Bootstrapping – Dutch Uncles

An Overview Of The Creator Economy: Challenges And Opportunities

Abhilash Bapanasha — Thu, 26 Aug 2021 13:00:12 +0000

The Creator Economy is built by influencers, vloggers, bloggers, writers, artists, and anyone else who monetise their knowledge, skills, or creations. The phenomenal rise of the internet over the last decade empowered ordinary individuals to create and publish their own content and hence share a story. In order to elucidate more on the opportunities in the Creator Economy space, we had Mr. Tamseel Hussain as the speaker for Innerview – a weekly live 45-minute motivational and inspirational talk show presented by Dutch Uncles which features interviews of industry experts who bring forth informative and life experiences and techniques.

Mr. Tamseel Hussain, the Founder and CEO of People Like Us Create TV (Pluc TV), has successfully built his bootstrapped startup from scratch and is now being used by more than thirty thousand creators. With over a decade of experience in boosting youth-led virtual narratives, Mr. Hussain is building storytelling and technology solutions for the age of the creator economy.

In brief, the session had the following takeaways:

What is the potential of the creator economy?
How can you become a successful creator?
How can creators produce and monetise their content?
What can be the impact of authentic storytelling?

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A lot of ideas are being funded if you have a high user base. But the most important thing is whether you are able to generate your own first revenue. It makes the fundraising journey easy for you.

Here are some excerpts from the interview:

What will you suggest about getting funding to the aspiring young entrepreneurs?

It is really important to share your idea and build on it before you actually go to fundraise. If you are going for a fundraise, the trend that we are seeing right now especially in the Indian market is that a lot of ideas are being funded if you have a high user base. But the most important thing is whether you are able to generate your own first revenue. It makes the fundraising journey easy for you. Second, you should be able to solve a problem, people need to seek solutions and they need to come to your platform. Third, once you have actually solved the problem it is very important that you consistently solve that problem so that people keep coming back to you and these are three golden rules which really help.

Please suggest some action points which creative entrepreneurs can consider to design a robust social media marketing strategy.

The first thing we did was put everything on social media. Knowing what your product is, who your audiences are, it needs to be consistently directed through social media posts. Every platform works according to an algorithm, for example, right now reels than other types of content is really popular and you can see so many small businesses using it to the fullest of the advantage. At Pluc TV, we believe in organic growth and a paid social media marketing strategy only has limits. If you have a good story to tell and if you are hitting the right algorithm it grows faster. If you take the ad marketing or influencer marketing route, you are just ending up spending a lot of budget where if you notice your conversions are very low. I really think organic needs to be prioritised.

How do you think this creator economy space can be utilised and coordinated with sectors like Edtech, Agritech, Fintech?

You already see it happening – in edtech and agritech platforms, there is a massive demand for content creators. The biggest issue that the farming sector has, for example, is the amount of training they are given by existing methods which are traditional. It is very difficult for them to absorb it. They need training which helps them on the spot which is through the new agritech apps that are coming up. They are able to sell whatever they are producing in the best way possible and this is where content creators are coming up. We are going to see a rising trend of experts especially after the pandemic really controlling the narrative when it comes to important subjects that are related to edtech and agritech platforms.

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We believe in organic growth and a paid social media marketing strategy only has limits. If you have a good story to tell and if you are hitting the right algorithm, it grows faster.

Audience Asks:

As a part of this creator community where should our focus be – competing or collaborating with each other? How to decide one of the approaches considering that we all are trying to increase our followers?

I think this trend is about competition and having a massive follower base. You would be more interested in collaborating because it actually helps you build your followers as well. We have seen tools that have been added by various platforms on collaborative lines and with all these things it really helps you build your follower base. So, I think collaboration is definitely the way to go. But if you are really thinking of competing that means you are again falling into the trap of competition which is being forced by a social media algorithm because they have created a trend. Find your niche, find your authenticity – you can still create a trend but in your own way which helps you grow faster.

What factors to take care of while pitching for funding to investors?

The most important thing is there is a format of a pitch deck which should have an end to end information from what your idea is, what problem your idea is solving, what is the USP of your product, how many users you have, how you are going to make it something which is going to differentiate. There are apps and platforms like DocSend which really help you to track analytics and actually see who is viewing your pitch deck when. Once people are interested in your pitch deck, you as a founder should be able to say that you are the right person to do it and really scale the company into something massive. Do not fill your pitch text with a lot of text, instead make it simple for anyone to understand.

The five-crore independent content creator community

As Mr. Hussain explained that while the interest and passion to be a storyteller is on the rise, it is equally vital to choose platforms which have an existing user base. You need to make sure to create keeping in mind the algorithm of the platforms so that there is an optimal transformation and influence. This class of businesses as seen today, is built by over five crore independent content creators, curators, and community builders including social media influencers, bloggers, and videographers, in addition to the software and finance tools designed to help them with growth and monetisation.

