Recently in Bootstrapping Category

One of the bootstrapping techniques I like folks to consider is keeping your day job while your venture to getting up to speed.  This has become a more common financing strategy now that the weak economy has put a hit on the ability of friends and family to provide start-up financing. 

Erin Albert, who teaches at Butler University, has released a book that offers insights on keeping one's day job while pursuing a start up from a number of entrepreneurs who have used this approach to bootstrap financing.  She calls this strategy "Plan C".

Here is part of what she learned from researching this book:

I learned several things from this project. First off, I have nothing but the utmost respect for the people who are trying to rock both the day job and the part-time (which we all know is really a full-time) business. It's really hard, but I am appreciative of the people who were willing to share their stories in this collection of what the future of career development looks like in this country. Secondly, through their uplifting, positive yet real stories, I know that doing both can be done, and done successfully!  Lastly, I was encouraged by the fact that employers (in particular, more creative employers) actually saw the value of the Plan Cers to their own businesses.

Albert's e-book, Plan C: The Full-Time Employee and Part-Time Entrepreneur, needs to be in every bootstrapping entrepreneur's e-library.

I am in Madrid, Spain this week with a group of MBA students on a one week intensive study abroad.

Yesterday we visited an impressive company, Deimos Space, headquartered here in Madrid.

The founders were able to build a high growth company that launched their own satellite into space using only self-funding of $250K from the founders.  An amazing story of what bootstrapping and building the right team can accomplish.

They started, grew to a global presence in the space market, and exited their venture all within a ten year period.

Most of the founders are still with the company helping to take the core technologies they developed in Deimos into other markets and other applications.  There is a great description of how far they have taken their business model on their website.

Bootstrapping is the name of the game for most startups. By keeping their expenses low, particularly overhead costs, entrepreneurs are able to start businesses with limited initial funding. 

So what is the magic formula for effective marketing through social media? 

The truth is that marketing through social media is wide open at this time.  The best approach is to experiment and see what works best for your business model.  Ask yourself several questions:

• What is the nature of the relationship with my customers?  Is it intimate and on-going?  Is it a "drive by" relationship that is purely transactional?  The answer will shape which type of social media works best and how you need to shape your message.  Closer and deeper relationships require a more personal approach, such as blogging or using Facebook.  Transactional relationships may work better with quick and easy media such as Twitter or even e-mail marketing. 
  
• What is the nature of the message?  Is it technical and complex?  Good old websites are still best for that.  Quick reminders and "deals" work best with short blast media.
• Who is your target market?  Know how they think and how they make decisions.  Facebook is not just for young people any more.  The most common user is 54 year old women!  Blogs are not popular with the very old or the very young -- and for different reasons.  Older folks are generally not in the blog reading habit.  Younger folks do not have the attention span.
• What is your value proposition?  If you are high end, high value be careful to not "cheapen" the message with the wrong social media.  Don't use media that makes your product look like commodity, an impulse buy, etc.  The marketing medium used and the format of the message needs to match what you are trying to communicate about your product.

Whatever you try, view it as an experiment.  Here is a good example.

The Which Wich food chain sent out an e-mail blast to those customers who had registered.  It invited them to enter a creative, home-made promotional video.  The winner got a $100 gift card and some additional possible exposure in future promotions.

One of our students here at Belmont, Ross Hill, won this contest with the following video:





But here is where the wild west of social media gets even more interesting.  While Which Wich clearly found a way to connect with their customers, Ross gets value out of it as well.

"The prize was a $100 gift card to Which Wich," said Ross.  "But the biggest 'prize' was that I was going to be featured in their future advertising.  I am still un-aware of the extent of the advertising I will be featured in; but any exposure is good exposure for me.  Entering into the competition has opened more doors for me in the last few days than I would ever have imagined.  I have received several phone calls pertaining to the possibility of doing jingles and commercial work.  I guess I will just see where all of this goes!"

So the social media connection creates value for both Which Wich with its customers and for Ross with his emerging business model. 

After developing their business model and forecasting expenses, many aspiring entrepreneurs are suffering from sticker shock. The thought of investing a large amount of money or going into debt is scaring many away from their startup dreams.

