The Art and Science of Bootstrapping
Presented By
Jaine Lucas, Executive Director
Innovation and Entrepreneurship Institute
Temple University
February, 2013
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A Dream and $10,000: Slingshot SEO
• 3,597% growth in three years; #58 on the Inc 500 list of
fastest growing firms
• “Looking back, it’s clear three major factors led to our
exceptionally rapid growth in spite of our financial
limitations, extremely limited staff and, basically, a zerodollar marketing campaign. Those three factors were
treating our customers right, focus and innovation”
• Strategies included:
– Unprofitable projects to prove the concept
– Didn’t take a salary for the first year
– Every penny reinvested into the company
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INC Magazine’sTop Growth Businesses
That Can be Bootstrapped*
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Green & Sustainable Building Construction – 23%
Healthcare Consulting – 6%
5-Year
Digital Forensics – 13.7%
Projected
Photography – 2%
Annual
Artificial Grass Turf Installation – 12.3%
Growth
IT Consulting – 3.2%
Rates
Relaxation Drinks – 24.8%
Translation Services – 2.8%
Environmental Consulting – 2.8%
* Data from independent research
Elderly & Disabled Services – 4.7%
firm IBISWorld to pinpoint the
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best industries for bootstrapping a
company right now.
START-UPS ARE TYPICALLY CASH POOR
The average small business start-up
kicks off with $30K or less in capital (2009
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Ewing Marion Kauffman Foundation)
 Companies launched with $10K or less
in initial capital had almost the same
median growth rate as those with
abundant capital (2002 Inc 500 Survey)
 Like it or not, bootstrapping is an
essential skill set for entrepreneurs!
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WHAT THE HECK IS BOOTSTRAPPING?
Using a variety of techniques to strategically
maximize the impact of the venture’s available
cash
 Using creativity and ingenuity to launch and
grow a business with few available resources
 Starting a business without an infusion of cash
OR maximizing the impact of funding invested by
the entrepreneur or others AND continuously
optimizing cash flow and preserving capital
 Living the mantra: Cash is King!
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QUITE SIMPLY…
Bootstrapping means you scrape by until
cash flow becomes positive through
bartering, sharing, delayed spending and
creatively exploiting opportunities
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WHAT BOOTSTRAPPING ISN’T
 Not just finding the cheapest way to get things
done
 Goals, objectives and milestones must be met
 Never spending money – you’ll have to!
 Behaving immorally or unethically
 Not just for small or emerging businesses
 Large corporations are bootstrap to preserve cpaital
& maximize efficiency, cash flow and profitability
 It’s not just something you do because you can’t
get debt or equity funding
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WHY DO FIRMS BOOTSTRAP?
 Limited or no funding available
 Banks don’t finance start-ups
 Less than 0.038% of firms receive venture capital
 $6.5 billion in 890 deals in 3Q of 2012, according to the
MoneyTree™ Report from PricewaterhouseCoopers LLP
and the National Venture Capital Association
 Postpone or eliminate need for external funding
 Avoids “dilution” maximizes % of ownership
 Maintain control over venture
 Can keep “special sauce” secret
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WHY DO FIRMS BOOTSTRAP?
 Build wealth and income
 Cash flow is maximized, valuation too
 Increased cash flow builds cash reserves faster
 Minimize exposure to risk
 Build cash reserves of 30 to 180 days
 Guards against catastrophic events or economic
downturns
 Maximize operational efficiency
 Utilize capital where it has the most impact
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DISADVANTAGES OF BOOTSTRAPPING
Requires sacrifice and persistence – it is
frequently uncomfortable and is often painful
 Not all businesses can be equally bootstrapped
 Pharma and medical device firms
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 Capital and labor intensive firms
 Being outrun by well-financed competitor
 Missing “window of opportunity”
 Especially true for IT businesses
 There is always something new coming from behind
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SIMPLISTIC BREAKEVEN
TOTAL FIXED COSTS
UNITS TO
=
BREAKEVEN
UNIT PRICE – UNIT COST
 Business
breaks even when operating profit from
selling its products or services covers its
overhead costs (wages and materials)
 Lesson: minimize fix costs, contractual
arrangements and other stuff you can’t get out of
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BOOTSTRAPPING & BREAKING EVEN
LESS FUNDING
REQUIRED, EASIER
CREDIT
OVERHEAD (FIXED)
EXPENSES LOWERED
BOOTSTRAP
MARKETING LEADS TO
INCREASED SALES
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DRAW SALARY
SOONER
HIGHER PROFIT
MARGINS & CASH FLOW
INCREASE VALUATION
BENEFITS
LOWER OPERATING
COSTS LEADS TO
HIGHER OPERATING
MARGINS
LESS
TIME
TO
BREAK
EVEN
OVERHEAD EXPENSES
 General and administrative costs
 Support staff salary and benefits *
 Rent, utilities, equipment, software,
supplies, etc.
 Professional services: legal and accounting
 Marketing
 Capital costs
 Warehouses, machinery, equipment,
technology, vehicles , etc.
