Finding a business idea worth pursuing is usually the easy part; finding the funds to get that idea off the ground is the barrier most entrepreneurs have to cross.
I will run a ‘Finance series’ over the coming weeks with the aim of exploring the different options available to Nigerian entrepreneurs who wants to start their own business. Some of the funding options that will be explored include:
- Family and Friends
- Bank loan
- Angel investors
- VC funding
To get the series started, I’ll first explore Bootstrapping, what it means, how founders can successfully bootstrap their ideas, etc.
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What is Bootstrapping?
According to Investopedia, “Bootstrap is a situation in which an entrepreneur starts a company with little capital. An individual is said to be bootstrapping when he or she attempts to found and build a company from personal finances or from the operating revenues of the new company.”
Two Entrepreneurs who bootstrapped their business ideas.
- Mark Essien
Mark Essien is the CEO of ‘Hotels.ng. He reduced his startup costs by building the platform himself. It was only after validating his business idea that he received his first outside funding from Spark. To know how Hotels.ng works and the amount of money she has received till date click here.
2. Sir Richard Branson
Richard Branson is the Founder & CEO of Virgin Group. He is a serial entrepreneur, an investor, and a philanthropist. According to Forbes, Branson is worth $5.3Billion. He is the 286th richest person in the world and the 8th richest person in Britain. Branson did not come from a privileged home. From Branson’s first entrepreneurial idea called ‘Student’ (a student-run magazine that relied on Ads as a source of revenue) to launching Virgin records, Branson bootstrapped his way to building a multi-billion dollar group of companies.
Top reasons why people bootstrap their startups:
- To avoid making mistakes on a big scale: Webvan is a well-known startup that raised $800Million at the end of the dot-com era.; Webvan failed. In the late 90’s, the slogan was ‘GBF’ grow big fast; Founders sought huge amounts of money to inject into their businesses to scale up. Unfortunately, GBF also means that failure is likely to be on a massive scale as well. Right now, ‘MVP’ minimum viable product is the name of the game. MVP helps Founders fail fast and fail relatively cheap.
- Inaccessibility of other funding channels: This point is a no-brainer. Sometimes using the little cash you have left is the only choice you have as a founder.
- To evaluate the idea: It is very easy for founders to fall in love with their business ideas (and I am no exception to that). We think the idea is going to work out the exact way we have seen it in our minds, or at least the exact way it has worked for someone else; It rarely ever does. Bootstrapping can help you validate your idea on a small scale before you begin shouting to the whole world about how great your idea is.
- To show a form of commitment: The popular saying can be used here “put your money where your mouth is”. Sometimes an idea becomes more real and increases a founders commitment level once he/she has put some money into it. Putting money into the start of your startup can be seen as the engagement ring a man gives to his girlfriend to show his commitment. Remember however that a person can break off an engagement, and an engagement doesn’t always lead to marriage.
- Easier accessibility of outside funding (E.g Angel, VC etc): While some people might not believe that founders should invest their own money into starting their own business, I do not believe that. In my view, as an entrepreneur and a future investor, I believe it makes a stronger statement to future investors if you have put your own money to jump-start the business. If you have no money of your own to put into the business (like Jason Nkoju faced when launching IrokoTv), you ‘might’ be excused.
- The capital needed to start is little: Not all ideas require huge funds to start. So, it might make no sense to receive outside funding at that point.
- They’ve know other founders who have bootstrapped: Sometimes, a bootstrapping decision can be made by simply reading a post like this one and/or stories of how founders like Bill Gate started his company in his parent’s garage.
- To curb excessive spending: When you know you have little to spend, it is more likely that you will pick the important things to spend money on. For example, paying a developer to build a full-scale website when you haven’t done an MVP isn’t very wise. You don’t want to be Webvan.
- To maintain absolute control: One of the side effects of not taking money from outside sources is that the founder(s)reserve 100% of the decision-making power. Whereas they can receive advice from anyone who cares to give it, Founders without external fundings are under no obligation to follow outside advice.
- They can afford to: I am of the opinion that some people just bootstrap because they can. They do not wait to have all the things they need to start the business; they just start. They have read too many success stories of entrepreneurs who started with next to nothing and grew successful companies.
Advantages of bootstrapping
- Bootstrapping is great for PR
- It might show future investors that you believe in the idea and that you have put something into the business.
- It can help Founders develop financial discipline
- In the event that the idea is not viable, you would have learned.
Disadvantages of bootstrapping
- In the event that the idea is not viable, you would have wasted your money.
- Some bootstrapped ideas never see the light of day
- It’s hard work on the founders
- Growth can be slower
8 ways to bootstrap your startup
- Have a strong team: You are only as strong as the weakest person on your team. You need to build a team with complementary skills. If you have a team of fashion designers, it would serve the team better to have a business development person on board.
- Take advantage of free/cheap stuff: You do not have to pay for everything you do. The sooner you realise that the better for you. There is free stuff everywhere. Canva for graphic designs, WordPress/blogger for blogging amongst others, Buffer/Hootsuite to automate your social media postings, Slack for communications and collaborations, SurveyMonkey for surveys, MailChimp for emails, and so on.
- Have a business mentor: It would be great if the mentor has bootstrapped a business in the past. They might share valuable bootstrapping insights with you.
- Reduce outsourcing: Try as much as possible to do things yourself at the start of your business. Only outsource what is absolutely necessary.
- Research: There are many materials online on bootstrapping your business; read them. Also, read the stories written by entrepreneurs who have successfully/unsuccessfully bootstrapped their business.
- Seek out free and cheap publicity: Many people in the business of online content creation are looking for free content. share your startup story with them, or information about your company and they will gladly and freely give you free publicity of their platform.
- Delayed gratification: You do not need a perfect website from day one. The start of a business is not the time to pay yourself a big salary; profits generated should be reinvested back into the business. This is also not the time to spend frivolously on yourself.
- Keep financial accounts: This is very important because it will help you keep track of your outgoings and incomings. when bootstrapping it is important to keep records of what you are spending so that you can review and track the impact of the money being spent.
In conclusion, if a Founders funding strategy is bootstrapping, that Founder needs to ensure that the business model created can quickly generate revenue. Many startups have failed not because they weren’t solving a problem, but because they did not generate revenue in time. Cash is King
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- Picture credits: google
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