We usually hear statistics about how often startups fail to build a scalable product when the highest failure rates, in my opinion, are way earlier than that. It’s the failure to take the initial steps: the failure to execute on an idea.
If lack of funding is the reason behind your hesitation to start or proceed, here are 5 foundational strategies for overcoming lack of funding by self-funding (bootstrapping) your entrepreneurial endeavor(s).
1) Bootstrapping by selling services and reinvesting the generated profits into the startup
If your idea is to build a drag and drop website development tool for non-tech savvy small business owners, then start by selling them web development services.
If your idea is to build a software that simplifies business plan writing, then start by consulting and writing business plans for entrepreneurs.
If your idea is to build a sharing economy model like Airbnb, start renting your space and maybe selling cereal for breakfast. Why don’t you google Airbnb’s Obama O’s and Cap’n McCain’s and learn a little more about how Airbnb founders branded and sold cereal to make money and build awareness for their startup. At $40 a box, they sold 500 of them which helped them raise around $20,000.
If you’re idea is to build an Uber like startup, go out there and drive people.
The point is,
When you align your startup idea with the services you sell, not only will you be able to leverage the contacts you make from selling potentially your early beta users, but also, it’s a great opportunity to get your hands dirty and learn what exactly users are looking for in your upcoming product.
2) Bootstrapping by maximizing human capital
Why is it that one of the first if not the first thing a non-technical founder thinks, or in most cases worry, about when initiating a startup venture is finding a co-founder with technical skills?
Who’s going to build the product, right?
The first and most important rule of bootstrapping is for founders to pursue ventures in which they can directly contribute to the development of the core product. This not only makes it possible to initiate a startup venture under limited to no resources but also prioritize, design and implement product value proposition by maximizing human capital before seeking help and external support.
When Colin Chapman started his company Lotus Cars in 1952 he had less than $50 in his pocket but millions of dollars worth of talent and experience under his belt.
3) Bootstrapping by experimenting and reducing uncertainty
If the value of a startup depends only on the quality of the idea, we would see a lot more successful entrepreneurs in the market. Ideas are a dime a dozen simply because no one is willing to pay for them. An idea is nothing but an educated guess about the consequence (solution, sale) of an action (introduction of product or service) if certain conditions (problems exist and people are willing to pay) are met. Therefore, pre- selling an idea or a promise simply means there is value in it.
In sum, the one thing that indicates potential buyers’ real interest in your idea is their willingness to pull money out of their pockets to pay for your upcoming product. Because survey respondents checking Yes to would you use the product? is not a strong enough sign to proceed, we must seek their commitment whether it is by asking them to pre-pray in exchange for a discount, sign a purchase order, complete a long application and refer others to confirm their spot, etc. At the end of the day, you are better off learning that no one is really interested in buying and using your solution sooner than later. At least you save yourself the investment in time, energy and money in building a product no one is willing to pay for.
4) Bootstrapping by outsourcing
Did you know Slack, today valued at almost $5 billion, Fab, the e-commerce fashion company, Skype and hundreds of other billion-dollar companies today, relied on teams and talents from countries like Estonia, India, China and others?
Typically, these are common characters you’d be looking for in every freelancer you hire for your startup.
First, an interest and better yet passion for startup development. If they don’t care or know enough about startups, they won’t understand what it means to work in such environment.
Second, an interest in the idea. I’ve had freelancers go as far as giving recommendations to improve my suggested approach to building the product, and I’ve also had freelancers rushing me to start the work without asking any questions or making any comments. This leads to the third point,
Purpose. It’s normal that one of the main reasons behind contractors’ interest in your proposal is money. What’s dangerous is if it is the only reason. You’d be able to recognize their motivation by how fast they want to start and how careful they are in getting the needed information to make a planned and well thought estimation. If they’re trying to start as soon as possible without further planning, know that they’re just looking for another project.
Fourth, availability. Although the future is uncertain in many ways, it’s very important to discuss the future since the beginning. As an example, if their plan is to pursue their own venture or join a large company in the next 3-6 months, you may be better off working with someone else unless your needs for their skills are just temporary.
Fifth, attitude. This cannot be emphasized enough. Proving the worth and usefulness of an idea is challenging and stressful. The last thing a founder should have to deal with is an argument over scope changes every time there is one. If the contractor doesn’t understand this, you should definitely look for someone else.
Sixth, access and responsiveness. If you’re located in San Francisco, California and your team is in Manila, the Philippines, the difference in time between the two is 15 hours. If 5 or 6 pm is when they call it a day, the only solution is for you to work by night or vice versa. This is inconvenient and impossible to deal with over time. Also, access isn’t just about how close they are, it’s also about how easy you can get hold of them. All of these very important variables must be discussed in the beginning and accounted for in your hiring decision.
Last but certainly not the least, qualification. Can they do the job? More importantly, can they do it with minimum supervision?
5) Bootstrapping by breaking a few rules
One of these rules are: 1) exchanging products and services, 2) customizing supplier contract, and 3) maintaining a stream of income.
Did you know when Richard Branson decided to get into the airlines business, he negotiated a deal with Boeing to return the planes he was bidding on purchasing back at the end of the fiscal year if Virgin Atlantic wasn’t successful? Boeing accepted and decided to take the risk because they wanted a competitor to British Airways in the U.K. This way British Airways wouldn’t have to underprice Boeing’s planes every time they wanted to buy since Boeing had no choice but to sell if they wanted to do business in the U.K.
Knowledge has no value if not used to build value. We can be the most educated people on earth but if we don’t do something with the acquired knowledge, it’s like we don’t have it.
Start small and use just one of the strategies discussed above. Because ironically, when we think big, we tend to hesitate more, and consequently, do nothing.