I’m currently running my sixth company, and all six have been completely bootstrapped. The first two were total failures, and each of the next four has been incrementally more successful than the previous. Looking back, I recognize the mistakes that killed the first two faulty attempts to bootstrap. I've come up with seven rules that will help you avoid these mistakes so you can achieve success.
First, here is my definition of bootstrapping: Starting a business that must provide income for you and your family, with zero outside capital and limited internal capital.
Now, the seven rules to bootstrapping a business successfully:
1. Understand that you can do it…at least for a while
The media bombards us with stories of startups that raise millions to get their businesses going. Although it seems like every startup raises VC money, it’s simply not true. You can start and grow a business without outside capital, but also be aware that there may come a point when you’ll need outside capital.
This was the cause of my first business failing. I was able to quickly start generating revenue, but the margins weren’t good enough to support active, aggressive growth. The business generated enough revenue and profit to operate successfully and pay me a salary, but at the end of the day, there wasn’t enough capital to expand the business.
2. Sell something soon
If you’re going to survive, you have to get money flowing through your business. You can’t wait months (or years) before you bring your product or service to market; you’ll go broke.
In my second business, I wasn’t able to generate sales quickly enough, which resulted in its failure. The entire business model was based on having a steady stream of leads coming into the funnel. The time and expense required to get leads in the funnel killed the business. I simply ran out of cash.
3. Answer “How?”
You must know specifically HOW you’ll make money. Sounds obvious, right? Yet many people don’t have a clear plan of action for how they will make money.
The failure of my second company was partially the result of not answering this question. I knew the audience I wanted to serve, but foolishly, I didn’t know exactly what I was going to sell to make money. Having a clear understanding of the “how” before I started would have helped me to see that this business model wouldn’t work.
4. Invest instead of spending
Don’t spend money on anything that doesn’t have the ability to put money directly back into your business. View the expense of these items as an investment, but be sure the investment has the ability to provide you with a positive ROI.
5. Don’t impress
Don’t worry about trying to impress others. When I started Ugly Mug Marketing, my current company, I spent the first year and a half working from coffee shops and my house. Sure, I could have afforded office space, but I was following rule No. 4.
My third business, which ended up being very successful, was almost ruined in the beginning because I violated this rule. When the business began generating income, I immediately went out and bought a brand new service vehicle because I wanted others to believe that the business was very successful.
This mistake almost created my third business failure. Fortunately, I was able to sell the vehicle. But I couldn’t sell it for what I owed, so this ended up being a $5,000 mistake.
6. Wow them
Wow your customers and prospects, and do it consistently. In contrast to our digital age, one simple way to wow them is by sending a handwritten thank-you card after each interaction.
In the book "The Discipline of Market Leaders," the authors reveal that all successful companies typically fall into one of three categories: Product Leaders (those that innovate with products), Operational Excellence (those that have the best operational systems), and Customer Intimate (those that provide an amazing customer experience).
The cheapest and easiest to implement and develop is a Customer Intimate company.
7. Watch for money
Keep an eye out for people who may be willing and able to invest in your business. Build relationships with them, but don’t ask for money until the time is right. Your gut will tell you when the time is right.
All of the rules above will help you successfully bootstrap your business, but rule No. 1—understand that you can do it—is the most important. If you don’t believe you’ll succeed, then who will? I believe you can do it...so go make something happen!
OPEN Cardmember Wayne Mullins consults with entrepreneurs from around the world. He is the founder and chief daydreamer at Ugly Mug Marketing. You can learn more on his blog: Marketing Confessions.