Qount on us To Help You Bootstrap Your Business
In the movie The Social Network, there’s a scene where Justin Timberlake’s character Sean Parker, acting as shaman to Jesse Eisenberg’s Mark Zuckerberg, advises him on how to handle a meeting with venture capitalists interested in investing in Facebook in the social media giant’s early days.
The VCs had previously spurned Parker, who knew they were unaware that Parker was now advising Zuckerberg, so he hatched a plan for revenge. Parker sent Zuckerberg into the meeting in pajamas and told him to profanely tell the VCs he wasn’t interested in their money.
How much truth there is to the scene (and the movie as a whole) has been up for debate for years, but even as ridiculous as it was, it illustrates the dance that has to be done when entrepreneurs are looking for cash infusions for their businesses.
It leads to a question: if you have an idea and are looking to develop it into a business, do you seek outside funding or go the bootstrapping method? As we look at the situation right now, we’re seeing a lot of reasons to go it alone without outside investors.
To be sure, there are risks. After all, if it’s your own money you’re putting up to fund your business, then the prospect of failure can send a chill down your spine. What if it doesn’t work? What then?
But look past the (admittedly frightening) worst case scenario, and turn it another way: what are the advantages to bootstrapping your business? Because as it turns out, there are quite a few :
You’re Beholden To No One But Yourself
An investor wants to give you a large chunk of seed money to get you off the ground? That’s great! But guess who you then answer to every day. Your dream of being your own boss is almost over before it begins, because when an outside entity gives you the cash to get you started, he or she is going to be asking about results, and probably pretty soon.
It can take months, if not longer, for a new business to become profitable. If you’re working on your own schedule and timeline, that can mean things are tight while you work on getting your business in the black, and that’s scary. But it also means you reap the rewards if (or hopefully when) the business makes it.
With outside capital, the pressure is on immediately to provide a return on their investment, which could lead to bad decision-making in the hopes of achieving short-term results at the expense of long-term success, the latter of which is what you should really be striving for.
Bootstrapping Builds Better Survival Instincts
When you take on investor dollars, you’re starting your business with a pile of money. And hey, that sounds great! But whether it happens consciously or not, your mindset goes into spending money, not making money, which is what you need to make it long-term.
When you’re bootstrapping, you have to make ever dollar count, and it gives you a greater appreciation for the money that comes in. You learn to navigate the ebbs and flows that inevitably arise in business. With outside investors, you simply go back to the cash pool on hand to fix a problem and move on.
As the magazine Entrepreneur notes: “Not having funds to throw at problems forces you to come up with cost-effective, creative ways to solve them. It makes you a better problem-solver. It makes you look for less conventional answers to conventional problems.
There have likely been months when you could barely make payroll and were worried about closing the doors. This kind of pressure forces you to think creatively, to come up with solutions that are out-of-the-box; these are also problems that the luxury of VC money would potentially save you from grappling with -- to your detriment. I personally find that some of the greatest ideas and light-bulb moments are born during these times.”
A cash pool from investors eventually dries up, and when it does, you’ve become so accustomed to it that your problem-solving skills have atrophied, and you might hit a wall. With bootstrapping, you build the wherewithal to understand the importance of cash, and not lead yourself to spend it when you have it just for sake of doing so.
You Attract Driven People
Lots of people will want to work for a startup with oodles of cash, but there’s a good chance they’re out for themselves and aren’t emotionally invested in your business. Maybe they’re hopping on board because they want to gain access to the investors, not you. Of course, that may not be the case, but can you really know for sure?
If you’re starting up on your own, yes, you might have trouble attracting top-tier talent who are wary of the risks. But what does it say about the people who do want to join you? The people who look at a bootstrapping startup and want to join it are people who are driven, with an abnormally high work ethic. They understand there are bound to be long days, long nights, and long weekends. They’re people who believe in themselves, believe in your business, and ultimately, believe in you.
As the Harvard Business Review writes, “If you’re bootstrapping, you probably don’t have enough cash or cachet to attract high-profile talent. Early on, bootstrapping companies aren’t able to hire candidates with tons of experience. Instead, they attract people who are willing to bet on themselves — and on your vision.
What does it mean to ask people to bet on themselves? It means they are crazy enough to turn down a $60,000 salary to work for $8,000 a year in someone’s basement because they believe they can turn an idea into a billion-dollar business. The result is a culture able to solve problems with fewer resources, which creates a huge competitive advantage.”
That sounds like a pretty good culture to create in your business.
You Truly Learn the Value of a Customer
Have you ever walked into a restaurant, or a dry cleaner or any other business and seen a dollar bill framed and hung on the wall? The first time a customer patronized their business, it was such a momentous event it had to be commemorated for perpetuity. It also serves as a reminder about the importance of the customer.
When you’re bootstrapping a business, it’s the same thing: you very quickly learn to value every single customer you have, because losing one could spell big trouble. As the blog Task Pigeon writes, “All startups care about attracting customers and growing sales. But if your ability to fund the company for another month hinges on closing a deal then I can’t help but believe that you will fight a little harder (even if it is on a subconscious level).”
You wake up every day knowing that not only can you not allow them to have a bad experience, but you need to go above and beyond so that along with coming back and generating repeat business, they also tell other potential customers about you. As a small business owner, it can be difficult to get out and network, so word of mouth from satisfied customers becomes the best marketing you can generate.
Valuing the customer, and their ability to pay in a timely manner, translates later on when the business is hopefully in a growth cycle. It sets habits in your customer service so that you never take them for granted and continue to build relationships that allow you to scale. So, while bootstrapping isn’t without its risks, and can in some respects be more difficult than starting with investor money, in many ways it’s the better way to go.
If you’re going the bootstrapping route with your business, accounting becomes vital to success. Every dollar in and out needs to be properly accounted for. Of course, that’s hard to do when every day you’re moving at 100 miles per hour trying to get your vision off the ground. Cracks in your accounting processes could lead to unpaid bills, payroll mistakes and delays in collecting payment. Any of those scenarios can be critically damaging to a startup, where early dents in their reputation can torpedo progress. Now we want to hear from you – are you currently bootstrapping a business, or have you done it before? Do you have any advice or experiences, good or bad, that you can share with your fellow entrepreneurs?
At Qount, we're a bootstrapped business ourselves, founded by entrepreneurs who understand the unique challenges inherent with the entrepreneur lifestyle. In addition to our accounting expertise, we're here to help with other questions that come up in the process of building your business. If you're ready to make your dream a reality, contact us today to get started with Qount.