Avoiding outside investment can be smart on at least a couple of levels. Not only does bootstrapping a company allow you to grow at your own pace, you also don't have to be a slave to terms set by investors. Jeremy Miller, cofounder and CEO of custom clothing company Label, knows a thing or two about the subject. His two-year-old company is on track this year to reach $3 million in revenue without ever taking a dime from angels or VCs. Here's his advice on smart ways to self-finance a startup.
1. Be an expert in your industry.
You need to know your business inside and out, backward and forward. "You have to understand what you're getting into–what is the business, what is the industry, who are the competitors," he says. "We picked custom clothing because of the fact that [my cofounder and I are] both avid custom clothing shoppers. We thought there was no real big player in the market and that we could do it better."
2. Overestimate how much starting capital you will need.
Every company will need more money than expected to become cash flow positive because unanticipated bills inevitably erupt. Miller's brother, David Miller–also his cofounder–came from an investment banking background and had the ability to model out and project revenues, which made estimating costs and revenues easier. "You don't actually need the technical ability to do Excel but you need to think about 'Where am I today? Where will I be in month three? What will my sales look like realistically?'" he says. "A lot of people expect the revenues to be higher. They underestimate the costs and that always leads to some problems."
3. Become an expert problem solver willing to do any kind of work.
Unlike a deep-pocketed corporation, running a bootstrapped startup means your team members will need to do cross-functional work and nail the art of resourcefulness. A CMO, for example, may be head of sales, customer service, accounting and legal, plus have to perform countless inglorious tasks. "Those are the things that are going to take your company to the next level, wearing all those hats and doing the things that no one wants to do and not just making high-level decisions," he says. Miller says his company nailed resourcefulness by fighting the U.S. Patent and Trademark Office to trademark the Label brand without legal assistance. It also opted to share retail space at a Regus on Madison Avenue in New York City instead of signing an expensive multi-year lease. The company also saves money by using LinkedIn for recruiting instead of a recruiter and RocketLawyer for legal documents.
4. Invest in human capital.
Bringing a company to life demands passion, not only from founders but from everyone on your team. These people should possess the skill sets you lack. "If you have someone doing the finances of your company, then the next person that you need to look for [should be] someone who understands digital marketing or a developer who understands technology. Have someone who does something different than the person sitting next to them," he says. And if you can't pay them right away, offer alternative compensation such as stock options.
5. Reinvest profits back into the company.
Plan on deferring your salary even once your business is making a profit. You need that money to grow and pay the bills in the months to come. "Think of your business as a savings account," he says. "People always say 'Save six months' worth of expenses in case you lose your job one day' and you need to treat your business the same way."
6. Do not fear the unknown.
Entrepreneurship by its nature involves taking risks. "You just have to go all-in," he says. "And obviously it's called 'calculated risk' for a reason because you have to measure the downside and the upside."