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Does Bootstrapping Give You Greater Sense of Ownership

Vaishali Das — Thu, 29 Jul 2021 12:35:09 +0000

What is bootstrapping?

Building a company from scratch with personal savings, earnings from the first sales and mere luck, without any external help or funding is known as Bootstrapping. It literally means ‘to pull oneself up by one’s own bootstraps’. Self-financing a business by using only existing resources needs a lot of support and patience. The concept is purely based on the fact that one’s time and money will drive business expansion and thus it can be both satisfying and stressful at the same time.

Why can bootstrapping be a successful model?

Bootstrapping a nascent company can be a romanticised idea. It can also work if you are enthusiastic and able to put in the hustle. It might be fruitful for those who can pull this off. There are various reasons why Bootstrapping can be a successful business model:

Full Ownership:

Bootstrapping gives an entrepreneur 100% ownership of their business. It is one of the best funding options that doesn’t dilute the ownership. When a business is bootstrapped, the founders are given the sole ownership rights and thus have the benefit of gaining 100% profit.

Having Full Directional Control:

As soon as external funding is involved, it brings in responsibility to satisfy other people’s interest. This sometimes constrains the entrepreneur’s vision. In the bootstrapping model, there’s no third party involvement which gives the entrepreneurs complete control over the steering wheels to take the company in their desired direction. This control allows the entrepreneur to establish a strong foundation and have sustainable growth.

Sense of Accomplishment:

If you wish to keep your company as a part of your heirloom and make it more of a multigenerational business, then bootstrapping is the right option for your business. It will give you that satisfaction of creating and owning something valuable.

Limited Debts:

By bootstrapping, it can slowly bring in revenue and can establish a safety net that will fund future investments in the business. As they’re never reliant on outside funding, therefore there’s no pressure of paying off the debts or taking loans for that matter if things don’t work out as planned.

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Bootstrapping has a lot of benefits and is an excellent funding approach to keep ownership in-house and limit the external debts.

5 companies who have become successful by bootstrapping

Bootstrapping is a part of many successful businesses’ stories. Around 80% of the small businesses and startups are self-funded. Bootstrapped startups are an ultimate source of inspiration, some of them are:

Zerodha: India’s largest stockbroking app and one of the finest bootstrapped companies to join the unicorn club.
Zoho: The cloud business giant bootstrapped and managed to generate revenues worth $10 million by 2000.
Kaleyra: A cloud-based multi-channel communication platform helping enterprise operators, worldwide, to power their business communication. Having a client base including big names like Amazon, Ola, Flipkart, AirAsia, Zomato, it has crossed a revenue of Rs. 693.6 crore.
Wingify: A platform known to develop world’s best tools for website optimization. Having revenues in millions the startup bagged some blue chip clients namely Microsoft and Walt Disney and Co.
Grab-on: A trusted e-commerce platform offering coupons, gift cards, promo code and vouchers. The company proved its worth by gaining profits within 15 months of its inception.

How half of India’s software company is bootstrapped

Nearly half the software product companies in India today are bootstrapped. The reason behind this could be the mindset that bootstrapping allows founders to follow their vision. Staying away from equity funding is like staying away from debt and many startups are preferring this nowadays. It can be mentioned that bootstrapping is a necessity as well as personal choice for entrepreneurs.

Is it good or bad for company’s growth – Insights for startups

The bottom line is that every business is unique and follows a different path. Bootstrapping may work for one company but for another it might be impossible.

Looking into the startup ecosystem in today’s time, it can be said that bootstrapping still is an attractive option for startup entrepreneurs. It has a lot of benefits and is an excellent funding approach to keep ownership in-house and limit the external debts. But before taking a final call one should always weigh the pros and cons and do a thorough research on the market condition for their particular sector.

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Start-up Fundraising Explained

Aakash Sharma — Tue, 30 Mar 2021 12:35:05 +0000

To start a start-up with a good business idea, one must first find apt fundraising channels and the capital for it. An entrepreneur’s new business philosophy must reflect the value of her/his models and products, as well as the prospects for further development.

The final definition of any business idea requires several blueprints and immense strategization, which can be achieved using SWOT and PEST analysis techniques. Defining a customer development plan and developing business development plans are essential criteria for a business’ success. However, many companies fail because, due to their inability for fundraising enough capital. At the end of the day, money or capital is needed for the business’s work at all stages.

If you are at the step in your journey where you want to know how to initiate the fundraising process for your business idea, you have come to the right place. Let’s find out the basics of raising funds for a start-up and the steps involved in the process.

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A start-up can request as many rounds of funding as possible as there are no particular investments restrictions.

