Entrepreneurs and business owners are being more creative with their budgets. Now more than in the recent years, entrepreneurs have had to stretch their dollars to ensure they get the most return on their investments. We asked entrepreneurs and business owners about their best tips for bootstrapping ventures.
#1- Outsource strategically
For companies looking to lower their costs, my advice would be to outsource strategically. In certain situations it can be advantageous to outsource work rather than hire in-house. Not only can it help you save costs associated with training, onboarding, and paying salaries to new employees, but it also allows you to stay nimble as a company. For example, you may need to work with an accountant, but only need help during tax season. Rather than hire a full-time employee, you can outsource your accounting needs to a third party and pause their work when you don't need their service.
Thanks to Charles Dugan, American Image Displays!
#2- Trade credit, sell your receivables and get a manufacturer loan
Trade Credit: This essentially is signing an agreement with a supplier or merchandiser. This gives you the business owner essentially an extension on paying for your needs typically for 90 days. This gives you a chance to sell or distribute what you have collected before the bill comes due. Getting a manufacturer loan: This is a way of negotiating rates and loan terms directly with a manufacturer. The manufacturer themselves are providing the loan so it leaves more room for getting a better overall rate. This type of loan can allow you to propel your business without having to take on a huge financial burden or deal with a traditional bank. Sell your Receivables: This is when you leverage your receivables that have not come in for cash now. You will most likely have to pay a fee for this around 5-15% but you will be able to get cash on hand sooner for purchases and needs.
Thanks to Mark Smith, University of Advancing Technology!
#3- First manufacture small items
I've shelled out some money first to manufacture small items to sell online and use the earned money to fund my core product launch. This way, I not only get some seeding money to make my business possible but I also get to test and correct marketing and operations even before my official launch.
Thanks to Kar Villard, Neuroplanner!
#4- Two
Look for team members who are willing to work for equity. Offering equity in lieu of cash payment is a great way to find people who will be committed to bringing your business to the next level. Build a business plan around your budget. If you start without a plan, you are more likely to spend more money than you need, which may lead you to seeking investors instead of bootstrapping. Having too much money at your disposal can lead you to making bad spending decisions which could cost your business dearly.
Thanks to Nate Burlando, Distinct HVAC!
#5- Focus on the minimum need and leverage on outsourcing
Start with your Minimally Viable Product. When bootstrapping, perfect can be the enemy of a startup company. Spend a lot of time focusing on what is the minimum you need to get your product or service out to the marketplace, tested, and of course, secure your first couple of customers. As revenue starts to come in, you can then invest that back into the business to add on features or upgrade your site. Outsource vs. Hire. Leverage outsourcing sites to get projects completed versus immediately hiring full-time people. While you will be paying a higher rate per hour, your total overhead will be far less in the long run. For us, we have more virtual assistants than we do full-time employees.
Thanks to Gary Nealon, Nealon Solutions!
#6- Keep the cost down and focus on maximizing monetization
Badger Maps bootstrapped our business, and it was one of the best decisions we ever made. The reason this was important wasn't what most people focus on – that it allowed us to keep dilution down. The real value in being bootstrapped was that it gave us enough time to create a great product and win customers that investors would have wanted us to take. We successfully bootstrapped by keeping the cost down and focused on maximizing monetization. There are a lot of ways to monetize – look to have key high-value employees do small consulting engagements or charge customers for features that they request as a consulting engagement. This combines customer development and monetization. A huge tip for bootstrapping is solving a problem that people are willing to pay to solve. Charge your very first customers to make sure they are willing to pay. Even if it’s still a piece of junk, don't give your piece of junk away for free,or else you won't learn if it's a problem worth paying to solve. Keeping costs down means you can keep control as long as you monetize quick enough.
Thanks to Steve Benson, Badger Maps!
#7- Three tips
Bootstrapping a new small business is a shrewd way to avoid certain financial commitments, but only when done with caution. To begin with, don't cut things so close with your own personal finances to where you might fall into credit card debt. That defeats the purpose of bootstrapping right off the bat. Next, be sure to keep track of every penny you spend at your company, because expenses can get away from you if you don't stay on top of them. It'll be a good idea along those lines to create a budget for your business as soon as possible, and do your best to prevent overspending. And finally, try to reduce your own personal expenses as much as possible. You might want to hold off on any major travel purchases like a vacation, and you certainly can find ways to spend less on entertainment. There are plenty of other ways to cut costs as well. The more room you can free up to direct capital to your small business venture, the better off and less stressed you'll be.
Thanks to Andrew Schrage, Money Crashers!
#8- Go without
Go without. Plain and simple. Go without a wage, go without a fixed office, go without that tool that costs $200 per month. Go without everything until you can pay for it out of cash flow.
