Bootstrapping your way to Success.2

Matt Dedrick & Ben Capell
March 28, 2011
Successful Bootstrappers
What it is?
 “funding primary development and growth through
internal cash flow from real-life customers.”
Why you do?
 Someone once told me that the probability of an
entrepreneur getting venture capital is the same as
getting struck by lightning while standing at the
bottom of a swimming pool on a sunny day. This may
be too optimistic.
Read more:
Why you do?
 Let's say that you can't raise money for whatever
reason: You're not a “proven” team with “proven”
technology in a “proven” market. Or, your company
may simply not be a “VC deal”--that is, something that
will go public or be acquired for a zillion dollars.
Finally, your organization may be a not-for-product
with a cause like the ministry or the environment.
Does this mean you should give up? Not at all.
Read more:
Why you do?
 I could build a case that too much money is worse than
too little for most organizations—not that I wouldn't
like to run a Super Bowl commercial someday. Until
that day comes, the key to success is bootstrapping.
The term comes from the German legend of Baron
Münchhausen pulling himself out of the sea by pulling
on his own bootstraps. Here is the art of
Read more:
Why you do?
 ‘Cause your wicked smart and you know that Furr says
too much funding can kill a business cause you’re
tempted to scale too soon and stay within your four
(C) Betthew Caprick Inc.
Da Best
 Keep Expenses Low
 Supplemental Income
 Carefully Manage Cash Flow
 Use Equity Effectively
Far Out –
Keep Expenses Low
 Use open source software
 Use VOIP phone systems and/or just cell phones
Rad –
Keep Expenses Low
 Work from home or find office space you can use for
free or minimal fee
 Buy used equipment, particularly office furniture
 Outsource where possible and/or needed to keep
expenses variable
Totally Tubular –
Supplemental Income
 Consulting Enagements
Do It!–
Supplemental Income
 Non-recurring Engineering Contracts
Awesome –
Supplemental Income
 Value-Added Reseller Agreements
Wicked Good –
Supplemental Income
 Projected Supplier Contracts
Solid –
Carefully Manage Cash Flow
 Keep track of all income and expenses
 Track your own hours and factor them in as an expense
even if you’re not currently paying yourself
Z Best –
Carefully Manage Cash Flow
 Engage customers early in the process and get them to
commit to help pay for product development
 Offer incentives to get customers to pay as quick as
 Consider requiring customers to pay up front
Bestester –
Carefully Manage Cash Flow
 Postpone payment to suppliers but be careful of doing
anything to jeopardize supplier relationships
 If receivables grow enough, consider using receivables
as financing
Rock and Roll –
Use Equity Effectively
 Use equity to build out a board of advisors with a
broad range of skill sets and expertise
 .1-1% equity in exchange for 4 hours/month
Party On! –
Use Equity Effectively
 Offer equity for in-kind services such as accountants,
attorneys, and developers
 Optimally, these services would all be paid for up front
or negotiated for delayed payment but equity is an
alternative to consider
Right On –
Apply NISI Principles
 Get out of the building and talk to prospective
customers to nail the pain
 Simultaneously develop the solution while building
out a set of potential customers
Nailed It! –
Apply NISI Principles
 Test the solution with potential customers often and
iterate rapidly
 Nailing the pain and the solution will either put you on
the path to cash flow break or better position you for
external financing
Top Ten Benefits!
10 – You’ll learn to keep expenses low
9 – You’ll manage cash better once you have it
8 – You’ll develop your minimum viable product
7 – You’ll know you’ve got a real business before
wasting other people’s money (OPM)
6 – You’ll employ missionaries instead of
Top Ten Benefits!
5 – You’ll stay focused on your core business
4 – You’ll retain the equity in your business
3 – You’ll retain control of your business
2 – You’ll learn to sell
1 – You’ll listen to your customers
Source: 10 Lessons in Bootstrapping a Business, Clate Mask, Co-founder and CEO of Infusionsoft, submitted to VentureBeat.
What was that again? Turn me up
in my headphones!
1 – You’ll listen to your customers!!!!!!!
“Opting to be self-sufficient (either voluntarily or not) and rely
on real revenue means one thing: The customer is suddenly king.
This focus becomes baked into the company’s DNA. Its very
survival depends on developing products that its target market
actually wants and likes. Customers are often involved in beta
testing and are encouraged to become involved in the process.
And early on is the time when you want to solidify a customer
base for future sustainability.”
Source: 10 Lessons in Bootstrapping a Business, Clate Mask, Co-founder and CEO of Infusionsoft, submitted to VentureBeat. AND
It’s time to move on…
 How much bootstrapping is enough?
 Raising the right money at the right time can make or
break a company’s growth, so it’s important to know
when your company has outgrown its boots. Here are
some indicators:
 - Market growth rate is accelerating: If the market
is growing faster than your internal funding, you risk
losing market share (and equity) by not catching up.
…it’s time to get going…
 - Customers are buying products and sales are
predictable: You can scale your sales team, and more
effectively channel the VC money you raise. As a rule of
thumb, you should feel confident that you can predictably
bring in at least $2 in gross profit for every $1 you spend on
sales and marketing. I recommend a $3 to $1 ration as an
even safer barometer.
 - Complementary products or businesses have become
available: It may be time to expand your offerings through
an acquisition. Can you economically acquire new
customers through a merger? If you are considering M & A
activity and need help financing your growth, it’s time to
raise capital.
… under my feet, baby, grass is
 - The current economic cycle favors growth: This isn’t
what we’re experiencing now, of course, but hopefully it
won’t be too far off. If the market seems to favor technology
investment, or you see new growth areas on the horizon, it
could be wise to switch.
 - Your balance sheets are weak, or you want to
diversify risk: Co-mingled balance sheets can be a major
challenge for bootstrapping businesses. A prudent decision
for a company may be imprudent for its founder (scaling
sales at the expense of cash-flow, for example). As a
consolation, selling off some shares can let founders
offload some risk as well.
Where do we go from here?
 If you’ve bootstrapped long enough to face these
issues, you’ve probably done a pretty good job
establishing growth and maintaining an equitable
personal stake. Now the question becomes, “What do I
look for in an investor?”
Fly me to the moon!
 My advice: Don’t just look for the money — look for a
partner with vested equity interest to help you expand.
After this point, many parts of your business and how
you manage them will need to change. Your
investment partner should offer substantial
contributions in this direction, not just capital.
Stacy Lawson and 3-D Parts
 Engineer
 Exhausted credit cards while searching for investors
Just one way it was done, maybe
not the best way… be a better ninja
 Seed Capital
 Customers…
 More investors
 Sell your biz for $45M
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