Why It’s Better to Bootstrap Your Business
The Bootstrapper’s Bible. Because outside money is all downside.
There are three main ways to fund a new business.
· You can get a loan.
· You can attract investors.
· You can use your company’s sales to finance its growth.
I’ve tried and/or done it all three ways, and over my career I’ve learned from countless friends and acquaintances who have funded their new companies through each of those three.
If you’re starting something complex and capital-intensive, like a car manufacturing firm, a lithium mine, or a high-tech laboratory of some sort, then you’re going to need outside funding like from the first two sources. That’s just the way it is for some, rare, businesses.
If you’re starting something simpler, though, something that doesn’t require a factory or a mine or a lab or something expensive to start then… well, stick around. Business for the Rest of Us is for you.
Say you’re a skilled bookkeeper who is unhappy at your current place of employment. You know you can serve your customers better. You know that by firing your boss you can keep more of their fees for yourself, and with enough customers you won’t need the paltry paycheck you’re earning now.
In this scenario, you don’t even really need outside money to fund your business. Sure, it would be nice to have some reserve pay in the bank, some money to rent a professional office, furniture for that office, all that stuff. But “it would be nice” is no reason to do anything when you’re starting your business. Do you have to? If not, don’t.
But maybe you’re still unconvinced. Let’s look at some downsides of chasing that outside money.
Outside money is all downsides
The first consideration to chasing outside funding is that it will take you much longer and will bring you much more heartache to convince a bank or investor to “give” you their money than you should dedicate trying to get it. Instead, spend that time and effort collecting your first customers.
Did you notice how “give” is in quotes in the last paragraph? That’s because investors aren’t giving you money – they’re buying a piece of your company. For life. Do you truly want to sell a part of your brand-new company to some stranger for a very low price? Because your new company isn’t worth all that much yet. Not before you’ve proven yourself by bringing in customers who happily pay you their money.
And banks? Banks aren’t “giving” you money, either. They are loaning it to you, which means that you have to pay them back month after month, with interest – and even if your business fails, you’ll certainly have to sign a contract stipulating that you personally, as the owner, are responsible for repaying the loan. Even if you close your company down, you’ll still have to pay that monthly bill. We don’t talk about that as much as we should. Borrowing money should not be your first option or even your second. Don’t borrow unless you absolutely have no other choice.
Having said all that, sometimes loans or investors are appropriate and necessary. Not usually, though. Usually, you want to at least wait for those things until you’re well established because you’ll get more for the money they invest in you or loan to you.
For all other cases, you really want to avoid either option. Self-funding is the best option for 99% of the people reading this post.
The Bootstrapper’s Bible
Funding your new business yourself is called bootstrapping, as in that old-timey saying, “Pull yourself up by your bootstraps.” I honestly have no idea what an actual bootstrap is or how you could use a piece of your boot to pull yourself anywhere. It’s a saying, though – and most relevant to you by far, to bootstrap is a business term that businesspeople all know and use in regular conversation.
If you have any, you can use your personal savings to fund your business. You can use your credit cards, or take a second mortgage on your house – since that’s all your money (or your debt), you can consider that bootstrapping: you’re funding the start of your own company.
My favorite method by far, though, is to start with pocket change - $30 here, $50 there; just spend enough to see if people want to buy what you think they do.
If your business idea is to sell a service, though, you don’t need to spend a penny. For instance, if you’re a bookkeeper like that example from earlier, visit a bunch of small businesses in your neighborhood and ask the owner what they do now to balance their books. Make it a conversation where you are asking about them, not telling them how much they need you. Chances are, enough of these conversations will turn into your first sale – a tiny one at first, but it’s a start!
If you feel more comfortable, you can make some basic business cards on Vistaprint for next to nothing – or for a free option, make sure you’re on LinkedIn and tell them to connect with you there or build yourself a Google simple site. True to their name, they are simple to build, and as of this writing, Google hosts them for free.
So, you’re a bookkeeper. Your first client hires you for one hour of work a week. At $50 for that hour, you’re in business. You haven’t spent a thing. Congratulations! You’ve bootstrapped.
Another time, we’ll talk about “Selling for the Rest of Us.” Selling your own thing is a lot easier and more fun than you think, but that’s easy for me to say decades into my career, right? Well, let me share something with you: my first sales job, I was miserable at it. I was afraid to pick up the phone because, what if I didn’t have an answer to the prospective customer who was calling?
A newly hired sales guy afraid to take an incoming call! That was me at 24. My guess is, you can do better than that. (I have to learn everything in this life by doing, and the first several times I do anything, I’m terrible at it.)
Yeah, we’ll get back to Selling for the Rest of Us some other time.
What about bootstrapping a physical product?
As I was writing this, a fellow teacher dropped by to share a story about his friend, Steve. Steve was fired from his day job (oops. It happens.) In need of income, he started selling smash burgers out of his Dodge Caravan. Steve doesn’t even have a food truck, just the minivan he’s been driving to get around town anyway.
Steve the smash burger guy only sells three days a week, but he takes home more profit (income after expenses) than he was making working at his former day job. Steve parks his caravan at a different spot each day. He sets up his cooler, air fryer, and grill beside the back of the van. He stands his sun tent up nearby and sets out some folding chairs and folding tables underneath it, so his customers can eat in the shade.
Steve always sells out. He always leaves for the day as additional would-be customers come up to buy. They’re disappointed, but Steve likes it that way. He has zero food waste. His business is highly profitable. He is his own boss. People love his food.
Steve was driving a van. He owned a propane grill he’d been using at home, and he had a cooler for beach picnics. He bought some hamburger and the usuals to serve with it.
Steve bootstrapped. He had no choice, as he’d just lost his job. He was profitable from the very first day. He had no choice, as he had family bills to pay that very week.
A few selling days in, Steve bought that sun tent from some of this profit.
A week or two later, he bought a folding table and some chairs.
When he had the money, he bought a few more chairs and another table.
That’s it. Steve has been doing this for a few years now.
Could Steve scale* this business (as in, grow it to be large-scale)? Could he go from a man and his assistant to ten food trucks in three cities? Eighty restaurants in twenty cities? Could he do that gradually, reinvesting some of his excess earnings into expansion? Could he forget physical expansion, and instead just sell his most popular homemade sauces in stores or ship them nationwide from a production facility he leased near his home?
Of course he could. Scaling is another lesson for another day. Stick around. We’ll get you there.