Self- Fundraising- Bootstrapping a Business Idea

When an entrepreneur collects money on her/his own, s/he has to decide how much funds can be ordered for starting a business. Evaluating all investments and savings from multiple accounts, as well as with the help of friends and family- these are the key sources of the initial fundraising or self-financing process. This stage requires less complexity and paperwork. Friends and family might charge a lower interest rate on their investment. If a small investment needs to be made, self-financing is a more appropriate way to go about it.

Initial Capital, or Seed Funding

Initial capital investment is made at the initial stage of setting up a start-up. This helps the company find and create the right footing for its operations. The funds raised at this level are used to understand the customer’s needs, preferences and personalize the products or services.

As mentioned above, many budding entrepreneurs raise funds from friends, advisors, and families, while others take money loans from banks or offer company shares. (FUN FACT: Facebook paid the initial operators of its office setup and other functionalities in ‘company shares’, and most of those receivers are now millionaires).

Venture Capital: Fundraising large amounts of Capital for Companies with High Growth Potential

When a start-up final product or service is commercialized, venture capital financing begins. Regardless of the profitability of the product, all companies plan to undertake this step. And this is a long journey that comprises a series of steps, as mentioned below:

Series A (Round A) Funding

As the first round of funding, Series A investments do not require external financing. Series A funding is started when a start-up has developed a specific plan for its product or service. It is mainly used for building brand reputation, opening up new markets and for business development.

Series B (Round B) Funding

When a business relies on a Series B investment, it shows that its products and services are selling well, and customers are choosing to purchase the product or service, building and broadening a high-potential market. This funding can help businesses pay, hire more employees, improve their infrastructure and even make them global players.

Series C (Round C) Funding

A start-up can request as many rounds of funding as possible as there are no particular investments restrictions. However, when making Series C investments, owners and investors become wary after the third round of financing and raising capital. This wariness stems from the fact that the more investment circles get involved, the more freedom of equity a company will grant.

Initial Public Offering (IPO)

When a start-up decides to raise funds from the public (including institutional and private investors) by selling its shares, it’s called an Initial public offering (IPO). Initial public offerings are often associated with opening up a business for the public to get involved. With a company’s IPO, the public can buy shares and invest in its operations and business.

This is the basic structure and the journey of a start-up’s fundraising quest that every budding and aspiring entrepreneur must be aware of. For detailed analysis and insights into the process, please browse our website for your related queries and find the exact solutions to your business questions.

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Self-financing: What Can Be The Potential Sources of Capital To Finance Your Business?

Chayanika Sen — Mon, 08 Mar 2021 10:35:03 +0000

Rohit wants to start his own restaurant business. He has some great ideas, and he is sure that if he can implement them, his business will have a great take-off. But when he tries to implement his ideas, the first roadblock he faces is the capital to finance his business. And it’s not just the story of Rohit, but many first-time entrepreneurs who struggle to finance their business. In this article, we will share ideas on how you can plan for self-financing your business.

Bootstrapping your business

One way to start your business is bootstrapping. Many first-time and small business owners rely on bootstrapping before going for funding. Bootstrapping in business means investing your personal resources and funds to kick off your business with no outside money. If you are launching your business without the funds from venture capitalists or angel investors, you are bootstrapping your business. Thus, bootstrapping means you are the only one investing money and ploughing the money earned from customers back into the business.

What bootstrapping means

The mindsets of bootstrappers are completely different from those run by the management of venture capitalists. Venture capitalists invest a large sum of money, and so they look for fast and high returns. On the other hand, bootstrappers grow and build their businesses slowly and steadily. They have the guts and the passions and are usually long-term players.

Bootstrapping also requires a lot of planning, learn to negotiate well or barter when they don’t have too much cash, and learn to hustle.

Some of the benefits of self-financing your business:

It’s quick. You don’t need to depend on approval.
There is no paperwork.
It makes you frugal, and you try to do the best with whatever you have.
Involves no costly interests.
Once you have invested in your business, you have enough to show to the government or the venture capitalist in the later stage if you need to raise a fund or go for a loan.

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Many first-time and small business owners rely on bootstrapping before going for funding.

How to start with self-financing

Find seed money

The best way to start bootstrapping your business, start with your personal savings or ask for funding from friends and family. This is known as seed money. Seed money is also known as startup stake. If you have a day job, you can start it as a side business when you can continue to work in your day job and use a portion of your salary to build your business. If you have a shoestring budget, seed money can help the business to take off.

Launch a minimal viable product or service quickly

Launch your business as soon as you have a minimal viable product. Remember, being fast is better than perfect because the faster you can launch, the quicker you can move to the next step.

Start looking for assets

Do a thorough scan of your assets. Your assets could be equity in real estate, savings account, retirement accounts, recreational equipment, collections, etc. You can either use them as collateral for a loan or sell a portion of them for cash. If you have stocks and equities, you can use them for low-interest loans. However, the pitfall of this is if there is a market fall, you may need to sell some of your stocks or supply more stocks to shore up the collaterals. Also, you need to check your personal line of credit.