Aubree Phillips, who is graduating from the entrepreneurship program at Belmont University this spring, has dreamed of starting a clothing boutique since the day she arrived on campus. She gained experience by working in the campus-based clothing store called Feedback and worked on the plans for her store in every entrepreneurship course she took.

But with graduation looming this spring, the thought of spending more than $100,000 to open her store in a weak economy gave her cold feet. But she did not abandon her dream. Instead, she partnered with her friend Natalie Sawyer, a Lipscomb University alumna, to brainstorm about ways to meet shared goals by bootstrapping.

The biggest single financial commitment was the physical space to house their boutique. So Phillips and Sawyer decided to change their business model from a store to a "traveling boutique" called Fringe and Lace. Rather than setting up in a traditional storefront, they take the clothing directly to their customers' homes.

"We specialize in clothing, jewelry and accessories," Phillips said. "All items are trendy and under $100. Our customers find that shopping at home, surrounded by friends, is a fun and relaxing alternative way to shop."

They are able to keep staffing costs down since they do not need employees for a brick-and-mortar store. Phillips and Sawyer staff all of the parties. When the business grows beyond what they can handle, they plan to hire interns and part-time employees to help.

Fringe and Lace has relied on bootstrapping for its marketing. Word-of-mouth has been a big source for securing early customers, which they have encouraged through the use of social media. They have also been using a blog approach to their website, www.fringeandlace.com, to keep their customers current on their new inventory and to help build a community of loyal repeat customers.

Inventory is the final major cost for their business. "After each party, we make an order to update our merchandise," Phillips said. "This way we do not have too much inventory on hand. It also helps us to continue to offer new and different pieces. We try to be smart about our buying so we don't end up having too much or excess inventory that we can't sell."

They store their inventory in an office at Sawyer's home.

Rather than letting the economy discourage their dreams, Phillips and Sawyer showed how changing the business model and bootstrapping can make the cost of a startup more affordab

The myth still exists that it takes outside funding, sometimes massive outside funding, to launch a successful high growth firm. 

If you have a very capital intensive or labor intensive business model you will need a large base of funding to get off the ground.  But for most start-ups, you may be able to adjust your business model enough to cut the funding you need, while still making a successful launch.

One example comes from an e-mail I received about launching a children's indoor play center.  Such facilities can take a lot of cash to launch due to the cost of facility rent and equipment costs, and the aspiring entrepreneur had no ready source of cash.

My response is that there are no ready outside sources of cash out there for new start-ups like this. The only real options are to use money from your savings or to tap into friends and family who would be willing to invest.

If the entrepreneur wanting to start the indoor play center cannot raise the money to launch the program fully formed, there are other options.  She could start with a much smaller scale that fits in with the money available. Or she could develop the program she wants to run by partnering with a local facility like a YMCA.  Or she might be able to save rent expense by partnering with a local church to use their space.

The point is that some modest tweaks to the business model may bring costs way down and still meet the need of the market.  Once the bootstrapped launch of the play center is cash flow positive, all kinds of options for growing and expanding emerge.

John Wark sent along a great example of how bootstrapping did not stop a new venture called Logik from making the Inc 500.  Logik is one of the firms featured in a series at the blog 37signals called "Bootstrapped, Profitable and Proud."

According to the interview, Logik launched with only $20,000 from savings and credit cards (NOTE:  I am not a fan of using credit cards to start businesses).  It was profitable within nine months.  And did the bootstrapping limit their ability to grow, as it often commonly assumed?

"Financially, we've been very successful considering our size relative to the competition (most have close to or well over 100 employees, we have 16).... [F]rom 2005 to 2008 we grew revenue by 1,067% from $373,866 in 2005 to $4.4 million in 2008 with about $3 million in profit. We did that with 8 employees, a ton of servers, niche software, and 1 dog. This, minus the profit, is all public information now. We were ranked #181 overall on the 2009 Inc 500 survey and #1 for eDiscovery companies."

