Month 5: The Art of Bootstrapping Part I
It is said the mother of all invention is necessity, but as a start-up without any money, you find yourself an orphan where necessity becomes the absent father of bootstrapping.
Often at the top of a long list of wantrepreneur excuses are “I don’t have the money to start today” or “I can’t afford to stop working”. I will explain some of the actions that were pivotal in solving the funding problem at goParcel – Express Courier.
I found our bootstrapping actions fell into two main groups; those that eliminated expenses and those that brought forward revenue. I do realise some tips are situation specific and even against the start-up norm, but they worked for us.
So this month I discuss bootstrapping actions that brought forward revenue and next month those that eliminated expenses.
Don’t quit your day job.
Both founders work part-time to meet our living expenses and moonlight as entrepreneurs. This is in contrast to the first three months where living off my credit card and working full-time on goParcel seemed like a good idea. All I managed to do was get myself into a position where my card repayments were my biggest monthly expense. In realising that drawing a wage or raising capital wasn’t going to happen anytime soon, going back to work has kept the dream alive. Whilst working you find yourself short of time, but at least you know there will always be another day to fight.
Create a sinking fund.
Just like you code or hustle every week, I suggest you raise funds amongst co-founders every week in advance of expenses. You might not be able to pool a group of angel investors together, but if each co-founder commits to a nominal amount of funding each week, it pools to become quite significant ($150/week x 4 weeks x 5 months x 2 founders = $6,000). The bonus is as the build runs late and your launch date slips, you continue to stockpile a war chest of funds to support your launch.
White labelling an MVP.
In my second blog I discuss ‘Lean Principles’ and how one can innovate and learn quickly in order to waste less money and time, creating the wrong product or service. As there is a lot of ‘white labelling’ of this concept, I am not going to go over the topic again. I think it’s better to discover for oneself by reading the book.
However ‘white labelling’ is a useful bootstrapping concept. White labelling involves leveraging or branding another business’ functionality, data, content or product (with their permission and generally for a fee). It’s a very common practice in big business and a common example for a start-up is using PayPal to power your online payments. PayPal is an easy integration with no upfront or monthly fee. This is in contrast to building your own payment gateway and setting up a merchant account with one of the big four banks.
At goParcel we took it a bit further and actually used an existing parcel quoting & booking platform to facilitate our jobs. This meant we didn’t need a payment gateway, merchant account, to provide credit terms, transit insurance, a marketing budget, or even a first customer to underpin our MVP. So my recommendation is don’t build bespoke software, use what is freely available and save time.
Pick the Low Hanging Fruit.
When you have been building the product for six months easy cash sales become the life blood of your start-up. Easy cash comes from sales that involve little effort and generate instant cash. However cash sales in their nature tend to be limited in scalability, amount and never seem to come from the customer segment identified in your business plan.
It is difficult as an entrepreneur to say no to chasing larger companies for big rewards. If a long sales cycle and credit terms are involved, you might find yourself winning over that customer, charging for a whole lot of work but still failing due to poor cash flow.
In practice this has meant our first paying customers tended to be individual parcel senders, not our medium to large e-retailers that our business plan is based on. These limited sales are our means to an end and ensure we have enough cash to fight another day.
After six months and $6,000 goParcel was launched and achieved first revenue. It’s a milestone that I am proud to have achieved. It’s one thing to have an idea and get it off the ground; it’s another to have done it ‘without’ any money.
Continue to follow the trials and tribulations of these young entrepreneurs every month. Discover next month the bootstrapping actions taken to minimise expenses at goParcel – Express Courier.
If you have some great tips or tools for other entrepreneurs I would love to hear your comments.