Tips for bootstrapping your start-up

In one of the pitching sessions we hosted last week at Tangaza, a young enthusiastic start-upper was making his presentation.

He said he had run his enterprise for a year and during this period, he had made a profit of Sh20,000 but now he needed to scale and was pitching for funding of Sh42 million.

With such poor traction and unclear business and financial model, he wasn’t going to be getting any venture funding. Scaling without adequate funding is one of the greatest drawbacks assailing most of our start-ups.

The harsh reality is that few early-stage start-ups have investors or start-up capital from the onset. When your savings and the generosity of friends and family runs dry, how will you keep your venture afloat?

The good news is that with good planning and forethought, bootstrapping your start-up is possible. Bootstrapping means starting a company with little or no money, but utilising the resources readily available to you. This means keeping your budget low, taking a small salary and working with your team to develop your product for ‘sweat equity’.

It may take you longer to get your product to market because you are relying on yourself for everything, and often learning as you go but many of today’s largest corporations such as Apple, Coca Cola, Dell, HP and Microsoft began as boot-strapped ventures.

Bootstrapped firms

Some tips on how to get your bootstrapped start-up on the right path are:

Business model: The most successful bootstrapped companies have a business model that generates cash as quickly as possible. Without any cash inflow, you’ll burn your reserves before gaining any real traction.

The team: A large team could drain your cash more quickly than any other expense in your budget. Until you have a positive cash flow, only hire people you absolutely need.

Test the market: Before you spend money on anything, you should talk to potential customers about their level of interest in your product you also need to carry out inexpensive marketing tests until you find the best results.

Cut expenses: With a small salary, you won’t have money to spend — so don’t expect to live a posh life when starting. Consider every purchase and only spend what’s necessary.

Bootstrapping, while challenging, will teach you invaluable lessons about what matters most in business. You’ll learn to be frugal and invest only in the things that will benefit your business. With prudence and a well-planned strategy, you’ll soon see that it is possible to not only succeed, but to thrive as a bootstrapped startup. —

- By David Cheboryot, MBA manager, Tangaza University College. For more information, email bizbeat@standardmedia.