And Logik is still bootstrapping their venture to this day.  This is a great series at 37signals and is worth following for all you aspiring bootstrappers out there.

If funding is your barrier to starting your new venture, play with the business model to see if you can still create a value proposition that the market will be attracted to.  You might be surprised how much start-up capital you can save without hurting your ability to launch and grow.

Now that the floodwaters have receded, the process of rebuilding small businesses affected by the flood of 2010 is beginning to unfold.

While homeowners received assistance from the Federal Emergency Management Agency and private charity groups, there are no grants to help small-business owners recover from flood-related losses. There are emergency loans available through the Small Business Administration for businesses with losses from the early May floods.

While new business loans may be necessary to get a business operational after the flood, it is important to think carefully about the long-term impact of taking on additional debt. The use of debt brings added risks.

New debt will add to the overhead of a business. This means that additional sales and profits are necessary to cover the additional monthly expense associated with repaying a loan. And, just like most small-business loans, this new debt will need to be personally guaranteed by the entrepreneur and secured with personal assets, such as the owner's home.

My advice to entrepreneurs trying to get back on their feet after the flood is to minimize the use of any new debt. You can do this by getting back to your startup roots, becoming a bootstrapper once again.

Keep operating costs down

Bootstrapping -- the collection of tools and tactics that entrepreneurs use when they have limited resources -- already has become a crucial business skill in today's tough economic climate. The added financial pressures facing small-business owners because of the flood make the use of bootstrapping that much more imperative. The goals are simple:

• Keep your monthly overhead to a bare minimum as you rebuild, to allow cash flow to support your growth as much as possible. This will help you get back to break-even sooner.
• Maximize the use of marketing that can be done without spending a lot of money, using things like word of mouth, social media and viral marketing. Your message should always be directed toward a specific niche. Know who is in your company's market niche and find the most effective, targeted ways to reach those consumers.
• Also, keep close watch over employee costs. Rehire your staff only as you can afford to with existing cash flow.
• Keep your operating costs down. Operating costs include expenses necessary to produce a product or provide a service. Controlling operating costs by using temporary outsourcing can help your business get back to break-even that much sooner.

Help is available for those who want to use bootstrapping to recover from the flood. A Nashville-based group called Better Bootstrap meets monthly to share ideas and best practices.

Recovering from the flood will not be easy, but with a return to one's bootstrapping roots and careful planning, many companies will bounce back stronger than ever.

(This post was my column in today's Tennessean).

It is with great sadness that I share the news that my father, Robert Cornwall, passed away this past Tuesday.

Over the years Dad grew to become my mentor and my friend.  Dad helped me to shape many of my entrepreneurial values.

Dad was born near Chicago in 1921.  His family moved to Oconomowoc, Wisconsin when he was young.  After high school, America was embroiled in WWII, so Dad enlisted in the Navy.  After the War, he took a job with a company back in Oconomowoc.

Dad was a prudent risk taker.  He was never impulsive.  But, when an opportunity came his way he analyzed it carefully and then, if it had potential, he took a chance.  His first big risk came when he decided to leave his home town, move his family to Ripon, Wisconsin, and take a position in purchasing with Speed Queen, which was a popular brand of washers and dryers in the 1900s.  This decision opened a flood gate of new opportunities over the coming decades.

Dad had a strong sense of purpose.  His entrepreneurial career was not a typical one by today's standards.  The first part of his working life was spent working his way up the corporate ladder.  He knew he wanted to become successful within the corporation, so he put in the time and effort to make it happen.  Over the coming decades he methodically made his way from purchasing clerk all they way to president of the corporation. 

But he was always driven by the entrepreneurial spirit.  He used his corporate success to become what we might call today an "angel investor".  He and his partners bought, invested in, or founded a number of businesses, including a candy company, a marina, a box company, and various other ventures.  However, he never ran the day-to-day aspects of any of these businesses.

When he was in his fifties, he took his next major risk by deciding to leave the corporate world and became a full-time entrepreneur. He also decided that it was time to leave Wisconsin.  His first stop was Houston, Texas, where he owned an executive placement business.  The economy was tough at that time, so this deal did not work out as planned.

