by: Joseph Lizio

Article Overview: Bootstrapping can mean many things to different people but the overall idea is to find simple, off the shelf, ways of raising needed capital to start, run or grow a business. However, raising money may not be the only way to bootstrap your business.

The Forgotten Side of Bootstrapping a Business

Most entrepreneurs, when seeking ways to fund their new businesses, come across a simple term called Bootstrapping. Bootstrapping is essentially finding any way what so ever in acquiring the capital they need to get their operations off the ground or to the next level - as we all know it takes money to make money. Types of traditional bootstrapping can include using personal assets like homes and vehicles as collateral for loans or advances or personal credit cards or even asking friends and families members for loans or investment.

Much of the thought in this arena of early stage business financing focuses on actually getting capital (money) for the business. But, there are other ways to bootstrap a business besides just raising money. Bootstrapping is essentially using one's own efforts to pull the business up off the ground to the next level.

And, while outside capital is a great way to do this, so is cost cutting or micro managing costs - thus stretching existing funds further.

Let me explain using a great technology company that transformed much of the business world we now know today.

Early in Microsoft's development, like any new, growing business, it struggled with its capital needs. Costs were soaring and revenue just could not yet keep up. Bill Gates was smart enough to realize that if the company did not have the cash on hand to meet current expenses that it had to find ways to also reduce those expenses without sacrificing its offerings or services.

Thus, Mr. Gates turned to his staff, mostly software engineers, and stated very simply while pointing to each one in turn, ‘You learn the legal side, you learn the marketing side, you learn the financing side ...' and so on. Not only would this help save his business significant expenses by having his current employees learn new business skill but would provide them with cross-training skills that these same employees could use as they went about their normal tasks. Imagine a software engineer developing a new application within the extent of the law without having to stop over and over again to get clearance from the firm's lawyers - simply because she understood the law in this area.

What many business owners may not yet understand is that bootstrapping can be much more than raising capital - it can also include focusing on ways to save costs - thus being able to stretch current revenue or income further.

This is one issue that most business plan gurus, templates or products miss. They tend to have the potential business owner create projected or pro foruma financial statements on a yearly basis. Thus, these business owners look some 3 to 5 years in advance to determine the amount of capital they need before they even start their businesses. But, no business needs money today that it will eventually spend in years 2 or 3 or even later. In fact, most businesses will not even spend their yearly amount of capital right up front. And, even some that quickly learn how to manage their expenses - focusing on core costs only - will never need the amount they project when writing their business plan.

During the start up phase of business development, businesses are not measured in years but more in months, weeks or even days. And, if business owners are forced to bootstrap, they can manage their costs and their capital needs respectively. Example, Let's say your business needs $100,000 in the first year but only need $8,000 for this month - then bootstrap for that $8,000 while looking for ways to reduce ongoing costs. Get through this month first - then look for additional funding next month.

This is something we at Business Money Today term Just-in-Time Financing. The just in time model was developed by the Japanese in the 1980's in regards to obtaining raw materials just hours or minutes before they were needed in the production process. This saved these companies thousands daily in stocking costs, spoilage, and other overhead costs. The same can be said for business financing - where outside capital is simply another form of raw materials used with the business and should only be pursued on an as needed, just-in-time schedule.

Yes, this approach may take more time and effort on the business owner's part than just getting a large up front capital infusion and throwing money at an issue. But the true definition of bootstrapping is actually pulling one-self up - using their own time and their own efforts. While a business may not have much control over bank's or other lender's loan policies, they do have a tremendous amount of control over their cost structure and should find ways to manage for these expenses and not just focus on raising capital they may not need right now.

Related Articles
  You get to choose
  Alternative Franchise Funding - Check it Our Service Franchises!
  Tapping Friends and Family for Small Business Financing
  Bootstrapping Your Start Up Business.
  Trust – The glue that holds a team together

Article Tags: bootstrapping, business, capital, credit, financing



Related Forum Posts
My entry - 1. The Best Business Books Ever: The 100 Most Influential Business Books You'll Never Have Time to Read - this is a fascinating book about the history of Business theory, and I'd recommend it to anybody. 2. The Big Book of Small Business: You Don't Have to Run Your Business by the Seat of Your Pants, by Tom Gegax. Ditto. 3. PADI: The Business of Diving Book Okay, so this book won't be of use to anyone who doesn't want to start a scuba store, but I did, and this book was of course invaluable to me in reaching that goal.
Re: How Much Do You Need To Start? - I have been called the Bootstrapping Queen by many of my friends. I've started businesses with no money and only the ability to sell anything. Once I had an 'order' I took the deposit and invested in what I needed to deliver. In my own consulting and business development company we are really great for clients who say, I have no money because often they really do but arent using it well, or we can share some ideas that are very low investment. The key is to focus only on revenue generating activities. I have also developed a very strong network of freelancers and people who can help me. Bartering is great when you start too, as long as you both measure value with the same criteria. For someone just thinking about starting, I would recommend they really do the research first. Always sell it first before building it....just be upfront about timing and delivery. good luck J
Re: Did you reach your goal this year? - I finally realized the subconcious mind achieves LARGE goals just as easily as small goals. All the RIGHT people are now showing up to manifest my BIG GOALS now. It's been interesting and worth sharing. [Side Note: Be prepared for them when they come. Some ppl think it's too good to be true.] Take it anyway....
Exclusive: Interview with Results - Hi Forum Members, I'm helping start up a Business Coaching and Consulting company here in Toronto, Ontario, Canada (a Subsidiary of RSC Business in Los Angeles). As a Research and Development Intern I am required to practice my listening and interview skills by surveying Small and Medium Businesses on thier Business. This Survey is designed by RSC Business to also assist the Business being interviewed more insight into their own business. I am looking to interview about 30 businesses across North America over the span of 3 months. At the end of these interviews I will be publishing a report of the results and they will be made available for free to the Interviewees. The Report data will include responses from a minimum of 100 interviews. I would like to extend this opportunity to members of the Forum. If you would like to have this short 20-30 minute interview conducted on your Business and you reside in North America please send me an email or PM. Please contact me at andy[at]jvprosperity[dot]com to arrange our interview and to get free access to the results when they are published.
Re: HOw to market a B2B consulting company - [quote="zohahunt77":428owzbi]Hi, I was wondering if anyone can tell me the difference between B2B and B2C. I don’t know about b2b marketing but I have done marketing so know things about it. I will suggest you to take online services which will spread your business all over web network. Online marketing is the best way to market any business.[/quote:428owzbi] B2B = Business to Business - You are marketing to other businesses. B2C = Business to Consumer - You are marketing to consumers.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Emotional Energy is Our Engine

Paint A Word Picture - Excite Your Customer

3 Health Insurance Misconceptions

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.