Bootstrapping Your Start-Up Business with Little or No Money

When unemployment rates start creeping up, those of us who are having a tough time finding work start thinking about opening our own businesses as an alternative.  Whether its inspiration or desperation is beside the point, but the thought of being your own boss could never be more appealing then after being unemployed for some time. Typically, the biggest challenge for most new business start-ups is capital, or more specifically, the lack of capital.  Traditional bank loans for new businesses are incredibly difficult to obtain, especially considering the impact of tougher underwriting and loan requirements by lending institutions nowadays.  The reality is that traditional sources of financing a new business are a long shot at best, especially in the new economy.  The possibility of so-called “angel” investment or venture capital funding is even less likely.  On a percentage basis, start-up companies that obtain any type of venture capital-related financing are minuscule less than a fraction of one percent.

“[The] probability of an entrepreneur getting venture capital is the same as getting struck by lightning while standing at the bottom of a swimming pool on a sunny day. This may be too optimistic.” Guy Kawasaki.

That’s the bad news.  The good news, however, is that many new start-ups are launched with very little money at all.  Michael Dell started his company, Dell Computer, out of his college dorm room for less than $1,000.  In fact, many of the world’s greatest companies were not only started with very little money, they were also started in the midst of very poor economic environments.  Hyatt, Burger King, FedEx, Microsoft, CNN, MTV, Trader Joe’s, Sports Illustrated, General Electric and Hewlett Packard were all companies that started in poor economic conditions.

So You’re Saying I’ve Got A Chance?

When I started my first business, I was as close to flat-broke as anyone could be.  My wife was pregnant with our second child and we didn’t have much money to speak of.  Naturally, starting a new business sounded like a grand idea.  The only realistic possibility for getting my start-up off the ground depended entirely upon my willingness to pull myself up by my bootstraps.  Self-financing with little or no money seems incredibly daunting, but for many of us, there’s really no other option.  The truth of the matter is that bootstrapping a business is an incredibly useful learning experience for young entrepreneurs and one that can pay dividends over the long term, Building a business with a “lean and mean” mindset and fiscal discipline very early on in the company’s development is one of the greatest experiences in business that I’ve ever had. There are a countless number of creative ways that you can finance a start-up.  Here are just a few tips on bootstrapping your new startup that I have found particularly beneficial from my own experience:

Outsourcing

Outsourcing has been demonized in the mainstream press as one of the scapegoats for America’s decline as a leading economic power.  The simple fact of the matter is that many start-ups don’t have the financial means to hire full-time employees early on so business owners are left no choice but to bootstrap their operations.  Outsourcing early in the company’s development is clearly a more affordable option and when done the right way, it’s very effective.  Three primary areas in any business that you can effectively outsource are computer programming, web design and software development.  Here are a few online resources for outsourcing some or all of your needs in those areas:

The selection process is the key to making any of these outsourcing resources work for you.  With any freelancing site, you have to thoroughly review the prospective developer’s work portfolio and relevant experience.  The more experience with your specific project requirements the better, but you should also consider the feedback provided from previous buyers of their services.  Look for consistently positive feedback from their previous work and a high percentage of positive reviews for the vendor’s past work.   Above all else, do not base your decision on the supplier who offers the lowest price.From my experience, selecting a vendor based solely upon the lowest bid price has always ended badly and has usually resulted in having to start the project over from scratch, an expensive proposition for an upstart. Eventually, my business grew to the point where I needed to hire several full-time employees, but outsourcing was the keystone that provided that opportunity.

Barter and Trade

Instead of paying cash for products and services, bartering can be an extremely effective bootstrapping tool.  Bartering involves trading products and services between complimentary businesses, which is probably more suitable for service-oriented businesses but if you are selling tangible products, there are still opportunities to barter creatively as well.  You can find people who are willing to exchange services online at craigslist.org.

Partnering with a Complimentary Business

Bartering dovetails nicely with another effective bootstrapping technique – partnering with a complementary business. Any business in a non-competitive but complementary industry would qualify where you can share costs on facilities, equipment, employees, rent, and advertising. If you own a carpet cleaning business, for example, you may be able to find a local furniture store that will let you work out of their store in exchange for a small percentage of your revenue. Partnering in this manner can help to lower your overhead and also help you build immediate clientele with referrals from the furniture store. Other examples of partnering with complementary businesses:

  • Small dog-walking service and an established local veterinarian
  • Law firm and a local CPA
  • Local surf shop and a skateboarding accessories retailer

The possibilities are limitless for potential partnerships that can have a big impact on your cost savings and, ultimately, your bottom line.

Internships

Local colleges in your area are a great place to find internship programs that are loaded with students looking for opportunities to earn school credit and gain experience in their field of choice.  Interns are highly motivated laborers and they’re willing to work for next to nothing but they can do more than just save you money.  Internships can provide a great opportunity for both interns and employers to check each other out, allowing each one to take an extended “test drive” of sorts.  Internships give students a chance at first-hand experience running a business and gives employers the opportunity to build loyalty and develop their most talented employees. Internship programs have started to play a much bigger role in transforming smaller businesses.  In the past, internship programs have been dominated by large corporations but small business has started to effectively tap into this resource, realizing the vast potential that it holds.  Offline, the place to start looking for internship programs is the employment or career services office on your local college campuses. There are online resources available to locate internships for your business as well:

SCORE Business Counseling

SCORE, also known as “Counselors to America’s Small Business” is a nonprofit association partnered with the U.S. Small Business Administration (SBA) whose mission is to educate entrepreneurs and small business owners, helping them start and grow their companies. SCORE has 350 offices nationwide that are staffed with more than 13,000 mentor volunteers with extensive business experience and a wide range of business skills.  The mentors are retired business owners and corporate leaders who share their experience and lessons they have learned in their careers.  The advice offered by SCORE’s mentors is free and confidential and has provided guidance for more than 8.5 million small businesses.  You can choose your own mentor, attend free online workshops and get advice online or in-person. SCORE is a truly remarkable resource for small business owners but is surprisingly not well known.  In fact, Kiplinger Magazine recently identified SCORE as one of the “33 Fabulous Freebies in 2010”.

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