Business credit cards

The use of business credit cards has become popular over the last few years. If you don’t require a lot of money to start your business, you can use your business credit card for payment. Remember to pay the credit card bill on time to avoid debts or extra interest that can be charged as a penalty.

Savings

If you have made enough savings, this should be the first option for self-financing your business. However, don’t put yourself in trouble by using up all of your savings. It is advisable to leave your money in a savings account for future emergencies and use it only when absolutely needed.

Bank loan

Many banks offer loans to small businesses. You can check this option if you need a small amount of loan to plan for self-financing your business.

Retirement funds

You can borrow against your retirement funds if you have retired from your job already. However, don’t consume the entire amount and take only a small portion. Save the rest for your future; it will help you survive even if your business doesn’t work out.

Home equity

If you are looking at ways to liquidate your assets, your home is the best place to start with. You can use it as collateral for self-financing your business. If you have already paid off a portion of your mortgage, then you can get a home equity loan against it. You can either borrow a lump sum loan amount or get an extension on your credit line based on the equity on your home. The home loan usually has a low-interest rate and is tax-deductible up to a certain amount. However, be sure to repay your loan, or you can lose your house.

Know your personal balance sheet

When you are self-financing, it is important to know your personal balance sheet well. Subtract your liabilities from your assets to understand your net worth. Take stock of your real estate properties, savings, cash, investments, vehicles, etc., and subtract your liabilities like credit card bills, debts, home mortgages, monthly bills, etc. Have a clear picture of your funds before you invest them in your business.

Salary from an existing job

If you’re starting your business as a side hustle along with your day job, then you can source a portion of your salary to invest in your business.

Use customer funds

Many small businesses rely on customer funds to invest in their business. You need to close sales quickly or opt for pre-ordering your products and pump back the money in the business. In this financing model, business owners often find slow growth because they need to meet the operational expenses before thinking about revenues.

What self-financing is NOT

Self-financing doesn’t mean you need to give up a huge portion of your equity to borrow money.

2. Self-financing doesn’t mean you need to go out and start looking for an investor.

3. Although many small businesses rely on credit card loans, they know that it is a short-term fix. It works well when you need to buy equipment or a tool.

Examples of some popular brands that started with bootstrapping

Apple

The bootstrapping story of Apple is an inspiring one. In 1976, Steve Jobs and Steve Wozniak, founded their company that turned into a multibillion company years later. The company started not in Silicon Valley but in a humble way in the bedroom of Jobs’ parent’s house in the suburb area and later moved to a garage when they needed more space. The rest, as we all know, is history.

GrabOn

Started in 2013, GrabOn is one of the successful bootstrapped startups in India. The company offers offline coupons, promo codes, vouchers, and gift cards.

MailChimp

If you have ever used an email newsletter, you have probably come across MailChimp. The company, which was once bootstrapped, now earns millions of dollars in revenue.

Zoho

Zoho is an old player in the CRM place. It was launched in 1996 when there weren’t many software companies in India. Since it bootstrapped, it took time to see some growth, but the growth has been tremendous for the last few years.

4 tips for building a strong business while bootstrapping

Focus on building a strong product

There is no alternative to a strong product. When you are on a shoestring budget, you cannot afford to spend much on fancy marketing. Instead, focus on building a strong product or offer a solution that your customers are looking for. When you do that, you build a loyal customer base who then become your brand ambassadors.

Concentrate on your customers

When you are bootstrapping, you know you have limited funds. Instead of thinking about ways to raise funds, your entire focus should be on developing a strong customer-oriented solution. Remember, your funds will come only when your customers like your product.

Be frugal

When you have a limited fund, you ought to focus on those limited funds you have in hand and try to do the best out of it. In other words, you build yourself as a frugal entrepreneur that will help you to sustain in the long run.

Find innovative ways to get noticed

When you bootstrap, you cannot fancy over marketing. While you use most of your available funds to build an outstanding product, you also need to get some visibility. While TV advertisements or costly marketing campaigns are out of your budget, you need to look for innovative ways to draw people’s attention. For example, working with freelance content marketers or digital marketers can help you get some visibility over the internet. Participating in contests and social events are other ways to get noticed. Cracking a partnership with other startups or micro-influencers is also a great way to generate some buzz without spending a bomb.

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There is no alternative to a strong product. When you are on a shoestring budget, you cannot afford to spend much on fancy marketing.

Other funding options to explore

Crowdfunding

Crowdfunding is slowly becoming a popular way to garner funds for the business. An entrepreneur puts up the details of his/her business on a crowdfunding platform. Details include business goals, how much funding is needed, and the plan to make a profit. Anyone can contribute to a crowdfunding platform for the business they believe in. Crowdfunding also helps generate awareness about the business, which is a positive side of using crowdfunding.

