Tag: bootstrapping

Turning Passion into a Business Model

Healthy vegetables
Image by Jerzy Górecki from Pixabay

Many people are driven into entrepreneurship based on a desire to share a deeply held passion they have with the rest of the world. Passion is often the fuel that propels people to take the entrepreneurial leap.

Bootstrap!

Starting with your passion rather than with a compelling market need inherently increases the risk of your startup. There may or may not be enough people who share your passion. Until you test the market, you cannot be confident that there is a big enough market and that your customers will be willing to pay enough to make your business profitable. These are the key elements of a successful business model.

In her article about the five steps to turn a passion into profits, Caroline Castrillon explains how to mitigate the risk of building a business from a passion. She suggests that you start small, don’t quit your day job, set manageable goals, outsource whenever possible, and set a clear vision for the business. These steps help you prove there is really a market for your idea while limiting your financial commitment. These are all foundational elements of bootstrapping.

Pivot Your Passion to the Market

As you bootstrap your startup, you need to use the information you learn from the market to pivot your business model. Wes Moore, founder and CEO of BridgeEdU, says he succeeded turning his passion into a thriving business by learning what problems his potential customers have and using that information to strengthen his business model. This often requires the entrepreneur to pivot from their initial business model to one that better aligns with customers’ needs.

When the Market Doesn’t Exactly Share Your Passion

Getting entrepreneurs with a strong passion to pivot their business model is easier said than done. I have found that they may become defensive when they feel what they are passionate about is being challenged. However, it does not mean the entrepreneur needs to give up what motivated them to create a business based on their passion. They just may need to tweak what they offer. A pivot to the business model may be necessary to better align with what the market is seeking.

Ryan Reisdorf turned his passion for healthy food into a thriving business. However, he had to be willing to pivot his initial offering to make the business successful.

Ryan, a Type I diabetic, wanted to create a business that sold “healthy eating.” He founded his business, called Placemat, to sell healthy prepared meals in Nashville. He got some advice from a mentor at the Nashville Entrepreneur Center that fundamentally changed the value proposition of his new business.

“I pitched him on what I was doing. And he’s like, ‘You’ve got it wrong, man. You’re leading with something that 90% of the world doesn’t care about – health. You’re providing a seamless way for somebody to have a private chef come to their home. That’s it. Nothing more, nothing less. When you get into the home, that’s when you get to talk about health and the why of Placemat. When they take that first bite, that’s when you get to talk about health. That’s where your value is.’

“And sure enough, I took his advice and haven’t looked back. It’s changed the direction of the company.” (from “Ryan Reisdorf” in Entrepreneurial Voices)

Ryan pivoted his value proposition without compromising on what drives him as an entrepreneur — offering customers healthy food. He just needed to adjust how he sold it to his customers. He has found a business model that is fueled by his passion and meets a market need!

Social Media Can Challenge a Small Business

If you are a B2C business model, social media is probably near the top of your list for reaching your customers.  If current statistics about social media are to be believed, about half the world’s population now uses social media.

However, for small business owners, knowing how to effectively use social media to promote your business can be daunting.

But which one?

The number one rule for choosing where to promote your business with social media is to know where your customers spend their time online.  Although Facebook is still the most popular social media site, it may not be the favorite site for your customers.  The preferred social media site varies by age, lifestyle, geography, and gender.  For example, if your target market is younger, you may have better success finding them on Instagram or TikTok, as they view Facebook as the platform where mom and grandma hang out.

Even if you think you know where your customers go to engage in social media, make sure to experiment with a few different sites.  People often go to more than one site for different reasons.  For example, they may go to Twitter for news, but Instagram for finding trendy products.

Keep in mind that social media is a moving target.  Where your customer go today, may not be where they go in six months.  It is critical to keep up with these trends.

DIY or outsource?

As social media has gotten more and more complex, even small businesses are relying on experts to manage their digital marketing efforts.

More and more entrepreneurs choose to outsource digital marketing and the management of social media.  As Steven Clayton explains in his post at SmartBrief, outsourcing offers the advantages such as cost savings, specialized expertise, and better results.

If you do choose to manage your digital marketing in-house, make sure you understand all of the ins and outs of social media.  Christina Newberry offers a comprehensive guide to effectively using social media in her post at HootSuite’s blog.  How does she suggest getting started?  It all starts with a social media plan:

But before you leap in feet first, remember: every good business strategy starts with a good plan. Yes, you can use social tools for free. But the time and effort involved still represent an investment in your business.

