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
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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.
Learn More
Think you're ready to bootstrap your way to success? Here
are five
tips to help you get started.
Originally published in the October 2002 issue of Entrepreneurs Start-Ups magazine
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