Government loans

The Government of India has launched various loan schemes for small and medium businesses. Some of these are the MUDRA loan scheme under Pradhan Mantri Mudra Yojana, Start-up India, Make In India, etc. You can benefit from these loan schemes to give a kick start to your business.

Getting an angel investor

Angel investors are rich individuals or ex-company executives who invest directly in small businesses. While institutional capitalists prefer larger investments, angel investors finance early-stage startups. Along with the capital, they also bring rich technical knowledge and years of experience. In return for the money invested, the angel investors expect the right to supervise the company’s management practices.

Business incubators

Business incubators help new startups at different stages of development. For example, a business incubator can let the new business use its lab for developing new products. An incubation phase usually lasts for two years, and once the product is ready, the business leaves the incubator’s premise and goes for scale-up.

Venture capital

If you are into a technology-driven business with high growth potential, venture capital can be considered a great option for funding. Know that venture capitalists are keen to fund businesses in information technology, biotechnology, and communications. VCs work by taking an equity position in your company and help you to be in a better position to take risks. If you are okay with giving out a portion of your ownership or equity to a VC, you may try raising funds through a VC. Also, know that VCs expect a healthy return on their investment, so look for investors who have knowledge and experience about your domain of business.

The takeaway

Whether you want to go for bootstrapping or raise funds for your startup, there are several financing options for businesses. If you are keen on bootstrapping, each financing option has its own benefits and pitfalls. Moreover, it is not necessary that one financing can work for all. So, weigh each option carefully and make an informed decision.

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The Art and Science of Bootstrapping

DU Desk — Mon, 25 Jan 2021 04:04:02 +0000

It is hard to comprehend how Infosys Technologies Co-Founder, Narayana Murthy started the technology services bellwether by pledging his wife’s jewellery and by borrowing a few lakhs of rupees to start the much-celebrated organisation. It is a tight rope walk for first-time entrepreneurs to take the leap of faith from a stable salaried job to a maze of entrepreneurship.

But when you decide to do it, it is highly advisable to be extremely disciplined on cash management and reduce dependence on external resources to stabilise your start-up. Bootstrapping is all about how start-ups should manage with their cash flow and expenditure to a large extent and strengthen their finances prudently.

Narayana Murthy, when he started out with Infosys, the office was in one of the extended rooms of his flat, where the six sharp minds put together the future of Indian software services industry. Murthy did not go out to hire an office, let alone a fancy one, nor looked at being at a tiny fashionable address. That trait of being highly conservative with cash management has been among the key DNA as Infosys grew into a multibillion-dollar global conglomerate heralding the technology revolution in India.

It is a high-risk leap of faith and it is to be taken with much caution. The life of an entrepreneur is not all rosy and one should not be carried away with the talks of how entrepreneurs who have made it big with few lakhs of rupees. For every successful story, there are scores of failures and one needs to take calibrated steps.

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Sridhar Vembu, the founder of Zoho has consciously avoided diluting equity for a long time and built the global corporation on smart management of resources with existing cash flows.

We must have read on the various successes of entrepreneurship, but the grind they go through on a daily basis is humongous. It is similar to the discussion we regularly have – Bill Gates and Mark Zuckerberg dropped out of Harvard to become successful entrepreneurs.

But we usually tend not to talk about how tough it is first to get into Harvard.

In the same way, we need to understand how many of the start-ups relied on bootstrapping to the full extent to become successful.

Consider an example – that of Zoho, the Indian poster boy of Software as a Service. Sridhar Vembu, the founder of Zoho has consciously avoided diluting equity for a long time and built the global corporation on smart management of resources with existing cash flows. Bootstrapping calls for deep faith in yourself, your idea, relentless execution of the plan, and having customer-first as the important focus.

Staying Lean Is Tough

Once you are convinced that your idea is indeed a differentiator, it is time to think about how to manage the funding of your start-up.

You need to be clear of not having a comfortable salary being credited to your bank account before 10^th of every month. It is a difficult proposition and it is more difficult if you have a family depending on your salary month on month. You have to come to grips of being highly focussed to the goal of stabilise the business and avoid various traps of spending beyond your means.

You have come clear with your family about moving out of the job and how the family needs to align with your vision. It is extremely important for you to have built a corpus for you or for your family until you start revenue generation and then eventually hit pay-dirt. Be it for education or healthcare needs, it is extremely important that there is supporting income which will take care. It is always good to allocate a certain portion for exigencies of your corpus and not to dip into that corpus. After doing that, get on with planning a budget for your start-up.

Please do not fall in for fancy offices or even shared-offices, splurging on public relations or paid social media paid propaganda. Be smart in creating flanking discussion subjects for keeping social media active on the problems which your solution is trying to solve.