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* Typically highest recurring cost
REDUCING GENERAL/ADMIN COSTS
 Bootstrapping employee costs:
Entrepreneur multi-tasks & works long hours
Family and friends help at no cost
Shared admin supports
Using temps for high volume periods
Use unpaid interns and retirees, but beware of
legal implications
 Bring on seasoned talent for equity
 Stretch employees to max, use perks &
incentives
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REDUCING GENERAL/ADMIN COSTS
 Office space
 Incubation space, shared office space, rent
unused space from downsized company, work
from home
 Utilities: Go Green
 Unplug electrical/electronic devices when not
in use, maintain reasonable office temps,
reduce water consumption, turn off lights
 Opt for free software or free trials
 Purchase used computers and furniture
 Volume purchase w/other businesses
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REDUCING GENERAL/ADMIN COSTS
 Reducing legal costs (average is $4-6K)
 Free legal clinics: Temple Small Business
Development Center and many legal trade
organizations
 Filing your own incorporation paperwork
 Writing your own contracts
 Templating and modifying available
documents (legalzoom.com)
 Friends and family
 Pay for the critical stuff only
 Get referrals, estimates, rates, etc.
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REDUCING GENERAL/ADMIN COSTS
 Reducing accounting costs
Accounting software packages
Retired bookkeepers
Contract unemployed accountants
Keep meticulous records, be prepared
Hire MBA student or accounting grad
student
 Friends and family
 Get referrals and estimates
 Barter if possible
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REDUCING OPERATING COSTS
 Operating costs = expenses to produce
products or provide services
 Goal is to reduce cost per unit
 Inventory and/or process management
tools to increase efficiency (Six Sigma)
 Leverage competitor or similar business
“best practices”
 R&R: Read and research
 Poll employees for cost cutting ideas
 Use independent contractors
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REDUCING OPERATING COSTS
 Outsourcing can be “smart operating”:
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Reduce space and staff costs
Manufacturing overseas can be cheaper
Can eliminate/reduce capital costs
Frees up time to provide additional value to
customers
Eliminates inventory costs
Can reduce liability
Leverages economies of scale
Increase speed to market
Can improve or decrease quality
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BOOTSTRAPPED MARKETING
 Attracting customers and driving sales is
key to growth and sustainability
 Marketing is the process that gets it done
 Bootstrap marketing = entrepreneurial
marketing: maximize bang for buck
 Easier today than ever before thanks to
the web and social media
 Think long and hard about messaging and
media – both have to be spot on
 Don’t “build it and hope they will come.”
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LAY THE FOUNDATION FIRST
 Establish a brand with a consistent voice,
personality, core value and tenets
 Understand market and industry trends
 Understand the customer
 What matters most?
 Where do they go for information?
 Don’t try to sell the kitchen sink: focus on
one or two key product/service benefits
 Segment and target the market properly
 Can you market to it efficiently?
 Where is the competition?
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SHOE-STRING MARKETING
 Word of mouth
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Networking
Public speaking
Customer referral programs
Buzz marketing campaigns
Post customer testimonials online
 Viral marketing – WOM spread
via internet
 YouTube
 Blogs
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People are watching 4 billion
videos a day on YouTube and
uploading 60 hours of video
very minute. 4 billion hours
are watched monthly!
In 2012, over 31 million
bloggers in the US alone, and
over 42 million blog sites.
SHOE-STRING MARKETING
 Publicity/Public Relations
Has “third party” credibility
Minimal cost
NEW is NEWS worthy
Press releases – include “hook”
and make it interesting, intriguing
and thought provoking
 Know the media, establish
relationships
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 Create innovative events
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SHOE-STRING MARKETING
 Social Media
 Builds online communities
 Provides a variety of ways to dialog,
connect, message, comment and share
content
 Allows entrepreneur to build
awareness of business and products,
and maintain a relationship
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ACCORDING TO CHATTERBLAST MEDIA
FIVE WAYS SOCIAL MEDIA CAN
BE USED FOR NEW BUSINESSES
 To create brand awareness
 As an online reputation
management tool
 Learning, research and
competitive recon
 For recruiting and partnering
 As a lead generation tool to find
potential business prospects
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BOOTSTRAP MARKETING ODDS & ENDS
 Great design sells – an impactful, strategic
and eye catching logo is essential
 Websites are “cost of business” and an
indication of credibility
 Online directories and classified listings
 Craig’s List – it’s free!
 Brochures, flyers, business cards
 Street teams
 Newsletters
 Trade shows – but watch for hidden costs
and select carefully
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MANAGING CASH
 Beware: A business can be profitable but
have negative cash flow
 The #1 cause of start-up failure is death
Death = Cash Depleted
 Create systems to enter and track the
inflows and outflows of cash
 Bill promptly, ask for deposits in advance
 Review customer accounts receivable – look
at incentives for faster payments
 Anticipate price increases, shortages, loss of
customers, etc and plan ahead
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ALTERNATE CAPITAL – Use it!
INTELLECTUAL CAPITAL + RELATIONSHIP CAPITAL = FINANCIAL CAPITAL
 Intellectual Capital
 Be smart, be intelligent
 Study, go to seminars, read and learn
 Add value
 Relationship Capital
 Build relationships and help people
 “Cash in” your relationship capital
only when you need it most
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Seven Bootstrapping Tips from Mashable
 Test the market
 Assess potential interest in the product &
validate model – justify the firm!
 Keep the team & salaries small; use incentives
and equity as compensation
 Interns – a “win win”
 Marketing – Social media; MediaSync and
Help a Reporter;
 Outsourcing: Staff and projects
 Social Networks: connect with customers
and prospects & become the expert
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FINAL WORDS
 You must have a business plan
 Recognize the difference between “wants” and “needs”
 Don’t bootstrap to the point of strangling growth
 Eliminate all unnecessary costs, minimize necessary ones
and maximize impact of available cash
 Look for additional revenue streams to increase reaching
“breakeven” and fund organically
 Don’t quit your day job
 Get out of debt before launching a new enterprise
 Treat every dollar like it was your own personal money
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Go Forth and Bootstrap!
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