When angels and venture capitalists started flooding the market with cash 20 years ago, people forgot that bootstrapping was the way most companies used to get started. Because it deserves to make a comeback as the best way to think about starting a company, I've shared here, my 4 rules for bootstrapping.
2. What is bootstrapping?
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This is the shack that Bill Hewlett
moved into.
Bootstrapping usually means
starting a business without
external capital.
No dilutive capital or issuing
common or preferred shares,
or convertible debt.
Also for companies that are
launching new products as a
good way of thinking out how
they can launch a new
product.
3. Why would you want to
bootstrap?
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I have lots of friends who are
entrepreneurs and one day I noticed
something. Most of my friends who had
bootstrapped businesses and owned
them all on their own were doing very
well financially.
On the other hand, most of my friends
who had obtained venture capital
funding were not doing as well
financially.
If you want another perspective on
Venture Capital, check out my
presentation on why you may not want
VC funding.
4. Rule 1
Find a Budget Waiting to
be Spent
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People will tell you that you
must find a problem that you
can solve but that isn’t really
enough.
5. You must solve a recognized
problem
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If you’re starting a company, everyone
will ask you what problem you’re trying
to solve.
Well you might see a problem but if
others don’t see it that way, you are
not solving a recognized problem.
6. Someone must own the problem
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So if people recognize there is a problem, is there someone in the
company who owns the problem?
There are lots of problems that companies have but the way they think
or strategic priorities may mean that there is no one responsible for
solving the problem.
If there isn’t someone responsible for solving the problem then you
have no one to sell to.
7. The problem owner must wake
up everyday trying to solve that
problem
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Even with someone responsible for
solving the problem, they may already
have a good enough solution.
It may not be as good as your solution
but they may think it good enough for
now. That’s why Excel is used in so
many applications instead of
databases.
The person responsible must be waking
up every day trying to solve the
problem if you want to get anywhere.
8. They have to have a budget
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I have come to believe that the most
important thing to identify in creating a
company is a budget.
If a company doesn’t have a budget
for what you want to sell and will take a
long time getting a budget then you’ll
have a slow start, whether or not you
get VC financing.
A slow start in bootstrapping is a slow
death.
9. There must be lots of them
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Finally, it’s no good finding a company
with a budget, you better find lots of
them because you’re bound to have
competition.
10. Rule 2
Do Something Radically
Different
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Sure you can start a company where
everyone is doing the same thing.
To be competitive then you’ll need to
be better at execution or better at
selling.
Those types of businesses though don’t
have the same potential as ones that
are doing something radically different.
11. Quality
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There are only three dimensions upon
which you can compete.
Those are Quality, Cost and Speed.
The best one upon which to base your
competition is Quality.
Look at Apple. The highest cost
products out there, no faster at delivery
in fact maybe slower to get to market.
But they have the best quality, bar far
and as a result are the most successful
tech company in existence.
12. Cost
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You can also compete on cost by
being the lowest cost product or
service. That can work when, in a Blue
Ocean Strategy, you find a segment of
the market who will accept a lower
quality product at a much lower cost.
This worked for IBM as they found a
segment of the market that needed
computing but couldn’t afford mini-
computers
Of course it worked for them until
someone else decided to be even
lower price.
Note that Apple is still around while the
IBM PC is not.
13. Speed
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Speed as a differentiator means time to
market or customer cycle time, the
amount of time from order to delivery.
This can be a long term differentiator as
complex distribution networks are
difficult to establish.
Look at Dell. They get new technology
to the market faster than anyone and
get you a PC exactly the way you want
it.
They survived when Compaq and
many others didn’t.
14. Switching costs are high
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And why do you need to do something
radically different?
Well it’s because switching costs are
high, people don’t like to change and
they will only change how they are
doing something if the alternative is
really outstanding.
15. Rule 3
Engage customers
from day one.
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I see many entrepreneurs who spend
all sorts of time at the beginning of an
enterprise writing a business plan,
getting their website ready, creating a
product but that’s the wrong way
around.
16. The problem – Wait till the
product is done and try to sell it
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I’ve met lots of companies, in fact I’m
dealing with one right now, that built a
product and then went looking for
customers.
It doesn’t work, in fact you become a
product in search of a market.
17. Start selling
on day one
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Research shows that successful software companies spend as
much on sales and marketing from day one as they do on
research and development.
That’s not the Canadian way but it works. You need to start
selling or engaging customers on day one.
In fact if you read the Four Hour Work Week, you’ll see that he
tests the market with fake ads well before getting down to
building a product.
18. Business development
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Selling before you have a product
finished is the role of business
development.
A salesperson’s job is to find a customer
and sell her a product that exists.
The business developer’s job is to find
out the customer’s needs and figure
out how the product you are thinking
about can be adjusted to meet that
client’s needs.
This is harder to do with consumer
products but in those this role is
performed by market research and
mocked up customer trials with
prototypes.
19. Lean Startup
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If fact this is the whole methodology
advocated in the Lean Startup and
Lean methodologies in Software
development.
Do quick product iterations and check
for market reaction before you’ve
gone down an unfortunate path too
long.
20. Rule 4
Get their money early
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You’ll notice that most of the
rules are about customers and
their money.
That’s not a coincidence
because success in business is
achieved by getting a customer
to part with her money.
And if you’re bootstrapping, you
better get their money early if
you want to survive.
21. Consulting
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The first way you can get money from a
customer is by doing consulting.
This doesn’t work for consumer
businesses but it works very well in B2B.
The consulting should be helping them
come up with solutions to the same
problem you’re going to develop a
product for.
22. Services
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Once you’ve done the consulting, you
can move to the next stage and take a
problem off a customer’s hands by
performing a service for them.
One friend of mine started in consulting
by helping call centers improve their
operations by making
recommendations and training their
staff.
Eventually, one of his customers said,
why don’t you just take over my call
center and do it for me. This started a
business that grew astronomically all
over North America.
23. Customized software
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Now if you’re headed down a product
route, many customers will pay very
well for you to develop a customized
solution for them.
There are countless companies around
that started out doing customized
solutions that then then productized for
a wider market.
That was also the way Blackberry got
going, with custom contracts
24. Prepay
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Of course if you can, get some if not all
of your money up front.
Clients will be more predisposed to this,
the more value you can bring to the
table.
Some of them will even fund research.
NASA has funded some $500 million for
SpaceX to get to production.
25. Kickstarter
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This is a great new source of funding if
you presell a product.
Polar Pen, Amanda Palmer and the
guy who will make a potato salad are
great examples of success. There are
other examples where failure to raise
funds is a good indicator of poor
market demand.
Only 9.5 % of startups that raise money
with Kickstarter go on to raise VC
money.
Women are successful 2/3 of time but
for men it is 1/3.
26. Success
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Here are some great companies
that built real businesses with
real revenue:
• Veeva Systems
• Tableau
• Indeed
• Mojang
• Shutterstock
• Wayfair
• Mailchip
In fact, Mailchimp and Mojang
were completely revenue
funded.
31. Start selling now!
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Start selling from the first day you have
an idea so you’ll see if you have a
chance of getting some of the budget
spent on you.
32. Use customer money to build
your business
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Find a way to get
customer money to
finance your launch.
33. Once you have
• products
• reference accounts
• a working business
model
• the right people
• exponential growth
You can go out and raise
money
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34. Then you may become a
rocketship
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35. material minds
Helping individuals, leaders,
and entrepreneurs improve
strategy execution.
Charles Plant
416 458 4850
cplant (at)
materialminds.com
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