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Bootstrapping your way to Success

Bootstrapping your way to Success. Matt Dedrick & Ben Capell March 28, 2011. Successful Bootstrappers. What it is?. “funding primary development and growth through internal cash flow from real-life customers.” . Why you do?.

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Bootstrapping your way to Success

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  1. Bootstrapping your way to Success Matt Dedrick & Ben Capell March 28, 2011

  2. Successful Bootstrappers

  3. What it is? • “funding primary development and growth through internal cash flow from real-life customers.”

  4. Why you do? • Someone once told me that the probability of an entrepreneur getting venture capital is the same as getting struck by lightning while standing at the bottom of a swimming pool on a sunny day. This may be too optimistic. Read more: http://blog.guykawasaki.com/2006/01/the_art_of_boot.html#ixzz1HvCltVL4

  5. Why you do? • Let's say that you can't raise money for whatever reason: You're not a “proven” team with “proven” technology in a “proven” market. Or, your company may simply not be a “VC deal”--that is, something that will go public or be acquired for a zillion dollars. Finally, your organization may be a not-for-product with a cause like the ministry or the environment. Does this mean you should give up? Not at all. Read more: http://blog.guykawasaki.com/2006/01/the_art_of_boot.html#ixzz1HvCltVL4

  6. Why you do? • I could build a case that too much money is worse than too little for most organizations—not that I wouldn't like to run a Super Bowl commercial someday. Until that day comes, the key to success is bootstrapping. The term comes from the German legend of Baron Münchhausen pulling himself out of the sea by pulling on his own bootstraps. Here is the art of bootstrapping. Read more: http://blog.guykawasaki.com/2006/01/the_art_of_boot.html#ixzz1HvCltVL4

  7. Why you do? • ‘Cause your wicked smart and you know that Furr says too much funding can kill a business cause you’re tempted to scale too soon and stay within your four walls… (C) Betthew Caprick Inc.

  8. Da Best • Keep Expenses Low • Supplemental Income • Carefully Manage Cash Flow • Use Equity Effectively

  9. Far Out –Keep Expenses Low • Use open source software • Use VOIP phone systems and/or just cell phones

  10. Rad –Keep Expenses Low • Work from home or find office space you can use for free or minimal fee • Buy used equipment, particularly office furniture • Outsource where possible and/or needed to keep expenses variable

  11. Totally Tubular –Supplemental Income • Consulting Enagements

  12. Do It!–Supplemental Income • Non-recurring Engineering Contracts

  13. Awesome –Supplemental Income • Value-Added Reseller Agreements

  14. Wicked Good –Supplemental Income • Projected Supplier Contracts

  15. FORD

  16. EASTMAN

  17. Solid –Carefully Manage Cash Flow • Keep track of all income and expenses • Track your own hours and factor them in as an expense even if you’re not currently paying yourself

  18. Z Best –Carefully Manage Cash Flow • Engage customers early in the process and get them to commit to help pay for product development • Offer incentives to get customers to pay as quick as possible • Consider requiring customers to pay up front

  19. Bestester –Carefully Manage Cash Flow • Postpone payment to suppliers but be careful of doing anything to jeopardize supplier relationships • If receivables grow enough, consider using receivables as financing

  20. Rock and Roll –Use Equity Effectively • Use equity to build out a board of advisors with a broad range of skill sets and expertise • .1-1% equity in exchange for 4 hours/month

  21. Party On! –Use Equity Effectively • Offer equity for in-kind services such as accountants, attorneys, and developers • Optimally, these services would all be paid for up front or negotiated for delayed payment but equity is an alternative to consider

  22. Right On –Apply NISI Principles • Get out of the building and talk to prospective customers to nail the pain • Simultaneously develop the solution while building out a set of potential customers

  23. Nailed It! –Apply NISI Principles • Test the solution with potential customers often and iterate rapidly • Nailing the pain and the solution will either put you on the path to cash flow break or better position you for external financing

  24. Top Ten Benefits! 10 – You’ll learn to keep expenses low 9 – You’ll manage cash better once you have it 8 – You’ll develop your minimum viable product 7 – You’ll know you’ve got a real business before wasting other people’s money (OPM) 6 – You’ll employ missionaries instead of mercenaries

  25. Top Ten Benefits! 5 – You’ll stay focused on your core business 4 – You’ll retain the equity in your business 3 – You’ll retain control of your business 2 – You’ll learn to sell 1 – You’ll listen to your customers Source: 10 Lessons in Bootstrapping a Business, Clate Mask, Co-founder and CEO of Infusionsoft, submitted to VentureBeat. http://venturebeat.com/2009/10/28/10-lessons-in-bootstrapping-a-business/#disqus_thread

  26. What was that again? Turn me up in my headphones! 1 – You’ll listen to your customers!!!!!!! “Opting to be self-sufficient (either voluntarily or not) and rely on real revenue means one thing: The customer is suddenly king. This focus becomes baked into the company’s DNA. Its very survival depends on developing products that its target market actually wants and likes. Customers are often involved in beta testing and are encouraged to become involved in the process. And early on is the time when you want to solidify a customer base for future sustainability.” Source: 10 Lessons in Bootstrapping a Business, Clate Mask, Co-founder and CEO of Infusionsoft, submitted to VentureBeat. http://venturebeat.com/2009/10/28/10-lessons-in-bootstrapping-a-business/#disqus_thread AND http://venturebeat.com/2008/11/20/the-art-of-the-bootstrap/

