According to research findings by Fundable, less than one percent of startup founders get funded by angel and venture capital investors. The numbers are a lot lower for venture capital funding, 0.05% as compared to 0.91 by angels. Does this all mean that less than 1% of founders get a shot at turning ideas into reality? Absolutely not. According to the Small Business Administration and Center for Venture Research, 80% of startups are funded through personal savings, credits, family and friends.
Building or at least initiating a venture and validating the need for a solution using own resources has thus been the pathway for most startup founders. This takes courage, sacrifice, strategy, and skill. Specifically, those who have taken this route, including myself, suggest the following conditions for a successful bootstrapped startup development.
Ignore Your Budget
If most startups fail despite their funding, a little bit of money is not going to make a difference. Ever since the bubble burst, the power of money in initiating disruptive startups lost its credibility. Most startup founders back then had two challenges: coming up with a unique idea then convincing investors about how lucrative it can be. Though this certainly did not apply to all ventures, nonetheless, many startups went public with an ugly financial statement. Things have changed. Think about it this way: while money doesn’t guarantee happiness, it certainly isn’t a predictor of startup success, its validity, viability, demand, etc. Spending countless hours seeking funding does not make a difference, initially.
The beginnings, that is, from an idea (hypothesis) to initial traction, of venture/angel funded and personal funded startups is the same. Meaning, those who have e.g., $500,000 in funding will take the same route as those who have $5,000 in the bank. Again, depending on the model, concept, industry and whether the product is a hardware or software but generally, the steps that need to be taken to reach a level of validation that justifies aggressive growth is the same. Money is thus not an excuse for failure to initiate and put in the effort to measure, track and evaluate user needs.
Keep Or Find A Stream Of Income
Besides my experience building a startup while running a small business, my research shows that the majority of entrepreneurs have at least one stream of income in parallel to building their startups. In fact, I see four scenarios: students freelancing, employees keeping their daily jobs, business owners running their companies, and previous success stories using some of their earned return from previous ventures to finance the next one. Keeping a stream of income does not signal the beginning of the end as many may call it, “you just don’t believe enough in the potential of your solution, etc.” You are simply buying an option that you have the right but not the obligation to exercise based on certain conditions such as product meeting user needs, revenue growing steadily, investors interested in funding next stages, etc. Whether you are a student, business owner, employee or senior entrepreneur, it is almost essential to keep or find a stream of income for at least the initial stages of the venture.
Fit Between Opportunity And Skill Set
If there is one thing that can reduce direct costs and time to market, it would be when founders’ skill sets are directly aligned with the market and business opportunities. In other words, your background matters. First, knowledge is required to recognize entrepreneurial opportunities and this knowledge comes from personal and professional background, education and work experience. Second, founder’s ability to build the initial versions of the product means less or no overhead (hiring) expenses and a better understanding of how the code or algorithm should look like. Finally, a market opportunity that falls in the area of founders’ interest means continuation and higher chances of consistency.
Keep Narrow Focus On Customer Needs
Again, ignore your budget and be as customer centric as you possibly can. Ask, if I can have only one tab, only one feature in my web or mobile app, what would it be? This means identifying and defining the heart of the pain point. This also means focusing resources on the things that add direct value, that is, on things that help in identifying problems and proposing solutions. No matter how much you try to use an investment efficiently, a pile of cash remains a pile even if you cut a few hundred or thousand dollar bills depending how big the pile is. Building a startup on your own limited budget can almost leave you with one option: spending quality time finding the problem or need people would pay to solve or satisfy urgently.
What’s your budget, $2,000, $5,000, $100,000, more? It doesn’t matter. What matters is two things: 1) knowing that building a startup is about solving a problem, and 2) hustle. For the first, it doesn’t cost a million dollars to call and meet with potential buyers to learn if there is a big problem worth solving. It also doesn’t cost a fortune to sell your upcoming solution at a discount if they are willing to make an advance payment conditioned on the urgency of their needs. For the first, you need the second.
Advance payments, using nonscalable resources, personal funding, short term loans with customer orders, etc. are all solutions to lack of funding. They’re easy product development and enhancement solutions upon validation for a need. The focus is thus not on seeking funding but on whether there is a product that needs to be built.
Can you initiate your venture own your own budget? if no, what constraints do you have?