14 Bootstrapping Tips
Even the most self-sufficient start-ups need a hand. Here are some pointers to make the most of free and cheap resources around you.
Being self-sufficient doesn't mean you don't need a hand every now and then. We've compiled the best bootstrapping strategies of experts we've interviewed and companies we've written about recently, so you can learn from their successes.
1. Try swapping equity for expertise.
Credit markets are still tight, which means that resource-hungry business owners may need to rethink exactly what constitutes an investment. "This model in which you swap expertise for equity is a relatively recent development," says Robert Okabe, an angel investor and managing director of Chicago-based RPX Group. "But it is the next evolution." For instance, Darren Dahl reports that Tony Marrero thought he had found the perfect investors for his company, SoccerPro, but they actually only wanted to trade their online marketing services for equity in the retailer of soccer shoes and accessories. Find out how the deal worked.
2. Test the market in small ways.
Looking to market something new but don't want to sink dollars into a big research project? Consider testing the minimum viable product - or microtesting. The idea is to develop something with the minimum amount of features or information needed to gauge the marketability of a product online. That might mean mocking up a website with potential features and seeing how many visitors click on the item. It might also involve buying pay-per-click ads to see how easy it is to gain potential customers. Or it might mean selling a few products on a site like eBay to see how well they perform before ordering in bulk from a wholesaler. What sets this approach apart from practices like using focus groups is that companies base product development decisions not just on what customers say they want but on how they vote with their wallets. "The economic downturn has made people hungry for new ideas like this," says Eric Ries, a serial entrepreneur who coined minimum viable product and writes about such ideas and what he calls the "lean start-up" on his blog, Startup Lessons Learned. Read about how microtesting worked for one company.
3. Employ creative bartering.
John Sarantakis, owner of People's Choice Family Fun Center, an arcade in Waukegan, Illinois, says his company acquires used DVDs for $1 apiece and is able to refurbish them and resell them for $10. Given the choice, he would rather sell the DVDs for cash, but as business slowed this summer, he turned to bartering more. Sarantakis sells items on IMS, an online barter and trade exchange site, and estimates the items cost him about 50 cents per dollar of list price. Therefore, he figures that items he buys with barter dollars come with an automatic 50 percent discount. "I bought 200 disposable cameras for $6.50 each in barter dollars, and we sell them for $6.99," he says. Because of that 50 percent discount, he figures his real cost for the cameras was $3.25 each, about $1 less than his distributor would have charged him. The hitch? Sometimes using barter credits requires creative thinking. Sarantakis used his barter dollars to rent a tent for a sale event, to take his employees horseback riding, and to rent a limousine. He also spent a large chunk of his barter dollars - $12,000 - on an electric three-wheeled car. Another $1,900 in barter dollars went to have the vehicle covered with his company's logo. Now the car functions as a rolling billboard for People's Choice, and Sarantakis never misses a chance to drive it through town, where curious crowds snap his photograph. "It's much more effective than an ad," he says. "I wish I could afford to hire someone to drive it all the time." Read more about People's Choice and barter and exchange websites.
4. Encourage developers to jump in - for free.
Etsy, the online retail shop conglomerate that specializes in handmade and vintage goods, launched a set of programming tools to makes it easier for outside developers to build new applications using Etsy's code in March. By April, hundreds of programmers had registered to use it, and some 50 were working on new applications. By May, a developer, Daniel Dickison, had created an iPhone application called Etsy Addict. Customers downloaded Etsy Addict 1,600 times in its first month. The 99-cent fee is shared between Dickison and Apple, but Etsy's then-CEO, Maria Thomas, said the company had no problem with developers reaping the rewards of their work. Find out how.
5. Manage your own public relations like a pro.
At start-ups, founders often wear many hats, including that of a PR manager. The good news is that reporters and bloggers are more likely to listen to a pitch from a company founder than a PR rep. "It means something when you tell somebody, 'I invented this product,'" says Leslie Haywood, founder of Charmed Life Products, a Charleston, South Carolina, maker of grilling accessories. "They want to hear your story." J.J. McCorvey and April Joyner compiled an assortment of tips on how to reach out to the press, including that you'll want to start small, by contacting local media outlets or blogs, make a press list, and know what the reporters you pitch write about. Read more.
6. Do your own market research.
"Keeping track of who your competitors are, what people are saying about them, and what they are saying themselves can help you differentiate your business and stay ahead of trends that could impact your business," says Michele Levy, an independent brand strategy consultant. You can do the research yourself by knowing the products or services your competitors sell, but there are also specialized tools you can tap along the way. Read more.
7. Get creative with new investment styles.
Kjerstin Erickson launched her first nonprofit as a junior in college. That organization, FORGE, helps African refugees rebuild their communities after surviving tribal warfare. She has been profiled on CNN, and the Clinton Global Initiative has recognized her work. Erickson is 26, and her future looks bright. But she's taken an unusual step. Through an online marketplace called the Thrust Fund, she and two other young entrepreneurs have offered up a percentage of their future lifetime earnings in exchange for upfront, undesignated venture funding. Erickson is willing to swap 6 percent of her future lifetime earnings for $600,000. The other two entrepreneurs, Saul Garlick and Jon Gosier, are each offering 3 percent of future earnings for $300,000. Despite the fact that her plans remain vague - she is writing a book and has ideas for nonprofit and commercial ventures - Erickson says the response from investors has been positive. She has lined up two investors and hopes to spread the deal out among a small group of backers. "My preference would be to have about 20 investors," she says. "That would be ideal in terms of a manageable number of relationships." Learn more.
