Bootstrapping Your Startup

Start With a Sale

Wouldn't it be nice to know that your business could be profitable from day one? Many successful companies began with a purchase order. Since having customers is really what business is all about, having at least one customer is a good place to start.

One customer was all it took to get Rainbow Express moving. The nightly courier route that launched the company allowed the founding partners to build even more sales during the day. Bart Snow continued to work the business around his day job, but he adds, "Within a year, the company reached the point that it could replace most of my salary, so I left my job."

The difference between a business with no customers and a business with one customer is night and day. That first customer serves as far more than a source of income. They are a reference for prospects and a source of insight into the needs of the market. For the very early-stage business, one customer can also provide an important psychological advantage--a paying customer is strong reassurance that the work has value.

Make a Map

Mapping out a finance strategy is a vital--and often overlooked--part of the business plan. It's easy to project growth in sales and staff, but until those sales are made and paid, where will the cash come from to buy raw materials, pay salaries and provide overhead?

This is an important lesson to learn early on. "Cash flow is always an issue," groans Snow, "unless you've been able to bank a lot of money or you are in a really high-margin business."

Since it often takes weeks or months to collect money from sales, financing a business from only sales revenues is really an exercise in advance planning. The savvy entrepreneur should know not only how to pay for today's expenses, but also how to pay for the next three to six months of overhead.

While Snow believes in the benefits of cash flow planning, he's quick to point out that "cash flow plans don't help if your customers aren't paying you. You have to be really diligent, or people will string you out as long as you let them." Forecasting and collecting accounts receivable are two sides of the same coin.

Don't Spend

Beware of success. "People tend to make a little money and then think they can spend on this and that. but it's a huge trap," warns Snow. "Buy only what you absolutely need." That means no lavish spending on swanky offices, excessive travel and employee perks. There is really no room for excess of any kind in a young business.

Shep and Ian Murray lived with their parents while selling their first batch of neckties out of their car. "We put every penny we had into the highest-quality materials and, later, the best people we could find," explains Shep. There was precious little left for extras--even salaries for the pair were not a given during the first year. But it's this devotion to spending only on the core business that accounts for the success of the company's $65 ties today.

Likewise, Snow and his wife operated out of the basement of their home until the business could well afford a small office. Using contract labor to match expenses with income was another easy way to grow the business without adding overhead.

Learn More

You may be cash-strapped, but you can't afford not to market your business. Try these creative ideas for marketing on a shoestring.

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This article was originally published in the October 2002 print edition of Entrepreneur with the headline: Bootstrapping Your Startup.

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