I think you’d agree with me that acquiring resources to fund a startup is a big challenge.
The truth is, getting an investment or finding alternative sources to raise startup capital is just one part of the challenge. Knowing how to invest those resources wisely creates different types of problems.
When the only option I had to fund my startup was through bootstrapping, I was forced to find ways to experiment, build and sell with a very limited budget. However, when I raised funds by selling services on the side, I didn’t know what to do with it. I wasted most of it.
Looking back, here are the investments I made and should have made as a bootstrapped founder. From idea to scaling stages.
Investing resources to create resources
Bootstrapping is about self-funding a business without referring to investors or lenders. As a bootstrapped founder, you need to raise some funds somehow and that requires an investment. Not necessarily by investing money but time.
If you absolutely have nothing to invest like my case when I was a Junior in college, what you need to do is spend 80% of your time raising funds (through a job, freelancing, consulting, etc.) and 20% on the initial stages of your startup which entail speaking and meeting with potential product users.
Investing resources to create resources means developing a stream of income that can fund the initial stages of your startup.
- If you have a job, keep it. If you are presented with a good job opportunity, take it.
- If you can build sites, manage social media accounts, write content or do other jobs, the simplest thing you can do is apply to relevant jobs on freelancing sites.
- If you can turn your upcoming product into a service that you can provide manually, then start with that.
A long list of funding sources plus examples can be found in the supplemental material of this post.
And if you have savings that you would like to invest, then that would be your funding source.
To fund my first startup, I sold consulting services, pre-sold premium plans, and turned my upcoming product into a service.
As you approach your target amount say $10,000, what you will do is decrease the amount of time spent raising funds and increase your commitment to the startup. Raising funds should never stop as you’ll need money for later stages, but the focus will turn into your startup especially if you raise enough funds for at least 8 months. This period is enough to make significant progress with your venture.
And if your funding source is your job, quitting is not an option unless 1) you get an investment (Angel or VC), or 2) the business becomes self-sustaining.
Investing resources, mostly time, to crease resources is the first move that every bootstrapped founder should make.
With that taken care of, the next as important investment goes to
Investing resources to define your focus points
This is where I fell apart.
I have $20,000, where should the money go?
- My biggest problem had always been the team. I didn’t have a team and I couldn’t wait to build one. Since I had that in mind for months, the first investment I made was in building a team with complementary skills. Not only did I hire the wrong people given that was the first time I hired anybody ever, I built a team when I didn’t need one yet.
- I built many useless features.
- I paid for many useless tools.
- I invested in attending many useless conferences.
And the list goes on.
This was due to one thing: not investing resources to define focus points.
Take it from me, before making any decision that’s likely to have a big consequence, you cannot afford to experiment with your money and time. What you should do instead is:
Take a bottom up approach, one that may not be new to you but frequently overlooked.
Contrary to what you may think, the first stage is more than spending few hours typing in your vision, plans, goals and the next steps. That’s the easy part. With that, comes the need for a confirmation. And only those who’ve been in your shoes can confirm or tweak this plan.
The next investment to make that will guarantee you a high return is in seeking mentors’ guidance. I speak from experience, do not execute on your plans until you get the opinion of a mentor or two.
If you need to invest a few hundred dollars to get their involvement either through a site like Clarity or by purchasing their course or program, I guarantee you that your investment will be returned with a premium very soon after. Only when I wasted many thousands of dollars and at least two years that I understood the power of mentors’ involvement in a startup.
The decision criterion is simple: would I rather invest some amount building product X, or in hiring team members or building a partnership with a person or company Y just because I read it somewhere or spend a few hundred dollars on someone who’s done it before and who can remove all the doubts and clarify my next steps over one or two meetings? It’s a no brainer.
If you want to generate passive income from affiliate marketing, enroll in Pat Flynn’s course. If you want to learn SEO, enroll in Brian Dean’s program. If you want to do your own PR, join Dmitry Dragilev’s program, if you want to build a side hustle, join Ryan Robinson’s course. If you’re non-technical and want to build your own app, enroll in one of Mattan Griffel and Chris Castiglione’s One Month courses. And the list continues.
Find all the programs, courses and mentors in different startup areas in the downloadable file that also includes a checklist of investments’ dos and don’ts for bootstrapped founders even if you’re currently seeking funding.
P.S. If you’ve already joined EntrePerks, claim One Month’s first month free offer.
Do not hesitate to make that investment. It’s one of those with almost a guaranteed return. The least you’ll learn is what not to waste your time on. After all, time is money.
