Let’s face it, traditional sources of financing for most new business ventures such as angel investment and venture capital are a long shot, at best. The fact of the matter is that far less than one percent of all start-ups see any type of venture capital funding. Even traditional bank loans are exceptionally difficult to obtain for new small businesses these days. The reality is that most new start-ups are launched with very little money at all. Dell Computer was started with less than $1,000.
“[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.” Guy Kawasaki.
Even if getting access to traditional funding sources was simpler, entrepreneurs would still be better off bootstrapping it, or funding it themselves anyway. Bootstrapping your new business is an art form and really the only way to go, in my opinion. If you don’t have any money to start a business, don’t use that as an excuse – you can do it anyway. My personal experience with bootstrapping bears that out – I didn’t have any money when I started my first business.
I’m going to provide what I’d like to think of as a bootstrapping “manifesto” – some tips, advice and recommendations for aspiring e-commerce entrepreneurs looking to bootstrap their first online business venture. I’m going to assume that if you’re reading this article, you’d like to start some sort of online business AND you’ll be starting with very little money or no money at all. Ahhhh, I just love the smell of flat broke in the morning…
Above all, bootstrapping is about accessing all the resources that you’ll need to launch your business, using “creative” means, while minimizing your cash outlays. I’m going to show you how to find some inexpensive alternatives to purchase, rent or borrow all the resources, products and services that you’ll need when launching your start-up.
Shut Up and Sell Something
The first piece of advice might be the best advice I could give you about starting any new business and it’s very simple:
Just shut up and sell something.
Start selling your product immediately whether you think it’s ready for market or not. While that might sound ridiculous, your “business” doesn’t truly qualify as a business until that first sales transaction occurs. Until a customer pays you, your business is just a hobby disguised as a business. Bootstrapping requires business owners to start selling immediately in order to survive, and forces you to become better at selling in a hurry. So, just go out and start selling your products/services right now. Getting the ball rolling and selling product sooner rather than later is crucial. Line up a few clients and sell as early as possible. Don’t worry if the product isn’t just “right” yet … just start selling to someone, anyone – family, friends, business associates, colleagues at your day job, whatever.
“Nothing happens until someone sells something,” Jim Barksdale, former CEO of Netscape.
Cash Flow + Customer Feedback
Getting product sales very early in the process also provides two very important things: cash flow and customer feedback. First, cash flow is key to survival and will provide a valuable lifeline in the early stages of your company’s development. Selling a few of your products early will provide an early product feedback loop that you can use to improve your product for future sales. Don’t worry too much if the product isn’t perfect, because it will never be perfect. You may be surprised at the feedback that you get from your customers, but rest assured, you’ll be thankful that you didn’t waste countless hours and dollars developing a product that nobody wants.
“The leading cause of failure of startups is death, and death happens when you run out of money.” Unknown
Outsource AMAP (as much as possible)
Outsourcing or subcontracting has gotten somewhat of a bad rap, in my opinion. Often times denounced as being “unpatriotic”, many of the largest international corporations have been blasted for outsourcing and “sending jobs overseas”. When I was building my first company, I used several of the top freelance sites to assist with much of the web development that I needed done. My business, at the time, simply didn’t have the financial means to justify hiring a full-time employee to accomplish these things. Using these freelance job sites though, I subcontracted out the work and got it done affordably. Eventually, I built the company to the point that allowed me to hire several full-time employees, but in the beginning, outsourcing much of the core computer programming and web development to 3rd party developers was crucial to my success. Without being able to do that, I never would have been able to hire full-time employees. Outsourcing, when used effectively, can help build cash-strapped businesses and create even more job opportunities over the long term than otherwise might have been possible.
Here are a few recommendations for you to outsource some or all of your computer programming, design or web development work:
You can post your programming, design or web development project on any of these sites and get proposals from experienced professionals from around the globe.
Above all, when using any freelancing web site, be absolutely sure that you thoroughly review and vet your developer’s work portfolios and experience prior to selection. I based my selections on 2 factors: most relevant experience for the job combined with the quantity of positive reviews before moving forward. Avoid companies and developers that do not have solid technical references and experience specific to your project requirements. If you don’t do your due diligence on the outsourcing options that you’re considering, it can cost you dearly. I have hastily selected developers in the past that resulted in such low quality work that I had to scrap the entire project and start over, resulting in an overall cost that far exceeded what I had originally projected. So, do your homework on the developers that you consider.
