No matter how successful your startup is, you’ll always need to pay bills and ensure healthy future cash flows. Times of plenty can lull you into thinking funds will always flow into your bank account, because that’s been your reality so far, but the cruel reality is that capital sources can dry up overnight with no warning.
To weather uncertainty and maintain emotional equilibrium, it’s good to temper your exuberance and confidence with a dose of realism. One way to do this is through bootstrapping.
Bootstrapping is a double-edged sword: Because you have little or no dependence on investors or stakeholders, you won’t give up much of your company in exchange for money, but the downside is that you have less money to invest in growth.
There’s also a hybrid model that gets less attention and bears mentioning.
An investment colleague of mine in the life science genomics space received $150,000 in angel funding. She later sold her business for hundreds of millions of dollars. She could pull off this extraordinarily successful exit because after the initial angel round, sales of her unique DNA sequencing and genomic services funded the business. With the success of her technology, she was able to rapidly scale the business within the U.S.
If you decide bootstrapping is the best choice for your situation, you should first figure out if you’ll self-fund or seek small amounts from angels.
Don’t be tempted to hop on a plane at a moment’s notice to meet potential customers in glamorous locations or for meetings in far-flung locations.
These five key business strategies and principles will set you up for success:
- Pick team members wisely
- Establish your business model and go-to -market strategy to generate cash quickly
- Adopt a frugal mindset: always watch expenses and negotiate costs
- Be prepared to take on many roles, including those you feel are menial.
- Only outsource what’s absolutely essential, such as legal and accounting
Pick your team wisely
Your first employees are among the most important stakeholders in your business. It’s critical to select people who are invested in the mission and success of your business. They should want to work for a bootstrapped business, as not all will. Look for people who want to be part of the business rather than someone for whom it’s just another job. The right hires will indicate they want to be part of a sustainable business model.
You should offer equity vesting over time as a key financial incentive. Because your team will earn this incentive over their tenure with the company, each individual will likely be even more invested in your business’ success.
Select employees who can wear many hats, and seek out talent from diverse backgrounds to bring in varied perspectives. I built and ran a startup in food safety diagnostics that I sold to a multi-billion dollar S&P 500 company. We had people across ages, sexes, ethnic backgrounds, education, and geographies. This diversity was critical to our success, because we were doing business in 100 countries. It required us to have a deep understanding of the marketplace and cultural dynamics of each country.
5 sustainable best practices for bootstrapped startups by Ram Iyer originally published on TechCrunch