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Do not fall in for fancy offices or even shared-offices, splurging on public relations or paid social media paid propaganda

Keep it simple. Keep it straight. Work out of your home or if you want the fancy, do check out the garage or basement to have the ‘aura’ of a company called HP, which literally was started in a garage. Ensure that your workspace and time is respected even from family members so that you get to be laser focused on the work and deliver on the prototype in quick time.

It is essential that you keep networking actively and keep exchanging notes with peers and mentors who have faith in you. Emotional support is another aspect which is highly essential.

Budgeting is an aspect which calls for focus and discipline. It is one to create a budget and it requires a totally different level of commitment to stick to it. Be ruthless on discipline and stick to it until you have a certain level of validation in the marketplace. It is certainly not that you can care two hoots for budgets later, but that initial discipline will work wonders with your organization and it will gain respect from investors at a later stage.

After you have allocated certain resources for the organisation, ensure that if your partner is in for the same, bring in the equity proportionate to his effort or time. Even in close friendships, ensure that the investments and share allocation is legalised and there are no confusions.

Is Bootstrapping Sustainable?

In any given discussion, there are many ways in which people will put forth their points of view. Bootstrapping has its own advantages and in certain situations, it may prove to be a challenge.

There are many clear advantages. You and your team who have ideated the start-up will be in-charge and you can work clearly on the vision you have for the execution. If you have planned to work at least for two years of your start-up with a clear road-map of bootstrapping and depending on revenues which the business can generate, you are in clear control of your strategies, with able guidance from your mentor. While this is not to mean that external funding professionals are an obstacle, there can be challenges in aligning with your execution strategies which, in certain situations lead to differences of opinion.

However, there will be challenges when you are bootstrapping your start-up. The single biggest aspect is that with limited resources you will be strained on pressing on the pedal of aggressive expansion when an opportunity opens up. It is, indeed, a price to pay but bootstrapping will empower you not to take knee-jerk actions and build your mettle through rigorous strategies. Even if you pass on a certain opportunity, you should be sure that you can create one, if you are convinced of your vision and your execution strategies.

One of the biggest examples that prove businesses could be built and sustained with resources which you can shore up is that of QuickHeal, the software security product company from India. For a good 15 years, founders Kailash Katkar and Sanjay Katkar did smart management of their business and did not have to look for external funding. Have conviction in your idea, sharply address the issues at hand and focus on relentless execution with a sharp eye on finances and bootstrapping will certainly benefit you in the long run.

Five Ways to Stay in Control

Institutionalise Stock Options: Be extremely careful when you take decisions on hiring team members. Spend a good amount of time with potential hires and assess their mettle. Job-hoppers who come for the fun of a few extra thousands must not be encouraged. You need to filter them out and look for career-oriented professionals who are passionate. Doling out fancy salaries is a good strategy to attract talent, but it is advisable that you align with passionate professionals who see value in your idea and are acceptable to work on stock options along with a base level decent salary. In this way, you can be broadly convinced of their outlook and the team will sweat out for execution. Be frank, be honest with team members about stock options and legalise it properly to show them confidence.

Build Customer Confidence: Diligent execution of your products or services at customer locations is extremely important to gain the confidence of customers, even if it is a beta-test site. Troubleshooting on an immediate basis, addressing concerns and gaining from the product behaviour experiences are good strategies.

If you can gain confidence from your customers or even potential customers from the beta-testing phase, there are many professional organizations who can offer you advance payments on your offerings, with which your cash flow management can be highly efficient.

Be smart with your vendors: Managing vendors is a science. Plan sharply on just-in-time concepts to save on precious credit days and manage inventory smartly. There are a plethora of vendors who are available on tap with top-notch quality specs and it is advisable you have a bank of information on them. It is pertinent to rotate credit strategically and avoid paying marginally higher costs by tightly managing the credit cycle.

Opt for receivable financing/capital funding: New-age financial technology platforms as well as traditional banks offer attractive receivable financing offers. It comes at a cost, though, but is certainly an option which can be kept as a reserve, in case you need to activate it. Let us look at an example of invoice financing.

As a running business, you have to get paid by your clients for your products/services and usually all clients work on a credit cycle, depending on how you negotiate and finalise a transaction. Based on the invoices which have been signed off by clients and until you wait for the payment to be credited to your bank account (the credit cycle varies from 10-45 days), you can cash out on the invoice with a financial institution which can pay the invoice value at a certain cost. This will empower you to have cash in hand so that you can negotiate better with your vendors, who usually offer discounts on upfront payments. As a vendor to another organisation, you can also negotiate a similar structure for upfront payment in lieu of a certain percentage of discount instead of going in for a loan. It is advisable not to depend on high-cost but easily available debt. Manage your cash flows smartly and avoid all lures which could be disastrous.

