Companies that use their own resources to start and grow are often stronger and more dynamic. Use … [+]
Bootstrapping means self-funding. If you are an entrepreneur, chances are you are or will start your startup using your own funds. With around 30.2 million small businesses in the U.S., less than 1 percent got a portion from the $614 billion invested in 2017.
Companies that use their own resources to start and grow are often stronger and more dynamic. In a research conducted on 214 new ventures over five years of business operation, findings show that founders who use bank loans are less likely to experience subsequent growth as compared to those who use their own resources, hire as needed and speed up cash collection from customers.
Use these bootstrapping strategies to launch and grow a startup no matter your resources.
1. Build Key Partnerships
Evidence from a sample of 103 technology firms shows that excessive bootstrapping negatively affects venture growth, however, cost minimization and resource sharing outcomes resulting from strategic alliances significantly minimize the downside from extreme and extended bootstrapping.
Key partnerships is the ultimate growth channel. In fact, right from the beginning, Uber built strategic partnerships with companies like GM and Toyota to strengthen its value proposition and facilitate growth.
For early-stage startups, perhaps you need a lab, manufacturing equipment, software or maybe just transportation. Before you blame your inability to execute on access to high-cost tools, check your network.
Maybe you can use your school facilities, perhaps you can borrow what you need from a friend, or maybe you can contact a facility and ask if you could borrow their assets either for a fee or by helping them accomplish other tasks. When Colin Chapman started Lotus Cars, his contacts in the aircraft manufacturer De Havilland gave him access to the company’s multi-million dollar facility.
2. Presell The Product
According to a research conducted by three McKinsey consultants, companies with strong pre-sales capabilities have above-average performance, 40 to 50 percent in new business and 80 to 90 percent in renewal business. With as little as a prototype or a service pitch deck, reach out to your potential buyers and presell your product.
Preselling is an effective bootstrapping strategy for new as well as established businesses. Sales don’t only signal people’s interest in your upcoming product but also, it’s one way to fund its development.
3. Customize Contracts
Richard Branson convinced Boeing to accept his terms of returning the planes for a full refund if Virgin Atlantic doesn’t meet its first-year projections. Boeing accepted. Elon Musk presells every new Tesla model including the recent Cybertruck launch which received over 200,000 orders so far.
Preselling a product is one form of contract customization. Given that one of the biggest investments in a startup is product development, seeking customers’ commitment before building the solution is probably the most effective risk minimization strategy for new startup products.
The truth is, in most cases and especially in competitive markets, convincing customers to commit to a product before its launch is easier said than done. If you don’t have Branson or Musk’s brand, resources and support, the best way to overcome presale objections is by customizing the presale contract to include a service period during which you solve customers’ problems by doing things that may not be scalable as long as they get the job done.
For example, the founders of Airbnb started with their own apartments and air mattresses. DoorDash started by distributing flyers, accepting phone calls and delivering the orders with their own vehicles. Groupon started by sending email blasts to the employees of their office building. None of those billion-dollar startups started with a product.
Some other effective bootstrapping strategies and rules include maximizing human capital which means building products where you can control most of the variables. Shortening the development cycle, building in response to demand, creating a customer advisory board, working with a mentor, focusing on what sells, testing quickly and doubling down on the wins. These bootstrapping rules and strategies is all you need to turn your startup idea into a product people love.