Some businesses are built by venture capitalists. Dearly departed Pets.com comes to mind. Other businesses are built by entrepreneurs--Dell Computers and Microsoft are a couple of good examples.
Despite the dream of some entrepreneurs to meet a VC with deep pockets, the fact is that 99.9 percent of business owners will struggle alone, pulling themselves up by their bootstraps. And that's not necessarily a bad thing. With a little luck and a lot of pluck, bootstrapping a business can be both financially and emotionally rewarding.
There are no guarantees of success when self-financing a business, of course, but there are some guidelines that will make the game go smoothly.
Entrepreneur Know Thyself
Each business and each entrepreneur is unique. It's important for the business owner to understand the risk that he or she can withstand. A recent college grad may have a high tolerance to risk because she probably doesn't have much to lose. But the equation looks a lot different for a 30-year old single parent. Throw in a couple of obligations for a mortgage and a car, and mom or dad may be reluctant to give up the day job to venture into the unknown.
Shep and Ian Murray knew they had a high tolerance for risk when they decided to launch Vineyard Vines LLC, their Greenwich, Connecticut, necktie company. Shep, 31, and Ian, 27, had barely entered the workforce when the entrepreneurial bug bit them. "We had a vision and we just went for it," says Shep. During the early days, the brothers racked up more than $40,000 in credit card debt, "but we knew that someday when we were making millions, that would seem like a trivial amount."
Bart Snow, 35, was a little further along the career curve, but still had little to loose when he and his wife started Rainbow Express Inc., a courier service in Columbus, Ohio. "We had a very small house payment and no kids. We knew that if we were going to do it, it had to be now." Still, the couple agreed that Bart should keep his job until the fledgling company could afford to replace at least some of his income.
Understanding personal economics upfront will make future finance decisions easier. How much capital will each partner be willing to put into a business? How much debt are they willing to assume? Set the ground rules upfront to make the tough financial decisions easier in the long run.
Look Before You Leap
At the concept stage, a business is like an egg that has not yet hatched--and the incubation process can be expensive. Doing research, making phone calls and buying supplies can eat through thousands of dollars before the business is really even born. Many entrepreneurs limit their risk and expense by keeping their day job and letting the idea percolate during evenings and weekends.
The Murray brothers took several months to decide on all the details that shaped their first foray into the world of fashion neckties. "We didn't have a penny to our names, but we had an idea. While we were still working, we used as many [free] resources as we could. We even took advantage of the studio at the agency where I was working for design resources," says younger brother Ian. Meanwhile, Shep's employer had a fashion division that introduced the brothers to the suppliers they needed. They had lined up both the designs and the production of their first line of neckties before ever quitting their jobs.
Of course, not all employers will so generously support the moonlighting activities of employees. But keeping a steady income during the planning phases of a business is the best start to bootstrapping any new venture.