Some founders fail to secure investment. Others choose to build their businesses using their own capital. Whatever path they take, there are plenty of ways to build a business on a modest budget – known as bootstrapping – and still give the fledgling firm the best chance of survival.
Managing cashflow, controlling stock, monitoring supply and demand, and organising marketing, present huge challenges for cash-strapped startups, but many have found ways of overcoming these issues to enjoy success. Solicitor Alex Boothman founded online legal marketplace MyLegalAdviser three years ago and has carefully managed the business to its current position, with seven employees and a projected £1m turnover this year.
“It may sound obvious, but the first step is to ensure your business model actually allows for good cashflow,” he says. “If you don’t expect to close any sales within the first 12 to 18 months, you’re going to struggle as a bootstrapped business.”
Enterprises offering more immediate services may see revenues much sooner. When Sam Corban founded his pizza pop-up, 400º Pizzeria, cashflow wasn’t too much of an issue – pizzas are quick to make, so he had a short turnaround on most outgoings.
“From day one I’d taken card payments, but encouraging customers to pay by card quickly became key to having easy cashflow, as [with Square] it then just turns up in your account the next business day and it’s ready to use,” he says.
Stock control was still tricky. With limited storage space and refrigeration, he found it difficult to have the right amount of ingredients for a weekend’s trade. For that, he used tools offered by his payments partner, Square.
“I use the reporting features in the app to know what is and what isn’t selling,” says Corban. “I know if I’m wasting money on toppings that won’t get used and time on prepping for items that don’t sell so well.”
Bootstrapping also requires total transparency: founders need to know how much they are bringing in and spending at any given time, and to closely monitor acquiring new customers and performance.
With his online legal marketplace, Boothman was able to integrate an accounting system (Xero), analytics (Google Analytics) and customer relationship management system (Pipedrive) directly into the backend of the platform.
He says: “Many of these tools are available for free or for a low monthly subscription, and can be integrated quite easily without any coding knowledge.”
The way that you bootstrap can depend on the type of business. With those that provide a personal service, for example, organic growth is arguably easier to achieve, as staffing levels can be increased as the company approaches a critical mass.
The challenge for Nigel Davies, founder of cloud-based business services provider Claromentis was that he needed to build a product before he had any cash at all or any proof the business would work. His approach was to offer easier services, such as web design and small IT projects, to generate income while the main product was being developed.
Another bootstrapping issue arose from giving his first major customers too much control over product development. “Their specific demands for custom-built features conflicted with our plans to build an easy-to-use, powerful digital workplace that could be used by businesses straight out of the box,” he says. “But it is always hard to say no to larger customers who insist they are right, especially when you are scared to lose them.”
Today the firm has a £2m annual turnover, 30 employees, and three reseller partners helping it to deliver in the US, Australia and Asia.
In 2014 Nick Coleman bootstrapped his pork-scratching brand, Snaffling Pig, in response to a challenge by his business partner to start a business on £500. Early challenges included product development and making initial sales.
“We minimised spend on packaging and sold flavoured pork crackling in 5kg bulk bags, with a glass clip top jar bought from the local supermarket and handmade flavour luggage-style tags. We drove pub to pub selling them,” he says. “While the brand didn’t stand out in this format, it delivered valuable feedback, allowing us to tweak the recipes and ensure cash was flowing into the company.”
He also experienced the biggest stock management headache for a food brand – shelf life. Too much on the shelves means cash is tied up in stock; too little means a big order can wipe out the stock, resulting in failure to meet demand.
“We’ve resolved our shelf-life issues by investing in our stock-management system as we’ve grown – literally from paper to spreadsheets and finally an IT programme,” he says.
In the competitive food sector, a strong brand is essential, so, with only a small marketing budget, Coleman had to be extremely resourceful.
“Industry awards and startup competitions have been a great way to raise our profile, but customer service is possibly your best marketing asset,” he explains. “Having customers tell their friends about us is far more powerful than any billboard campaign.”
Tips for bootstrappers
- Monitor cashflow. Watch it all the time and question every single expense.
- Regularly forecast cashflow. These can highlight when the business might run low on cash and be the basis for an action plan to remedy the situation before it happens. Tools like Square’s Dashboard can help you track both cash and card sales in one place.
- Don’t rush. First-to-market is rarely a possibility – or even important. In many cases, the businesses that got there later became dominant because they could learn from the mistakes of others.
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