Thanks to Marty Spargo, REIZE Energy Drink!
#9- Two tips
One area where I've recently cut a lot of expenses is in monthly recurring software bills. There are two ways to do this: 1) Check that you're making full use of your subscription option. You might only need the ‘LITE' version of the software for now. 2) Look for promotional offers. You can find lifetime one-off promotions at AppSumo. I've recently bought software for proposals, accounting AND social media management for around $50 each instead of $10 in perpetuity. That means I break even in 5 months, and after that they will effectively be free.
Thanks to Jason Lavis, Out of the Box Innovations Ltd!
#10- Three
(1) Treat every dollar you spend as your own even if it isn't your own. The more you scrutinize every cent spent, the tighter you operate, the lower your overheads and the more you are forced to use your brain to find alternative ways to get things done. (2) Use crowdfunding as a way to get seed capital. You don't have to give away any equity and keep control of your company. By getting your community involved, you are instantly validating your product or service and ready to launch when your campaign total is hit. (3) Learn to do every job yourself until you can afford to hire your first employees. By doing this, you appreciate the hard work your people have to put in and also know if someone is doing their job well because you have experienced it yourself.
Thanks to David Lowe, Qwerky!
#11- Three Tips
(1) Start Small & Lean (Lean Startup): To succeed in bootstrapping, you need to adopt a minimalist strategy. Using your own budget, you won’t be able to financially compete against larger players or startups that have been funded. Instead, start with a minimal viable product and test your ideas with a real market. You may be limited in funds, but during this time, you can focus on learning what your audience is truly looking for and building deep connections with early-adopting consumers. (2) Consider Every Dollar Before Spending: When it comes to bootstrapping, every single dollar makes a difference. Many bootstrapping entrepreneurs aren’t totally sure where their next funding will come from; spending must be controlled and strategized so that money doesn’t run out before more funds are secured. Look at each dollar spent as an investment, and define the return on investment that you expect before deciding to make a purchase. (3) Make the Best Impression on Early Clients: For bootstrapping businesses, early clients are most important. These are the clients that trusted you even though you don’t have much brand reputation, and even though there are larger competitors that are more popular within your industry. Give these individuals an extreme service and learn what is it is that they are most expecting out of a service. Larger businesses don’t always have the opportunity to connect with customers in this way, but bootstrapping businesses have the time and ability to give them a concierge style service and an exemplary level of customer service.
Thanks to Neil Mclaren, Vaping.com!
#12- Sacrifices
I started my first company in 2004, bootstrapping with my own cash. Starting companies can be quite expensive and I knew that I needed to save cash wherever I could. I began to cut my own personal spending and did as many jobs as I could. Coming from a high level corporate background, I was used to a set salary, and a previous lifestyle. But the switch from corporate to entrepreneur was something that I really wanted to do. This meant takings sacrifices. And once the company was up and running, I didn’t hire people that didn’t need to be hired. If there something that I could do to save some money, I would do it, without hesitation. Instead of hiring builders for the furniture, I would do it myself. Instead of hiring a driver, I would do it myself. Pinching pennies can actually stack up to be a big part of your revenue.
Thanks to Ajay Prasad, GMR Web Team!
#13- Three
Been there, done that. As an entrepreneur, I know how difficult it is to run a business when you are boot-strapped and penny pinching on your marketing budget. But let's not be too hasty. We've all heard the saying: you got to spend money in order to make money. And although this cliché is as outdated as my grandma's 1950's record spinner, the saying holds true even today. So although you might be tight with money, you have to learn to spend a little, and here are some tips, tricks, and insight on how to do that: (1) Run a Facebook boost post campaign targeting your audience and with as little as $5 a day, you will see results. (2) Look through your LinkedIn connections and see what individuals you could partner with, sell to, or use as resources. If you don't know the person, asked to be introduced by your first connection. (3) My dirty little secret: ReferenceUSA.com (it's a free site to those you have access to a library card or college campus) is a site that allows you to perform market research. For example, if you wanted to open a laundromat, the site will tell you how many of them exist in your neighborhood and their yearly revenue.
Thanks to Vicky Llerena, Social Vibes Media!
#14- Under-staff and Hire Young
(1) Understaff. Rather than staffing up, be picky and build a small staff that has the talent, ability, and determination to learn/ take on an array of tasks. By keeping your staff small and highly talented, you can offer a more competitive salary and other work benefits, while still having the confidence that if something was to happen (like a massive increase in workload), the small team would spring into action and do what it takes to get the job done. (2) Hire Young . Hire young and train your new hires to be exactly how you want them to be. Having the ability to mold a new staff member with no prior habits or bias, can be very valuable in the long run.
Thanks to Sacha Ferrandi, Source Capital Funding!