Without a plan, you have no clear goal for what you’re trying to achieve. That means there’s no way to know if you’re getting a return on that investment.

Effective management of social media requires the right tools.  Here, here, and here are articles that offer reviews of social media tools.

Forecasting Revenues Key to Successful Launch

The late, legendary Silicon Valley attorney Craig Johnson used to say, “The leading cause of failure of start-ups is death, and death happens when you run out of money.”

And the leading cause of running out of money in a start-up is poor financial forecasting.

At the core of unrealistic forecasts is the undying optimism of most entrepreneurs.  Their “what could possibly go wrong?” attitude leads to many forecasting disasters.  My father used to say that when he looked at investing in an entrepreneurial venture he would always double the start-up costs and triple the time it takes to get to breakeven.

My rule of thumb is a bit different.  I believe that being overly optimistic leads to entrepreneurs making fatal mistakes in estimating revenues, which is at the heart of most forecasting errors.  So, my approach when reviewing a business is plan is to cut revenue forecasts in half.

Here are the four most common revenue foresting mistakes I see:

  • Assuming an “instant on” button for a new business.  Most business plans I read show significant revenues from the beginning of the business, sometimes even for the very first month that they open their doors.  The reality is that it takes time to build a customer base for any business.  That is why an entrepreneur should have at least six months personal living expenses available to make it through the startup in addition to the money the new business needs.
  • The magic of the hockey stick.  A common pattern in business plans is to show a relatively slow initial start to revenues, and then assume some that unexplained breakthrough will occur that leads to a sudden and dramatic increase in sales.  When you graph this type of revenue forecast it looks just like a hockey stick.  The reality is that such sudden growth is just not that common and usually results from specific actions.
  • Assuming enough sales to make the business model look successful.  In this mistake entrepreneurs forecast their expenses and then they plug in enough revenues to make the business become profitable.  When I press these entrepreneurs, their explanation of revenues is “well, these are the revenues I need to make the business work.”  The truth is that the market will not give you the sales you need, it will only give you the sales you earn through a well-executed business model.
  • The marketing plan tells a different story than revenue forecasts.  The marketing plan should specifically explain what you are going to do to achieve the revenues you forecast.  Why will customers want what you are selling?  Who are these customers?  How are you going to communicate to them about your business?  The marketing plan should explain in words the numbers shown in the revenue forecast.  Most plans just do not make this connection.

To avoid running out of cash before your business model has time to work requires an accurate assessment of how much money you will really need to get the business off the ground. While knowing your costs is important, accurately forecasting your revenues is critical.

It is so sad to see a business model that has real potential fail simply because the entrepreneur was unrealistic about how much money it would take to get to the point of success.

Beyond Bootstrapping your Office Space

Most of the start-ups I work with look to space as an important way to bootstrap their space.

They begin by working out of their dorm, apartment, parent’s house, or our hatchery.  Keeping their space cost to zero keeps their overhead low and helps them get to positive cash flow more quickly.

Eventually, or should I say hopefully, their growth takes them to a point where they need real space. But, they often continue to bootstrap by building their own desks, buying old used chairs, and cobbling together what ever they can to get by with furnishing their new location.

A company called turnstone is running a promotional program that is going to give away five $25,000 office make-overs to emerging businesses and help them move beyond their bootstrapped work space.

All you need to do to enter the contest is upload a video to the turnstone website pitching why you deserve a turnstone makeover.  From these submissions, they will be selecting the 25 best entries for a public vote.  This voting will determine the five that get an office makeover.

Good luck!!

 

Bootstrapping Legal Work

I have generally hesitated on relying on bootstrapping legal work when it comes to complex legal work.  However, I have run into more and more entrepreneurs who do just that.

During our recent vacation, we spent one night with our old friends Joe and Nancy Rankin in Cary, NC. 

Joe has successfully navigated the patent process on his own for several products he has developed.  His business, SECTION8 tactical Inc., offers products to assist competitive shooters, tactical officers, and military personnel with their daily operations.

He said that doing your own patent work takes a great deal of time, patience and attention to detail.  But, he insists, it can be done.  For simple products like the ones he offers, this strategy can make sense. 

Here is a link to his product website.