Bootstrapping: Starting a Business on a Budget A business coach shares tips and strategies on financing your startup.
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|Angelia Kane, founder of Bedtime CEO, advises clients on how to bootstrap a startup|
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Angelia Kane was so sure the corporate world wasn't for her that she began freelancing right of college in 1993. She started with web design, moved into consulting and then after the Internet bubble burst, ultimately, marketing. Becoming a mom led her to want more structure in her work life, while keeping the flexibility she coveted being her own boss. She launched New York-based Bedtime CEO, which offers coaching and other services to those balancing entrepreneurship and parenthood. Kane is a firm believer in bootstrapping -- using savings to launch a company -- having financed her solopreneur career this way. She encourages her clients to bootstrap and shared her reasons and strategies in an interview. Edited excerpts follow.
Entrepreneur: What's the biggest misconception about bootstrapping?
Kane: That it's impossible to do. It's possible. It just takes more planning and time than if a bank cuts you a check. For example, instead of paying a lot of money to lease office space right away you can rent desk space, sometimes by the hour. Also, kitchen incubators are popular [for those starting food businesses]. You can rent a certified licensed kitchen by the hour. As for office furniture, the first place I would look is Craigslist or Freecycle.
Entrepreneur: Why should entrepreneurs start this way?
Kane: You're more careful spending your own money than someone else's. When I started my business I didn't want the overhead of traditional office space. I had competitors who started around the same time. They had well-lit open office space and [high-priced] Aeron chairs, but they didn't make it. I had a rocky start, but even with the [economic] ups and downs, it wasn't as hard for me to become profitable. Also, the average entrepreneur has a few failures behind him before he succeeds. If you bootstrap, each attempt won't cost you too much.
Entrepreneur: Is there a down side?
Kane: It could take three times longer [to get your business off the ground], though that is changing. For example, you could have a successful viral marketing campaign that costs nothing or maybe $100. But if you can't write a check whenever you need to get something going, you'll have to put in the time to figure out how to do it yourself. But if you're maxing out all the time you have to put in, and it's not enough, that's when bootstrapping will slow you down.
Entrepreneur: How do you get around that?
Kane: Think about how you'll grow or who you'll target. Going after businesses might be a better use of your time than targeting individual consumers, for example. There is this concept of a "force multiplier," where one set of actions has a larger reach or serves multiple purposes.
Entrepreneur: Are there businesses for which this approach won't work?
Kane: Any business where you need to buy lots of equipment to get started. Most people can't bootstrap a restaurant. You can't really bootstrap a franchise. But, for example, one client wanted a baking business and that's expensive. You need equipment, licenses and a certified kitchen. So I suggested renting a kitchen by the hour. She probably saved $10,000 over a month.
Entrepreneur: You can also bootstrap, and get funding later.
Kane: Absolutely. Slow growth in the beginning benefits you in the [long run]. During the dot-com era, I saw how too much access to capital too soon can make you lazy and [undisciplined]. If you put up your own money, you'll know where every penny went and be more deliberate in all financial decisions. Being a tight money manager will differentiate you to investors.
Entrepreneur: Are there best practices for bootstrapping?
Kane: Think service. A service you can provide is the fastest way to beef up cash flow. Don't spend much on [website] design. There are many free and affordable options. I'm a fan of what Wordpress can do. You can also get logos designed cheaply on 99designs and deals on business cards at Moo.com, for example. Some of the best ways to market your business don't cost money. I did tests last year on strategies, and contests were the most successful to draw attention to a [business]. You can register with sweepstakes sites to promote your giveaway. I tested different price points for the giveaway and found if it's under $10, people don't care. But if the item is $100 or so, people will pay attention.
Entrepreneur: What common mistake do entrepreneurs make when bootstrapping?
Kane: Thinking cheap and free are the only ways to get things done. Sometimes you have to pony up. If you need skilled expertise -- legal, programming, information technology or public relations, for example -- you might as well spend that money. If you need a lawyer, you don't want to spend $50 [on something that should cost a lot more], because the lawyer is your cousin's friend. That will backfire on you.