Starting Your Business: It All Boils Down To Making Money and Saving Money

Bootstrapping in the context of business start-ups refers to the use of creative financing approaches such as leveraging personal savings, credit-card debt, loans from friends and family, bartering, and other means to launch a business. Some business founders use bootstrapping because they have no other choice. Just about anyone who has approached a bank has learned that “only established businesses need apply.” Bankers typically look for cash flow, assets, an established customer base, and a successful track record on the part of the business that is seeking a start-up loan. Obviously, this is a short list that is impossible to fulfill when you are just getting started.

While many would-be business owners develop a sincere sensation of disgust upon learning these financial facts of life in dealing with bankers, bankers have a pretty good reason for making decisions as they do. When you think about it, what does the bank stand to gain? In the very best case scenario, the bank will get its money back, plus interest. Contrast this to the point-of-view of an investor or co-owner whose position includes owning a “piece of the action,” if the business grows. In other words, bankers have no upside. What’s the upside worth? Well, a whole lot, if you happen to be someone who was on the ground floor of a company like Microsoft or FedEx.

Bootstrapping is not necessarily a tool used only by business community “have-nots.” Some bootstrappers are awfully proud of the money they save (and the money they make). Not many people brag, “Hey, I paid full price for my [company or personal] car—and I’m darned proud of it! And when the dealer tacked on $1347.00 for administrative fees and undercoating [which the car already had from the factory], I said ‘sure, no problem.’” For some of us, it’s not simply an issue of having plenty of spending money, or not. Rather, there is a mindset that says, “I want fair value for my dollar, and I hate feeling ripped off by paying ‘way more’ than something is worth.”

In many ways, bootstrappers develop their knowledge and personal skill-sets and use their abilities as a substitute for cash. There’s also a certain satisfaction that comes from becoming more self-sufficient. After being confronted with a contractor’s very expensive building renovation estimate to convert a retail space and make it suitable for a bookstore, one start-up entrepreneur and her husband reacted by visiting a local home improvement store. A few home improvement books, a sledge hammer, and a reciprocating saw allowed these nascent entrepreneurs to save thousands, and she said it was actually fun knocking down walls! “It’s a great stress reducer.”

The entrepreneurial couple also acquired a set of simple plans for bookcases, courtesy of the book distributor who would become the store’s supplier, and built 100 bookcases themselves in production-line fashion for $40.00 each, as compared to an original estimate of over $200.00 each. Then the book distributor stocked their store and provided generous repayment terms. The savings the couple amassed through techniques such as those above allowed them to whittle down what had been a two hundred thousand dollar start-up estimate to the cost of a typical mid-priced car, an amount they could afford as a result of several years of saving to start their business.

Simply put, there are only two basic methods employed by bootstrappers: 1) finding ways to gain control of resources, and 2) using what they can get their hands on effectively. In other words, it all boils down to making money and saving money (inflows and outflows). There are some important considerations in choosing a business model that is amenable to bootstrapping. Start-up entrepreneurs without capital should think seriously about selecting a business that entails compensation prior to the delivery of a product or service. For example, consulting, mail order, or a niche oriented Internet business; all of these examples do not require a significant infrastructure or capital outlay. Other options could be an agency or brokerage-type business: if you can connect a party who needs to sell, with a party who needs to buy, with a profit margin for you as a go-between, you just might have a viable business model.

When most people think of entrepreneurship, they tend to conjure up a “one size-fits-all image.” In other words, the idea of one big business, and only one business, comes to mind. There’s nothing wrong with making money from several sources: trading cars, selling on the Internet through one’s own or turnkey Web sites, selling from a company’s catalog, dabbling in real estate, publishing reports, earning speaker’s fees, occasionally consulting, and investing in other people’s start-ups (with either cash or sweat equity labor) could be a pretty good mix. Regardless of your particular list of sources, you can take comfort in knowing that a lot of rich folks out there got that way by diversifying.

By trading on skills, bootstrappers can also band together to stretch limited dollars. For example, cohabitation could create a very logical arrangement: a desktop publisher, a photographer, a publicist, and a small ad agency might do well by sharing an office space. The possibilities are virtually endless for a creative thinker.

One possible problem that can arise from constantly adopting a “do-it-yourself” approach is that the business founder may fail to make good decisions and delegate tasks that should be handled by another person or a supplier. If meeting with a prospective client could possibly generate a significant sale, and yet the entrepreneur is consumed with other tasks that could be and should be farmed out, then the business may not ever realize its full potential.

One concept that very few start-up guides do not emphasize enough has to do with time. Have you thought about starting a business seven years from now? With seven years to “play with,” you could start collecting office supplies in your basement, conduct research, introduce yourself to suppliers, buy 100 books on your subject, read all of your chosen industry’s trade magazines—for years—and otherwise “know your stuff,” as well as have all of your other ducks-in-a-row. Just remember, falling down usually happens a lot faster than climbing up. Give yourself the gift of time, keep the faith, and develop yourself as the number one asset of your business to-be.

Keywords: bootstrapping, business startup, creative financing

About the Author

Dr. Robert J. Lahm is the founder of several businesses and Web sites, an entrepreneurship professor, a public speaker, and a writer. His typical topics include creativity and innovation, careers, start-ups, and small business marketing. Webmasters and other article publishers are hereby granted article reproduction permission as long as this article in its entirety, author's information, and any links remain intact. Copyright 2005 by Dr. Robert J. Lahm, DoctorLahm.com.