Don’t Carry Any Inventory
Digital products, such as software or music, have a distinct advantage over merchandise that requires shipping and handling. Physical delivery will require special consideration. If your business will require physical delivery and fulfillment for your customers, try to keep your inventory levels at an absolute minimum early in the growth of your business by taking advantage of manufacturers that are willing to drop ship directly to your customers. The more reputable drop shipping companies have relationships with thousands of manufacturers that you can utilize to drop ship directly to your customers. Some of the smaller, specialty manufacturers, however, will not offer drop shipping as an option so you’ll have to be selective when choosing a drop shipper. Here are a few reputable drop shipping companies to consider:
For those specialty manufacturers not willing to drop-ship, you can contract with a shipping and fulfillment company to receive and warehouse these products and fulfill your orders. Just starting out on a smaller scale, finding a good shipping and fulfillment partner can be a little more tricky for the new e-commerce business. Some of these shipping and fulfillment companies are geared to work more readily with larger retailers moving a large volume of product. There are some great fulfillment choices for small e-commerce sites that are just starting out though. Below, we’ve listed a few good options for site owners looking for a solid fulfillment company to work with. Each one of these companies is an outstanding fulfillment choice and will provide guidance on how to ship your products in the most cost efficient way:
Here’s a list of some additional ideas that might help you to save money or provide additional sources of income while you’re building your company.
Keep Your Day Job ALAP (as long as possible)
Maintaining an income stream while starting your business might be one of the most important things that you do. There’s no doubt that knowing when to give up your job is a tough call, but I recommend that you hold on to your day gig well past the point where you think you’ll need it. Product release schedules and site launch dates for start-ups are frequently delayed so maintaining a steady income until you’re absolutely sure that you have more than enough cash to finish your product/site launch, even in the worst case scenario.
Minimize Spending on Your Website Launch
Avoid spending money on your web site in the early stages. Many people are tempted to build a better looking mouse trap right out of the gate, but you should avoid doing that. Instead of paying a lot of money to design your initial website, focus on form rather than function and start very inexpensively. You can use WordPress’ blogging platform for your website (yes, even if your website isn’t technically a “blog”, it still works well). WordPress is one of the most powerful and flexible publishing platforms on the planet and according to Google’s Matt Cutts, “WordPress takes care of 80-90% of the mechanics of Search Engine Optimization (SEO),” for you. WordPress is very inexpensive (free), powerful, flexible and easy to use and can go a long way in helping you minimize your website design and development costs.
Develop Alternative Income Sources
Try to develop multiple income streams for your new business outside of your primary income stream. You may be surprised at where these income streams lead you. You can run targeted affiliate offers, or even advertise your competitors offering(s) to provide incremental income while you’re in the launch phase. You might also be able to offer consulting services as an adjunct to your primary business to keep your site and product development moving forward.
Avoid Paying Rent
Rent is by far one of the largest single, line-item expenses for any new business. Avoid paying rent by starting your business out of your home: a spare bedroom or even your garage, if necessary. Paying out a big chunk of your precious cash in rent as a small start-up is foolish and wasteful. If you need to collaborate with a small virtual team for your start-up, use Google Docs. Don’t pay for Microsoft Office for each computer. (Wasted Money Alert.)
Use Skype or VOIP
Saving $50-$100 a month on the cost of a phone line might not sound like a big deal, but every penny counts. You can use Skype for both incoming and outgoing calls at a fraction of the monthly cost of a traditional phone line. If the phone call quality isn’t as great, don’t worry too much about it. Saving $500 – $1000 a year on your phone bill will help you to get over it.
Buy Everything Used
While you might feel the need to run out and buy brand new office supplies and equipment for your business, use what you have around your house or apartment first. Above all, never, ever buy office equipment and supplies at retail prices. That’s a complete waste of money. Buy any miscellaneous office equipment (desks, chairs, etc.) used and only on an “as needed” basis. Craigslist is a great resource to find used office equipment and supplies for pennies on the dollar.
Barter and Trade
Instead of paying cash for products and services, be creative and try to barter everything you possibly can, using online bartering services such as BarterQuest.com. Joining an online barter club is a fabulous way to bootstrap your company and minimize your outgoing cash flow for services that you’ll require. Barter services such as BarterQuest can help you to easily find people in your area that are actively looking to barter and trade for products and services.
Additional Bootstrapping Resources for Start-Ups:
- SCORE – Counselors to America’s Small Business – Free, confidential small business advice for entrepreneurs from working, retired executives and business owners.
- SBA – Small Business Planner – Programs and services from the Small Business Administration for business owners at any stage in the business lifecycle.
- Free Small Business Tools from Intuit – Free software and business tools from Intuit for the small business owner.
- MyVBI – Virtual Business Incubator – Resource community with support networks and free assistance programs for starting and growing your business.
- Bootsrapbusiness.org – Bootstrap “boot camps” and development workshops from real world entrepreneurs who have bootstrapped dozens of their own businesses.