Once you get to the execution stage, you’ll have data. This is when you look back at the things you’ve done over the past week or month and evaluate accomplishments in relation to the goals you set at the Planning Focus stage.
This stage is extremely important because it will prevent you from building the wrong routine. You know, it’s hard to start anything but once you get used and comfortable doing the new tasks, you’ll tend to want to keep the momentum going without thinking whether this is still the right thing to do or not.
I’ve fallen into that trap many times.
Most of the time, no matter how much planning we do, once we execute, we either get distracted by new opportunities or fail to stop and think for a second to evaluate if what we’ve been doing is what’s going to take us where we want to be: our goals.
Right after planning comes execution and soon after comes evaluation. During the evaluation stage, we’ll not only see if we’re doing the right things but also evaluate what works and what doesn’t. With that, we eliminate the activities that don’t and focus exclusively on the things that work.
Let me tell you a story.
At StartupCircle.co, we envision a platform that aims to remove the friction out of the initiation and scaling of startup ventures by providing entrepreneurs with the needed resources. Today, we built a Slack group for asking questions, seeking and providing feedback, and building relationships. We’ve created EntrePerks to provide founders with access to over $22,000 in free and discounted tools. We’ve created Upify to help founders document their startup journey. And we’ve created Guidz to help entrepreneurs find the best answers to many of the most asked questions.
When we started StartupCircle not too long ago, we had a vision, we identified the set of tools and services we will create, and then went heads down building.
Two months later, we realized that we spread our resources too thin that we found ourselves doing OK at all but not exceptionally well on any. Two months into it, we were too deep that we’ve decided to continue and then make the changes in the strategy later.
Looking back, I clearly remember how two weeks after getting to work, I knew something was wrong and that it would be impossible for a team of 4 to reach our goals under the resources that we had. Had I stopped and reevaluated, I would have made different decisions.
First and foremost, I would have focused on one venture at a time. Second, I would have started with what we learned is the most needed, and third, I would have not built at least one of those tools for now.
With some data so far, I found that EntrePerks and Upify are demanded so we’re putting in our resources on those.
Do you get the idea?
Always be evaluating focus.
If there is an investment that’s 100% worth your resources regardless of what you do including anything not even connected to entrepreneurship, it would be
Investing resources to build relationships
Not necessarily flying and paying hundreds of dollars to attend a conference. I’m talking about spending as little as 5% of your week to build relationships with potential clients, mentors, investors, co-founders, acquirers, partners, connectors and anyone that can help you in one way or another.
And it’s a pretty quantifiable process.
Start by putting a list of target influencers including potential clients especially if you are in the B2B space. Then, follow this spread sheet I got from Alex Turbull, founder and CEO of Groove.
He calls it an Engagement Plan or Checklist that entails starting with a Twitter follow, two tweet mentions, two blog comments, two shares of their blog posts, and finally a personal email to introduce yourself followed by the ask whenever you feel it’s the right time.
To get funded, find a co-founder, sell your products, get featured, guest post, become a contributor at big media outlets, get speaking gigs, find mentors and more. That is how to do it.
Invest in relationship building. It’s worth every minute.
It was because of relationship building that I got interviewed for an Inc. post, collaborated on TNW post, grew EntrePerks to close to 100 partners, built relationships with successful founders and active investors like Hiten Shah and Sujan Patel, and more.
By the way, don’t forget to say hi by responding to my welcome email when you join me either through one of the forms in the site or by responding directly to the download forms email.
Next, very important:
Invest to create a customer advisory board
For the lack of better words, what we do as startup founders is guess. We come up with hypotheses (guesses AKA ideas) based on some observations and then our only responsibility becomes to validate those hypotheses or their derivatives.
It’s a messy process but I’ve come to learn to simplify it just by creating a customer advisory board (CAB).
The CAB consists of 10 to 20 potential customers/users who will serve as a reference and benchmark group in your customer development. The process goes as follows:
- After defining your hypotheses, the next step is to meet and interview say 50 people.
- Out of the 50 you interview, recruit a sample of 10 to 20 to form a CAB. Select those who’ve expressed an urgent need for a solution in the space.
- With your CAB,
- First, you’re going to have a reference that you can go back to at any time without being all over the place trying to reach out to other interviewees.
- Second, you’re going to double test your hypotheses. This is when you qualitatively (through survey and interviews) or quantitatively (through a prototype, MVP, etc.) test user intentions starting with the first group (the CAB) and then re test for validation by getting out of the building to meet other potential customers.
