“Bootstrapping is a way to do something about the problems you have without letting someone else give you the permission to do them” – Tom Preston-Werner, co-founder of Github
After six years of bootstrapping at Villa Finder, I entirely agree with this quote. Starting a company solely with your own dime has its merits and some setbacks.
If you are thinking of self-financing your dream, here are the pros and cons of this methods, together with the learnings I’ve gathered over the past six years.
Entrepreneurship is a challenging yet rewarding journey
- Be your own boss: Sometimes, investors have their agenda to push, and that affects your decision. By bootstrapping, you are free to steer the wheel without any worry about what your investors will think about the decisions.
- Focus on your business: Bootstrapping enables you to focus all of your efforts on the company. You won’t have to waste countless hours preparing reports and presentations for your investors.
- Take financial responsibility: When you spend your own money, you are a lot more conscious about where you spend it. Financial discipline helps you focus on what matters.
- Media exposure: Without an acknowledged venture capitalist backing your startup, some journalists won’t be interested to report on your company. Note that customers usually don’t care though.
- Fast scale: Bootstrapping is not always the best solution, especially in low margin industries, or when looking for network effects, or if you have very long lead times. Some businesses need to achieve a massive scale before being profitable and raising capital will offer you that runway.
- The network: Sometimes, it’s whom you know that matters. When you are fresh in the field, it can be valuable to tap into your investor’s network.
If you decide that this is the path to follow, I hope the below tips will be helpful for you.
1. Before you spend, save
Start working towards your goals by having a good saving and spending habit. Starting a company is similar to getting a house, you need to plan early in advance.
You will need enough capital to at least help you last until the business idea is validated.
While it’s possible to take up loans, the more money you have, the better it is, and you don’t have to worry about paying a lump sum and interest.
2. Find the right business model
If you are spending money upfront, you want to have a model that generates cash fast. If not, your reserve may not last until the first payment comes.
This is why this method works better with asset-light businesses like ours.
Villa Finder doesn’t own any property, and we operate online, so in 2012 when we launched villa-bali.com , all we needed was a great website, good products and a reliable payment gateway.
3. Customers come first
After all, your customers will be the one keeping the business going. Thus, you have to focus everything you have on making them happy and finding more customers.
The more sales you have, the bigger the budget becomes. Do everything you can to learn more about your customers and make them happy from day one.
That’s the best way to survive.
4. Expect troubles
Having the right mindset is crucial for startups.
If I have to name one lesson I’ve learned when starting my company, it’s that problems come from anywhere.
Even when you have the most detailed business plan and thought that you have nailed down all possible issues, something unexpected will happen.
What’s important is to have a positive, problem-solving attitude to tackle the challenges.
Before wasting time on finger-pointing or blaming yourself, you need to resolve the issue first. And always be ready for troubles.
5. Measure everything
Google Analytics is a great tool to get insights about your business
What’s great about the bootstrapping method is that it doesn’t give you a false sense of having lots of money to spend.
Every day, you are constantly facing a decision of where you should put your money in.
Which channel is the most profitable?
Gradually, you learn to discipline yourself and find the most effective channel for the business.
6. Know where your money goes
There will be tons of things which requires your investment.
Before you know it, you will have spent a considerable sum on things that are not urgent.
Prioritise and practice sound financial management.
Also, spend where it’s necessary.
The most economical option may save you a few bucks at the moment, but it won’t be fun if it creates more trouble in the long run.
For things that are fundamental, get them right.
7. Prepare to wear multiple hats
This is inevitable.
In the beginning, you are alone.
Even when you have co-founders, there are only a few of you with so many things to work on.
Product development, prototyping, marketing, sales, accounting, customer service, yes, you will work on all of them.
8. Test, test and test again
Villa-Bali.com’s traffic plunged when we made too many changes without testing
I learned this the hard way.
When you make the drastic change or launch a new product without testing with the markets in advance, you may receive unfavourable reactions.
More often than not, many of your assumptions don’t work out, and people expect something different.
Hence, test as many details as you can.
When something doesn’t work out, tweak your ideas fast and test again until you get to the final solution.
9. Stay open-minded
Usually, it’s the ideas that challenge your own that help the business grow.
Be open and share your opinions with co-founders, families, friends, and best of all, someone in your target market.
They will give you valuable feedback.
10. Be prudent with partnerships
One of the things I have realised is that you need to be selective with partners.
When you are just starting out and someone comes to you to offer a collaboration, it’s very easy to simply go ahead with it.
Before you realise it, you will have accepted too many collaborations, and not all are worth the time and effort spent.