Sweat your assets: An important aspect of bootstrapping is how effectively you can sweat your assets and get the maximum return on the capital employed, instead of going in for costly equity or unsecured high interest debt which can be a drain on revenues. You can smartly look to sweat assets due to which the cost of resources will be drastically reduced.

When to Opt for External Funding

Delve deep into your resources to stave off external funding as much as possible until you have a decent monthly revenue coming in. Make sure that you have an active, revenue-generating client base for at least 18 months before you even start thinking about possible external funding. When you feel that you are able to add clients at a good pace without sacrificing revenues and are able to balance out budgets at a decent clip, start exploring possibilities of funding for a stronger go-to market strategy roll-out.

The post The Art and Science of Bootstrapping appeared first on Dutch Uncles.

Understanding Bootstrapping for Businesses

Aakash Sharma — Sat, 26 Dec 2020 14:03:55 +0000

Maximum research, planning and analysis of your prospective business are imperative for bootstrapping.

Before starting a business, regardless of whether you are a fresher or have been around for a while, you need money to materialize your business prospect. And for raising this initial fund for your business, there are plenty of sources, like loans from banks, equity capital and many more. And one of the most interesting and proven successful methods of raising capital for your business idea is ‘bootstrapping’.

The dictionary definition of bootstrapping says it is the process of self-initiation that can be performed without any external input. Put it in the business context, it is the method by which an entrepreneur starts a company with little capital, relying on money that s/he has private access to, such as personal savings, other than investments from outside sources.

So, a bootstrapped business is the business which is started from personal funds or some sort of a basic income when setting up and building a business from scratch, without attracting investment or only having a minimal outside capital. Bootstrapping stands out from other fundraising methods as it excludes banks and equity sharing prospects form the business setup chain, which helps small businesses in the overall process. This form of financing allows the entrepreneur to maintain more autonomy and control over your own business.

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Creating the financial foundations of business is a huge attraction for future investments.

It is important to know what kind of business can be bootstrapped.

Well, you can bootstrap any business that doesn’t need a huge amount of setup stake. The best business models that can be bootstrapped involve less money. For example, a digital marketing company can easily be bootstrapped, as the major chunk of business setup can be covered up with less money, in comparison to, say, setting up a franchise of a brand as it will require a lot of money upfront.

A bootstrapped business is characterized by a heavy reliance on internal finance sources such as credit cards, mortgages, and personal loans, which means that the business will have limited financial sources. So, to successfully grow the business, you need to put in place a competent development strategy in which all potential risks originating from limited funds, as well as other aspects, are calculated. The funds available must be allocated to the most essential segments of the business model. You can do a SWOT analysis for your business before going forward.

Phases of Bootstrapping

Bootstrapping has to be done in a planned and most articulate manner. So, there are a few stages that a business must go through for bootstrapping.

Below are some proven methods that are proven to be helpful for new businesses and entrepreneurs in the early stages of the bootstrapping their venture:

Novice/ Beginner Stage

The novice/ beginner stage is marked by utilizing your personal savings or borrowed/invested money coming from friends, family or acquaintances.

For example, you can find a business after charting out the blueprint and continue your main job until you arrive at a point where you can successfully sustain from your venture and make profits.

Consumer-funded Stage

At this stage, you begin to utilize the money coming in from customers/clients, run the business operations and grow it to make more profits.

Credit Stage

At the credit stage, you begin to focus on financing specific activities such as hiring employees, upgrading equipment, infrastructural investment for the office, etc. At the credit stage, you can also start to take out loans or find venture capital seed money funding for expanding business operations.

How to do Bootstrapping – The Strategy

First of all, create a business plan. Maximum research, planning and analysis of your prospective business are imperative for making any kind of a pitch for bootstrapping. It will help you organize your thoughts, things necessary for your pitch and understand the vectors of movement involved in running a business. For example, you can focus your pitch around your business idea, which can either be a product or a service that solves someone’s problem, as it will highlight the worth of problem-solving and uniqueness while resonating with the target audience. Here, the SWOT analysis you did earlier will come in handy.

For bootstrapping your business, you have to seriously rely on your personal sources, relations and goodwill. The primary step in bootstrapping involves using networking opportunities and communication with a network of personal contacts to the utmost levels. You have to present your business prospect in a way that seems appealing and well-measured to the listener. It should come across as well researched and analysed. For example, you can explore your personal network of friends and relatives, and ask them to help out in any way possible, even if it means not giving money, but some sort of services in their free time. Like, if you have someone who works as a journalist, s/he can help spread the “word of mouth” about your needs through their vast channels. Or if any of your friends is a graphic designer, s/he can help you in making a logo or a minimalistic for your business.

Apart from the above methodology, key bootstrapping strategies also include the following:

Owner Financing

In this financing method, when you buy any property or materials necessary for your business, you deal with the seller directly and agree to pay the sum in total or part at the point of business. This is a mutual agreement between you and the seller and does not involve a bank or any financial intermediary, thus reducing extra costs.