  27. It’s time to move on… • How much bootstrapping is enough? • Raising the right money at the right time can make or break a company’s growth, so it’s important to know when your company has outgrown its boots. Here are some indicators: • - Market growth rate is accelerating: If the market is growing faster than your internal funding, you risk losing market share (and equity) by not catching up. http://venturebeat.com/2008/11/20/the-art-of-the-bootstrap/

  28. …it’s time to get going… • - Customers are buying products and sales are predictable: You can scale your sales team, and more effectively channel the VC money you raise. As a rule of thumb, you should feel confident that you can predictably bring in at least $2 in gross profit for every $1 you spend on sales and marketing. I recommend a $3 to $1 ration as an even safer barometer. • - Complementary products or businesses have become available: It may be time to expand your offerings through an acquisition. Can you economically acquire new customers through a merger? If you are considering M & A activity and need help financing your growth, it’s time to raise capital. http://venturebeat.com/2008/11/20/the-art-of-the-bootstrap/

  29. … under my feet, baby, grass is growing… • - The current economic cycle favors growth: This isn’t what we’re experiencing now, of course, but hopefully it won’t be too far off. If the market seems to favor technology investment, or you see new growth areas on the horizon, it could be wise to switch. • - Your balance sheets are weak, or you want to diversify risk: Co-mingled balance sheets can be a major challenge for bootstrapping businesses. A prudent decision for a company may be imprudent for its founder (scaling sales at the expense of cash-flow, for example). As a consolation, selling off some shares can let founders offload some risk as well. http://venturebeat.com/2008/11/20/the-art-of-the-bootstrap/

  30. Where do we go from here? • If you’ve bootstrapped long enough to face these issues, you’ve probably done a pretty good job establishing growth and maintaining an equitable personal stake. Now the question becomes, “What do I look for in an investor?” http://venturebeat.com/2008/11/20/the-art-of-the-bootstrap/

  31. Fly me to the moon! • My advice: Don’t just look for the money — look for a partner with vested equity interest to help you expand. After this point, many parts of your business and how you manage them will need to change. Your investment partner should offer substantial contributions in this direction, not just capital. http://venturebeat.com/2008/11/20/the-art-of-the-bootstrap/

  32. Stacy Lawson and 3-D Parts Catalogs • Engineer • IBM • MBA • Exhausted credit cards while searching for investors https://www.lib.byu.edu/cgi-bin/remoteauth.pl?url=http://search.ebscohost.com/login.aspx?direct

  33. Just one way it was done, maybe not the best way… be a better ninja • Seed Capital • Customers… • More investors • Sell your biz for $45M https://www.lib.byu.edu/cgi-bin/remoteauth.pl?url=http://search.ebscohost.com/login.aspx?direct

  34. See You Also • http://venturebeat.com/2008/11/20/the-art-of-the-bootstrap/https://www.lib.byu.edu/cgi-bin/remoteauth.pl?url=http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=1427456&site=ehost-live&scope=sitehttp://blog.guykawasaki.com/2006/01/the_art_of_boot.html#axzz1HRJNZHoohttp://bx.businessweek.com/bootstrapping-a-startup/view?url=http%3A%2F%2Fwww.inc.com%2Fmagazine%2F20020201%2F23855.htmlhttp://sfx.lib.byu.edu/sfxlcl3?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-8&ctx_tim=2011-03-23T10%3A15%3A39IST&url_ver=Z39.88-2004&url_ctx_fmt=infofi/fmt:kev:mtx:ctx&rfr_id=info:sid/primo.exlibrisgroup.com:primoArticle-elsevier&rft_val_fmt=info:ofi/fmt:kev:mtx:&rft.genre=article&rft.atitle=Bootstrapping%20in%20small%20firms:%20An%20empirical%20analysis%20of%20change%20over%20time&rft.jtitle=Journal%20of%20Business%20Venturing&rft.btitle=&rft.aulast=Ebben&rft.auinit=&rft.auinit1=&rft.auinitm=&rft.ausuffix=&rft.au=Ebben,%20J.&rft.aucorp=&rft.date=200611&rft.volume=21&rft.issue=6&rft.part=&rft.quarter=&rft.ssn=&rft.spage=851&rft.epage=865&rft.pages=851-865&rft.artnum=&rft.issn=08839026&rft.eissn=&rft.isbn=&rft.sici=&rft.coden=&rft_id=info:doi/10.1016/j.jbusvent.2005.06.007&rft.object_id=&rft_dat=%3Celsevier%3EOM06028E_08839026_00210006_05000662%3C/elsevier%3Ehttp://www.emeraldinsight.com/journals.htm?articleid=1864398&show=abstracthttp://www.emeraldinsight.com/journals.htm?issn=1355-2554&volume=16&issue=4&articleid=1864398&show=html&PHPSESSID=7ljq00rnv0d6k5atcqstval9v0http://bx.businessweek.com/bootstrapping-a-startup/view?url=http%3A%2F%2Fwww.inc.com%2Farticles%2F201102%2Fthe-start-up-paradox.html

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