Putting every dollar you make back into your company, and not your pocket, can be brutal. These cost-saving tips can help.
You're building your business with your own money, which means you get to keep control of it, not hand it over to some investor. But bootstrapping is tough, especially if it means putting every dollar you make back into the company instead of into your pocket. So other than taking out a second mortgage on your house, maxing out credit cards, and eating ramen every night, what can you do to get your idea to the next level all on your own?
Jerry Jao, co-founder and CEO of Los Angeles-based Retention Science, has some ideas. His current start-up, which uses big data to help e-commerce retailers retain customers, raised $1.3 million last year in a VC- and angel-backed seed round. But his two former companies--one that flopped and another that was cash-flow positive before he morphed it into Retention Science--existed solely on Jao's and his co-founder's own dimes. The duo also managed to avoid drawing a salary from Retention Science for more than two years. They consider themselves "extreme bootstrappers."
Self-described as a "goofy Asian guy with glasses" who is "not a natural salesperson" Jao says he taught himself to negotiate deals by reading books and getting advice from others. In addition to incorporating Retention Science using BizFilings and managing all the company's books and tax filings himself, he drives a 1998 Toyota Corolla that has a door that doesn't work and sometimes won't start. Even so, he doesn't complain about his clunker--previously he lived for two years with his co-founder's parents in LA, and for five months he didn't have a car at all.
Here's Jao's top 10 list of ways to save money and keep your budding company alive.
1. Defer legal fees.
Negotiate with your lawyers so that you don't have to pay them until you raise seed or Series A funding. Jao says the law firm that counsels Retention Science provided it with discounted advice that the company didn't have to pay for during the first two years of getting off the ground.
2. Use QuickBooks.
Yes, you're busy, but managing your books isn't terribly onerous once you get your accounts set up and data input. Plus, Jao says looking at your monthly burn helps foster a cost-saving attitude because you can see how fast money runs out. "Do not use a bookkeeper or hire an accountant," he says. "It is absolutely a waste of money." (And make sure to check out 5 Apps That Make QuickBooks Better.)
4. Tap your well-connected friends for their company discounts or hand-me-downs.
Know anybody who works for Apple? Jao says Apple employees can get up to $500 off the sticker price of a Macbook and 20-30 percent off iPads.
"Post a message on Facebook and you might be shocked at the responses you get. Or look on Craigslist and buy from other start-ups," he says. "You don't need brand new machines. You just need something that works and when you have a real business later, you can upgrade."
5. Look for shared office space.
Working at home is isolating and if you camp out at a coffee shop you can end up spending too much money on food and drinks. Instead, find another start-up that has extra space and make a deal to use it. Either that, or rent a spot in a coworking space. In addition to being a lot cheaper than paying for your own office, they're great places to meet other founders and creative types who can end up being new partners, allies, and even clients. Check out these 16 cool coworking spaces, many of which you can find at ShareDesk.net, an online marketplace for sharing offices, meeting rooms, and other workspaces.
6. Drive instead of fly.
Obviously this won't work if your meeting is across the country, but if you need to do an in-person and you can drive there and back in a long day, go for it.
"To save money on plane tickets, if I have an investor meeting at 9 a.m. in Silicon Valley, I'd leave at 3 a.m. from Los Angeles, then drive to the Starbucks on Sand Hill Road, change into my business clothes, and go to the meeting," Jao says.
7. Ask for event discounts.
Jao says that many event organizers understand that entrepreneurs don't have a pile of money to spend on networking events or conferences and will provide special discounts that are often not advertised publically. "It never hurts to ask," he says.
8. Don't use a PR firm.
Publicity is extremely important--but incredibly expensive if you're paying someone else to drum it up. "Since the founding of Retention Science, we've spent zero dollars on PR and marketing to date," Jao says. "It doesn't matter what they tell you, as an early stage company, you cannot justify a retainer of $8,000 to $10,000. Do your homework and reach out to reporters yourself."
While you do need a professional-looking website or digital store front, hiring an agency or design shop to create one can be expensive. Jao says he and his co-founder created the websites for all three of their companies themselves and suggests using inexpensive talent you can find on platforms such as Freelancer.com once you're ready to scale. At first, though, WordPress will suffice--it offers thousands of free themes and plugins. Alternately, try one of these 4 easy-to-use tools for building websites.
10. Forget about job boards and recruiters.
Instead, Jao hangs flyers at universities known for harboring bright minds. "We found our first hire out of Caltech this way," he says.
Not sure you're up for such measures? Check out the three reasons bootstrapping has been crucial to Elle Kaplan, CEO and founding partner of Lexion Capital Management, the only 100 percent woman-owned asset management firm in the U.S.
CHRISTINA DESMARAIS is an Inc.com contributor who writes about the tech start-up community, covering innovative ideas, news, and trends. Have a tip? Email her at christinadesmarais (at) live (dot) com. @salubriousdish