The Ultimate Guide to Bootstrapping
Keen to bootstrap to get your business going? Look no further…
By Poornima Vijayashanker (Founder, BizeeBee)
A little over a year ago I was in a precarious position, the Series A Crunch was in full swing, and I was debating on how to proceed with my startup BizeeBee. I had initially bootstrapped the business with personal savings and taking some angel investment. All the proceeds went towards product development.
While we had been generating revenue for two years, we weren’t quite at break-even. I knew that we needed to build even more product and start spending money on marketing to get there.
Faced with the decision between of getting acqui-hired and throwing in the towel, I chose a third option: bootstrapping. Except this time the funds would not come from investors or myself but directly from customers!
This guide will walk you through everything that I learned.
How to Use This Guide
When I started on the path to bootstrapping, I had little to no guidance. Most people I had talked to who had bootstrapped had really just done it through savings or as a bridge before they received investment. I myself haven’t found any guides available to those looking to bootstrap their way to break-even.
This guide is really a distilled version of several books I’ve read and trainings I’ve been through. The purpose of this post is to serve as a primer for bootstrappers. And while this guide is intended to help those who are looking to get their business off the ground, the principles covered in it should appeal to those who are looking to double or triple their revenues. Be warned that some of it might seem counter intuitive to startup culture!
Before we get into the nuts-and-bolts of bootstrapping, there is one concern I want to address: the feeling that you’re not innovating because you’re focused exclusively on revenue. I’m going to call a spade and say that yes it’s natural to have this feeling and it’s OK. I know that those who are receiving funding around you will only exacerbate this feeling. However, you’ve got to learn to put on the blinders.
Bootstrapping will give you financial freedom and control you desire to direct your company and innovate.
The key to getting that freedom is to hit the revenue milestones you need to switch from purely pursuing sales to doing creative work. This guide will help you think about those milestones and how to hit them.
The Basics of Bootstrapping
The 3 most common ways of bootstrapping while still scaling your business are:
Building a simple version of a product, then switching your focus to customer acquisition
If this is the approach you desire, then you’ll want to make sure the initial version of the product has the following: a wide enough appeal to customers, marketing baked right into it for increased viral distribution, and that you have enough money in the bank to support yourself while you’re waiting for revenue to come in. It might seem like this approach presupposes product/market fit. However, it can be done if you spend a bulk of time doing pre-sales, i.e. selling customers on the value proposition before the product is built. Or if you have a product that’s been out there for a while maybe as a free product focused purely on converting users to a paid model. The later is the approach the company Olark took.
Initially offer services that are high touch, while automating and productizing them
In this approach you can start by doing work for an initial set of customers such as consulting. While doing this you’ll need to figure out a way to automate some of the work you’ve been doing and productize it. You can then offer the product to your customers as a time and cost-cutting tool. When doing this realize that you’ll be canabalizing your service-based revenue stream, but eventually you’ll be able to recoup the losses because your product will appeal to a wider audience and be more scalable that your service offerings.
Offer services that require a level of expertise that can only come from you, are hard to automate or replicate to experience the same level of quality, and can be a one-to-many offering
By one-to-many, I mean you can service a number of customers, in contrast to doing hourly work for one particular customer like consulting. The classic example of this is teaching. In this approach you can eventually productize your curriculum, but you begin with a very high value offering that people are willing to pay a premium for. You’re going to use that premium to build up reserves and possibly fund product development.
The Path I Chose
#3 is my current approach. I chose it because I knew that I hadn’t set BizeeBee up properly for #1 and that it would take more capital to do #2 effectively.
I teach a course on Lean Product Development and split the proceeds between funding product development for BizeeBee and the cost of running and marketing the course. I also pursue other activities such as speaking that I get paid for while simultaneously building awareness and a funnel of customers back into my course.
But I didn’t get there overnight, it took a solid year of effort and experimentation.
When I began I was really hell bent on creating a repeatable revenue stream. So before I began, I took a sales training course from Sandler. It helped me to understand how:
Revenues are tied into the sales and marketing activities
To become more comfortable experimenting with various sales and marketing activities and giving them ample time to yield results
Measuring the success of the experiments and continuing to invest time and resources into the ones that worked and stopping or tweaking ones that didn’t
Take stock of what people are willing to pay for and the cost associated with customer acquisition and rendering the service.
After the training, I took stock of revenue I was already making from teaching, between August and December 2012, so I knew what people would pay for. A 5-month interval was good enough for me to a see a pattern, and I noticed that I was making $X per month. However, I was giving away half of $X to schools and venues that I was teaching at.