- Third, with your CAB, you’re going to get real time prototyping and feedback. This way, you spend less time guessing and more time getting the answers directly from the user. Sit down with them and let them draw what they want to see and use.
Building a CAB is an investment worth every minute and penny (buy them lunch, take them out for a drink, give them free access to the product when it’s built, etc.).
When it’s time to build,
Invest resources in technical research
The idea is, not only uncertainty is usually at its highest in the first and beginning stages of a startup but also, generally speaking, there has always been this dilemma of a developed product never finishing on time and/or with the expected outcome.
Before following Hiten’s recommendations, my solutions have consisted of two parts:
1) Before building, invest the necessary time to plan our approach for each module or feature, address any uncertainties now and carefully estimate time before starting.
2) Whatever was estimated, internally, add at least 20% more time.
I’m sure you’d agree with me that the best way to predict right is by talking to customers. The truth is, I’ve learned that conducting technical research the right way is as important to build the “right thing”.
As Hiten puts it: “It’s not sexy. It’s not easy. It won’t be fun. But it’s crucial. It’s the key to anticipating potential delays, technical considerations and figuring out exactly what’s most important to build first.”
Invest in free marketing
In this case, by resources, we are talking about time.
Every day, you see sponsored Facebook and Google ads by people and companies with all the proof you need to conclude that their ads are working.
What I learned from wasting a few thousand dollars on ads is that I skipped two very important and very costly stages in the buyer life cycle: awareness and then interest.
Typically, a buyer goes through 5 stages: awareness, interest, trial, purchase and then repeat (repurchase or subscription in a SaaS model).
To get the buyer to know about you and get interested in your product among the countless other options they have, you’re going to need to get noticed more than just once or twice through an ad that you spend a few hundreds dollars on.
At first, it seems simple: create an ad, choose your target then promote. The truth is, your customer acquisition cost for the first clients starting with the first ads and considering you haven’t previously built an engaged network, is going to be very high.
Eventually though, those leads will start to inquire about you, perhaps comment, ask questions and then move to trial or purchase. The first phases are expensive. Nothing that a bootstrapped startup can afford.
Instead, and frankly speaking even if you have the funds, invest in content marketing, guest posting, build partnerships with key people and companies like AND CO did with Envato or LeadPages did with joint webinars, use giveaways, get active on social media, meet in person, initiate the contact and sell through email, etc.
Invest in human capital (hiring)
During the first stages of your venture, from hypothesis (idea) until the first and second product iterations, you can afford to go slower. In other words, having a remote person or team that works as needed during those stages is OK because the cost of hiring team members full time since day one can be extremely high.
Consider the number of startups that open and close doors every month. Chances are, before creating a product that sticks, many of the startups that you build are going to fail. Hiring full-time team members since day 1 will put all the financial pressure on you because unlike established startups, if you fail, your hires would still have been paid and that money goes down the drain.
At the beginning, hire remote team members that work by the milestone according to the technical research which by the way can also be applied to other fields like marketing, business development and project management.
Hire only when you absolutely cannot continue without the help of another person or team. I hired members I didn’t need because I treated my early stage startup as if it’s in scaling stages. I remember some weeks we’d be working 90+ hours and others most members literally don’t have anything to do so I started finding things for them to work on and that was so time consuming for me in terms of research, meetings and evaluations that I decided to give nothing when there is nothing.
The lesson learned here is to hire what’s absolutely needed but start on a per milestone compensation and gradually move to a part- then full-time positions.
If you got the download file Mistakes To Avoid When Bootstrapping Your Startup from this story, you would have learned how making long term decisions with a short-term mindset is costly. For instance, when I started hiring, I was making decisions off of what I had planned over the next 2-3 months. I didn’t know what will happen after that. When work slowed down and some things didn’t work, I had to fire and that wasn’t something that my team members deserved, it was me who didn’t think long term.
To respect the work that many put in over the first 2-3 months, I had to pay for at least one extra month to give them time to find a new opportunity. That’s another price I paid for not thinking about the future and for hiring full-time positions instead of on a contract basis until the business takes off.
I’ve included the most important investment dos and don’ts for bootstrapped founders in the supplemental package. As I mentioned earlier, in it, you will also find a list of programs from experts in the industry who can mentor and help you move forward with your venture whether it’s a small business or startup. Here it is again.
Where else or how else do you recommend investing resources as a bootstrapped founder?
Leave a comment below right now.