Many college entrepreneurs think the only way to get an idea off the ground is to write a complex business plan, raise tons of money and swing for the fences with million-dollar revenue projections.
Well, good luck with that. In this economy, capital markets are so tight, even entrepreneurs with good track records are struggling to get funding.
The alternative is to start small: Scale back your big idea into a smaller, positive-cash-flow concept. Then build up savings and use those to finance your bigger vision-- leaving you with full ownership and all the eventual profits.
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Alex Moazed, a senior at Babson College, did just that with Applico, the company he started to create mobile applications for smart phones. Moazed has big plans for Applico, but instead of raising funds for a major provider of mobile applications, he maxed out his credit cards and built a bare-bones version of the company he envisioned.
"I decided it was more important to build the initial proof of concept," he says. "This way I retain complete control to change and adapt the business model, and reap all of the rewards."
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Bootstrapping 101
Alex Moazed’s top four tips:
Find the lowest interest-rate credit cards since you will likely be carrying a balance. Stay away from high-rate rewards cards.
Defer payment to suppliers and contractors. Convince them by making them believe in your plan. Or offer to pay them slightly more.
Consider revenue sharing instead of paying a lump sum to suppliers or contractors. They will gain a higher upside potential.
Don't get in over your head. Accumulating credit card debt and large accounts payable can be a slippery slope.
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With $15,000 in credit card debt and deferred payments for technology development services, Moazed needed to build a revenue-generating product quickly or risk paying crippling interest or late penalty fees. His solution was to release a BlackBerry app in May called NYC Transit, which provides train, bus and ferry schedules for New York City.Within a month of its release, NYC Transit was the best-selling travel app in the BlackBerry application store. Thousands of downloads later, at $5 a pop, Moazed had a solid revenue stream--and a 2009 revenue target of $250,000.
"My credit cards are all paid off, we are cash flow positive and we're still completely self-funded," he says. "Now I can focus on the next step in building the business."
That involves developing a free application called Aurkon that backs up contacts, phone logs, calendar entries, tasks, text messages and memos, storing them safely online in case a device is stolen, lost or damaged. In exchange for the service, Applico is able to aggregate non-personal data about smart-phone usage and provide advanced real-time features such as traffic information, population density distributions and tracking how many business miles a user acccumulates in a year for tax write-offs. Aurkon's launch is planned by year's end.
For Moazed, building Applico from the ground up was the smartest move.
"Strip your idea down to its bare essentials and its most compelling value proposition," he says, "and get it out there to start building some traction. Then if you still want to raise money, you'll be that much further along in the process, and you'll intrigue investors that much more."