My initial goal was to keep making $X without giving third parties a cut. I needed to figure out what sales and marketing activities would lead me to generating $X without it costing half of $X.
If you’re starting from scratch, then you’ll want to have enough money to give yourself 6-9 month cushion, maybe even longer. During this time, you’ll be experimenting and building up data on sales and marketing activities that attract customers and indicate what people are willing to pay for. Since you’re primarily a service-based business, rather than a product-based business, you have the luxury of collecting money from day one!
Feed the Funnel
My goal for Q1 of 2013 was to keep making $X per month by doing all the marketing and promotion to acquire customers on my own. My marketing activities were the only thing that I changed and experimented with for 3 months. I kept my service the same.
Remember when you’re running an experiment you have to keep some things constant! I’ve seen people get caught up in changing too many variables and then not being able to draw clear conclusions on cause and effect.
At the end of Q1 I hit my revenue goal and decided that I wanted to double $X and make $Y in Q2.
Increase Revenue While Keeping Costs Constant
When it comes to revenue, an important factor to remember is that what it took to get to $X is not what it will take to get to $Y. Also when you go from $X to $Y you’ll incur increased costs if you take the approach of increasing volume. I didn’t want my costs to go up, I wanted to only spend $Z per month. Hence, I didn’t increase volume. Instead I focused on finding a smaller set of customers who would pay enough to get me to $Y per month.
I chose to a path of attracting fewer customers because I wasn’t focused on scaling. My goal was to make $Y per month to fund product development! If your goal is to scale then you’ll have to keep a close watch on how costs go up.
Sometimes you have to keep with a strategy for awhile.
It’s easy to miss goals and think it’s time to change up your strategy, but I believe that sometimes it takes a while for seeds to sprout. The Sandler sales system reinforced this point, and made me feel comfortable about my approach.
In addition to keeping track of marketing and sales activities, you want to track the time and effort they take before you see progress.
Sometimes you have to think about factors like seasonality affecting buying decision, and what I call a customer’s time-to-buy, which is the time it takes a prospect to convert from a prospect to a paying customer. This is composed of the following: the amount of time it takes from becoming aware of your business to understanding your value proposition, followed by the second component of experiencing the pain enough to decide to you use your service and finally pay you for it!
If you see some progress, but aren’t sure about the results being repeatable, stick with your strategy rather than veering off course. If you constantly veer off course, then you’ll get trapped in a cycle of just running experiments. Patience eventually lead to progress. The only caveat to this is if you see a trend of negative results consistently, that’s when you know you need to investigate their cause and refine your approach.
It took me Q2 and Q3 of 2013 to make $Y per month in a way that was repeatable. Much of the time was spent pursuing a small set of activities consistently and measuring their progress. As I entered Q4 it became clear what marketing and sales activities were working and what weren’t. While I continue to experiment, I make sure to devote enough time and energy to pursuing the activities that are working.
Driven by Sales to Driven by Dreams
For a while, all I did was focus on hitting the numbers and being a sales machines. But I’m a creative person, and I knew that eventually I’d get tired of chasing deals. Plus my motivation for building a business was to live a lifestyle where I could do what I love.
To get back to creative pursuits I needed prospects to come to me rather than always chasing them. That’s when I realized that I had to focus more on value creation activities.
I took a weekend workshop with Racheal Cook to understand how to incorporate activities that are focused on creating value and building a community such as nurturing referrals, offering resources that give provide value to prospects, and making sure offering are clear to customers not just in terms of value proposition but the experience itself.
If you’re going to continue to build bootstrapping you’ll need to think about this level of refinement.
There’s obviously more to share and do, but since this guide is focused on the basics, I’ll stop here and summarize what we’ve covered:
Figure out your service offering and start charging people for it!
Start by setting a small revenue goal that is repeatable. Then figure out marketing and sales activities along with their time intervals to yield returns.
For the subsequent revenue goals, figure out which activities will continue to help achieve those goals and be consistent about pursuing them. Punt or refine your approach if activities demonstrate failing or inconclusive results.
- Watch your ratio of revenue to cost, and if need be service a smaller set of customers at higher value.
Finally, remember there is no shame in bootstrapping through services. While your well-funded friends are worried about valuations, you can enjoy the freedom and flexibility that comes with bootstrapping!
If you’re already bootstrapping, are you following one of the 3 approaches listed above or another?
About the guest blogger: Poornima Vijayashanker is the founder of BizeeBee, a platform that helps membership based businesses drive growth. She is the founding engineer at Mint.com, has launched Femgineer, a company that helps entrepreneurs level up their careers and is one of Inc Magazine’s ’10 Women to Watch’ in tech.
This post previously appeared on Clarity