His next stop was Miami, Florida, where he joined two other partners in a plastics manufacturing business.  Over the next twenty plus years, they successfully grew this business.  When he and his partners reached their seventies they sold the operating units of the business, but kept all the real estate.  None of them were even close to being ready to retire.  They took the proceeds of the sale and used it as a base to grow their commercial real estate holdings.

Dad always had a sense of responsibility.  He told me that corporate bankruptcy was never an option for one of his deals.  When a deal went bad, he did what he had to do (including using his personal resources) to make things right. 

My commitment to bootstrapping comes from my Dad.  He always was, to put it in his own words, "cheap."  As an entrepreneur, he never wasted money on things like fancy offices or extravagant travel.  In fact, being the cheapest seemed to become a competitive event between he and his partners.

He was a child of the Great Depression, so bootstrapping came naturally to him.  I remember a conversation I had with him a few of years ago. We were talking about an investment he was considering in a potential deal.  He made the statement that he wanted "protection" in this deal. That was an interesting word to me. After all, he was not running a bank that can get a personal guarantee on debt. Any investment would be at risk.

But, he meant something else. He looked at every deal and imagined what it will look like if it went bad. What could he hope to take away from it?  He thought this way because his generation saw the ultimate worst case -- they lived through the depression. It is not that the Great Depression made him risk averse -- to the contrary. Rather, he was always soberly realistic that deals go bad, and we should understand where that will leave everyone involved. This is a perspective that we seem to be losing in our society. It is this perspective that made him the ultimate bootstrapper.

I will miss you, Dad.  I will miss our frequent phone calls.  I will miss the fun we had when we got together.  I will miss our conversations about business opportunities.  In years past we dissected and analyzed deals that each of us were looking into.  More recently, we talked about the businesses being started by my students and alumni.  We shared the love of "the deal."

Thanks, Dad, for instilling the entrepreneurial spirit in me that has shaped my life.

My Friend Ami Kassar (formerly with ideablob, which died when Advanta went bankrupt) offers a great bootstrapping story.  Fresh off his pink slip from Advanta, Ami used bootstrapping to navigate his way through using the market to help refine and develop his new business model behind his venture MultiFunding.

From the Philadelphia Daily News:

To start up quickly and cheaply, MultiFunding used WordPress as its blogging platform ("so we can evolve it," Kassar explains). He and his partner printed a scant 100 business cards apiece, he says - then scrapped them and reprinted a micro-batch when they realized that their corporate tagline was off-message.

"We found our office as a sublease on Craigslist," he says. "We moved in and the phones were here and the Internet was here, and we got going."

Baby steps for newborn companies: "I think you have to start with your idea, then break your idea into steps," Kassar says.

Step one, he says, is to "sort out what the fundamental economic proposition of your idea is and what it would take to prove it...."

"Then find a way to execute it as inexpensively as you can. Then, in two-month or three-month increments, you can say, 'OK, I've learned this or proved this. What is the next step?'

Ami offers great lessons for any start-up.

A new survey of small business owners by Brother International Corporation found that small business owners are still hunkering down. 

The survey revealed that more than half (53 percent) of small business owners believe stockpiling cash is the best strategy for surviving the current economic climate, as opposed to investing in their business. This is a wise and prudent strategy right now.  The economy is a long way from recovery and more shocks could be in our future.  Cash is the best cushion against uncertainty.

The same survey showed that the majority of small business owners (79 percent) will strive to make their company more efficient this year.  Bootstrapping is back in and is a great path to higher cash reserves.

Additional results from the survey include:

• 15 percent say they would give up 10 percent of their company in exchange for a guarantee that they'd be protected from negative economic effects in 2010.
• 51 percent of small business owners find that their stress level is at the highest it's ever been, or higher than usual, as a result of the economic climate. In fact, close to half (48 percent) of small business owners think about their business while trying to fall asleep.
• 65 percent of small business owners believe they put in more hours than if they worked for someone else.
• 50 percent of small business owners enjoy the flexibility that comes with "being your own boss"
  
• 35 percent enjoy being able to pursue their passion.