A formula for successful bootstrapping

April 15, 2013

A formula for successful bootstrapping

Apple, Coca-Cola, HP, Dell, Microsoft. What do all of these companies have in common?

You may be able to list their commonalities, but something you may not know is that all of these companies were initially bootstrapped.

Bootstrapping is the act of self-financing a business without losing equity. At last week’s Entrepreneurship 101 lecture, Charles Plant, the founder and chairman of Material Minds, spoke about the benefits of bootstrapping and how to do it properly.

You may be surprised to know that the majority of successful businesses did not receive funding from venture capitalists or angel investors when they were starting up.

In his talk, Charles explained that companies that receive investments in their infancy often do not reach the same level of success that bootstrapped companies do, and he offered some reasons for this trend.

A formula for bootstrapping

In his talk, Charles provided a formula for bootstrapping, including what to do and consider before you start and the steps you need to complete as your company grows. He also provided the following tips:

  • Line up credit ahead of time, because you will likely spend more money than you plan to.
  • Find a mentor, specifically someone who has experience with startups in your industry.
  • Pick the right business, as some businesses are capital intensive and extremely difficult to bootstrap.

Reach out to potential customers

Once you have done some preparation, it’s time to reach out to potential customers. Talking to customers is a great way to understand their problems and priorities. Use the information you learn to start building your product or service and pivot as necessary. The benefit of doing this on your own dime is that you can take time to explore and experiment without worrying about getting a quick return for your investors.

In order to grow your company, it’s important to look for service opportunities and develop customized products for your clients. Worry about customer relationships rather than revenue, as this will give you credibility that you can leverage when seeking bigger clients in the future.

Seek outside investment only once your business is profitable 

Once you have a client base and excellent references, you can shift your focus to revenue. When your company becomes profitable, you can then seek outside investment opportunities. Your business model will have been proven at this point and outside investment will help you to multiply your success and join the likes of the companies mentioned above.

Get the complete formula for bootstrapping success by watching Charles’ full lecture here.

http://vimeo.com/63897495

Produced by MaRS Media.

This “Hot Tips for Startups” video on managing personal finance and investments will also help you on your bootstrapping journey.

Next lecture: Meet the Entrepreneurs: Cleantech on Wednesday, April 17, 2013

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