For example, a seller puts up a shop for sale for Rs. 15,00,000. A buyer is interested in buying but cannot pay the whole amount at once. So, the buyer and seller can agree upon an amount that the buyer pays directly to the seller on a monthly basis with a certain interest. This is how owner financing works.

Working Capital Management

Working capital is the amount of money used to cover all short-term expenses of your company like inventory, short-term debt repayment, and day-to-day operations known as capital expenditures. You can cut costs on these operations without hampering the processes and reinvest the saved capital in business operations and expansion.

For example, if you run a retail business, you will have a massive spike in sales during certain times of the year, such as the holiday season. You can invest the profits made from these times in your business again.

Increasing Accounts Payable

Accounts payable is an important figure in a company’s balance sheet as it is indicative of the growth and purchasing capacity of your company. If an accounts payable increases over a period, it is indicated that the company is buying more goods or services on credit, rather than paying cash and that is a positive sign of your growth. Thus, you should focus on increasing the accounts payable of your company.

Subsidy Finance

Subsidy finance can be availed from the many schemes and provisions outlaid by the government or any firm to support new and small businesses. This form of financing ensures strong support for financing your business and gives you much space for growing the business. For example, subsidies can be in the form of direct incentives like cash grants, interest-free LOANS etc. or indirect incentives like depreciation write-offs, rent rebates etc.

Why choose Bootstrapping- Advantages

Bootstrapping is mostly the option chosen by new entrepreneurs as it gives them a leeway to create a business from scratch and along with it a way to attract an investor or investors in unusual ways. As bootstrapping of finances is not done through formal banking institutions and financial entities, it means that if the business fails, the entrepreneur will not be forced to pay off loans or other borrowed funds. And if the project is successful, then s/he will save the capital and be able to attract much more and bigger investors.

Creating the financial foundations of business is a huge attraction for future investments. Investors like angel investors, specialized funds or venture capital firms are more confident in financing an already secured business that reflects a promise and commitment of profit. As bootstrapping allows you to fully focus on the key aspects of the business, such as sales, product development, etc., there are big chances of successfully expanding business with the bootstrapped funding and raising more funds in future.

It is important to note that the “bootstrapper”, i.e., the entity providing you funds for your business is entitled to have access to all developments as well as ideas used during the development process of your business. Despite this, you have the ultimate right to make the final call and have independence from investor opinions. You can make all the decisions independently, and this enables you to create something unique, realize your dream, test the business idea’s strength, and be independent of the investors’ interventions.

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For bootstrapping your business, you have to seriously rely on your personal sources, relations and goodwill.

What to avoid while Bootstrapping your Business

There are some points that need to be kept in mind while chasing the bootstrapping strategy for raising funds. Below are the points to be kept in mind as to what NOT to do while bootstrapping:

Do not give up a large number of shares in exchange for bringing on investors through bootstrapping. The sale of shares to raise funds is called equity financing. You can raise money by selling proportionate amounts of shares to investors for short-term working capital needs like paying bills.

Bootstrapping also does not mean taking out huge loans to start for your business either. Credit loans can, again, be taken for typically a short term to fund specific growth activities such as buying equipment or to smooth out cash flow dips. If you are bootstrapping your business, sizable credit loans are taken at a later stage and not immediately upon starting up.

What can be the disadvantages of Bootstrapping?

Like the two sides of a coin, bootstrapping too has its advantages and disadvantages. The following can be the drawbacks of bootstrapping if it is not done with extreme planning and caution:

Your business’ growth can be difficult through the bootstrapped funding if demand exceeds the company’s capacity to offer or produce services or products.

You, as the business owner, will have to take on almost all financial risks instead of sharing them with investors who invest in supporting the company’s growth.

With limited capital and investment, the attraction of large investments and fully implementing one’s ideas can be a humongous task.

Mental health and stress-related obstacles can also prove to be disadvantageous. You will regularly face stressful situations arising from unexpected circumstances.

Successful Bootstrapped Businesses

There are many famous and successful examples of businesses that used bootstrapping strategies for starting the business. In fact, all the stories that we hear about Apple, Google and Amazon starting out from the garages are the successful examples of bootstrapping.

Apple started its journey from bootstrapping funds for the company. Steve Jobs and Steve Wozniak founded the Apple Computer Company, now Apple Inc., in 1976. They raised funds from local businesses and their parents, making Apple the biggest success story of bootstrapping.

Conclusion

In a nutshell, bootstrapping is one of the most efficient ways to start your new business with much leeway for exploring and being creative in your ideas. Entrepreneurship comes with significant risk and it is the risk you have to take to be successful.

Read about Business Liabilities, a topic similar to bootstrapping, to know more about the process of setting up a new business and running it successfully.

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