Do you bootstrap?

Entrepreneurs who "bootstrap" are likely to reach the high growth stage more quickly than those who don’t

Aurora Network highlights research into the benefits of “bootstrap” financing new business. “Harvard Business School, Babson College and Wake Forest University found that female entrepreneurs who effectively adopt a 'bootstrapping' strategy and who finance creatively tend to reach rapid growth in their businesses.” Published in Venture Capital Journal (01/06/06) “The Use of Bootstrapping by Women Entrepreneurs in Positioning for Growth”

Bootstrapping is a relatively unknown term and is a strategy adopted by the minority of women business owners. A recent article by Scottish Enterprise explains the concept:

“It's when the entrepreneur uses imagination, know-how and hard work instead of spending money. Bootstrapping means different things to different people.

For some, it's about starting with a different product or service, maybe one with greater short-term revenue potential, to get enough cash to fund the real business idea. For others, it's about maintaining close control of early development, to 'see how it goes' before taking on big financial commitments. For some it's a preference. For others, it's a necessity.

Answers to some key questions

Is bootstrapping for me?
Virtually every new business has to be creative about how it uses its money and bootstrapping is all about using the business itself as the main source of finance. You build up capital by starting a business now, even if it's not the same business as the one you're planning, and you run this business with the resources you have, even if they're extremely limited.

You build up capital by starting a business now . . . and you run this business with the resources you have, even if they're extremely limited.

What's different from the normal battle of survival for any small business?
The bootstrapper is seeking to grow the business to a certain level and this influences how the business behaves and what it does with its cash. The driving force behind the business is to build up cash to generate growth.

How do I find out more?
Most people who have managed to start up a business have gone through this process, often using credit cards to get through a cash shortfall. Have a look at some of the many business biographies and autobiographies and talk to anybody you know who's in business. Ask them how they got through those critical early stages.

Mastering the art of the bootstrapper

Many people convince themselves that the only way to start a business is to raise big sums of money from external sources and so they give up without realising there are other, less traditional ways to do it. There's no formal way to teach you how to bootstrap and in fact, some of the finest exponents of the art have done things that would never be suggested by a business adviser.

Seven golden rules
1. Get big by starting small: The typical bootstrap business starts very small. This probably means starting a business that is different from the one you really want to create, in order to build up the capital you need to get your real business going. You start your business with what you have and what you can lay your hands on and make do with what you've got.

2. Pan to grow big: If your big idea requires a large investment, start out small but concentrate on generating cash fast, to grow big enough to do what you really want to do.

3. It's all about getting cash: It’s sometimes said that, for the bootstrapper, cash is more important than your mother! Offer services and products that will generate cash from customers who are likely to pay quickly (most don't) and don't spend money you don't have.

4. Growth is everything: The bootstrapper's priority is to retain cash in the business and generate growth by building up sales. This requires the kind of creativity that makes customers think your business is bigger than it really is and the brass neck to take jobs you might otherwise think were beyond you.

5. Take as little as you can out of the business: This means working with little or no salary if you can, running a cheap car and making do without a decent holiday for a while.

6. It's appearances that matter: An important characteristic of the master bootstrapper is appearing larger and more capable than you are, so present your business as you wish it to be seen, not as it is. You might be working out of your garage but customers don't need to know that!

7. Don't bootstrap forever: You're bootstrapping for a reason, so ultimately it has to pay off and enable you to develop your real business idea. A shift away from creative financial management may require new skills and new external relationships on your part. Remember why you’re doing this. At some point all the hard work will pay off.

Bootstrapping tips

Four bright ideas anyone who wants to become an expert bootstrapper:

1. Develop two plans - one plan to survive and one to thrive. If you can't get the capital you need to start up your business, start an alternative business that can build up the capital base you need.

2. Get money and get it early - go for contracts and sales that bring in quick cash and lead to other sales.

3. Avoid the trappings of size - learn how to penny-pinch and avoid corporate status symbols.

Manage your cash - cash flow can be irregular and difficult to forecast, and issues such as tax can complicate matters, but if you stick to the same principles as good household financial management, you're unlikely to go wrong.”