3 Tenets: Bootstrapping as a Business Strategy

 

“It is the obvious which is so difficult to see most of the time. People say 'It's as plain as the nose on your face.' But how much of the nose on your face can you see, unless someone holds a mirror up to you?”
Isaac Asimov, I, Robot

 

Recently I read a great article on a business method espoused by Eric Ries in his book the Lean Startup.  He urges businesses to hit the market with a viable product as soon as possible and not spend too much time on perfection [read: manage your costs].  He suggests that you refine your product through product testing in the market and getting feedback from your customers.  Ries’ model is taking the business world by storm, his book hitting bestseller lists, almost creating a cult-like following in the entrepreneurial world.

It is always interesting to see such ideas catch fire, especially when they are based on simple common sense.  Bootstrapping is a smart business move, period.  It manages risks at every level, starting from the business owner, employees to the end user.  We have built Breker on a similar principle, setting ourselves apart from the typical high-tech start-up standard of raising a lot of money to go figure out if a viable product can be built and then raise a whole lot more money to create hype around the product.  Breker remains a case in point for the value of bootstrapping as a management practice as we remain one of the few surviving start-ups of our ‘generation’ in our industry.

So, what does ‘bootstrapping’ as a business practice really mean?  I define it as a business management discipline that forces you to build and grow your business from within, allowing market forces to shape your long and short-term strategy.  Within this discipline, the three buckets to manage for is Cost; Sales and Exit.  Perhaps I am re-iterating the obvious but I contend that good business management demands that you know how to optimize your assets, realize it when your product is good enough, and understand when to quit.

 

Cost: Optimize your assets

For any business, your biggest assets are your cash, the talent you attract, the ideas you generate and your capital investments.  Overbuying only means that you have defied one of the first and basic rules of cash management, “Cash sooner is better than cash later”.  Make your purchase decisions carefully, and delay those decisions to the extent possible – this is essential for successful bootstrapping.  Storyboard your sales process and work backwards to ascertain your HR needs.  Sometimes you will have to make an investment in the right person even if the timing is wrong, but have the discipline to make this an exception and not the rule.  Sound business practices notwithstanding, these will also communicate to the outside world that you understand your business and know to manage it for growth.

 

Sales: Ready to Ship

Technology products are almost never ‘complete’.  The pace of innovation is too fast, change in customer needs and desires never static.  If you feel that you have hit upon an unmet market need, and you have a prototype of a product that meets that need, then believe in yourself and have the courage to start shipping the product.  In addition to bringing in much needed cash for your business during this phase, your customers will also give you feedback on product features.   One viable way of bootstrapping this process is to structure consulting engagements, where the customers recognize that they are paying for your expertise as well as the new unique selling proposition of your tool.  By building a solution in such a collaborative fashion, you end up with a product that is need driven, your customer becomes vested in its success and your financial risks are managed carefully.  Similar concepts can be applied to consumer products as long as it satisfies the basic assumption that your product is innovative, meeting a market need served poorly by existing solutions/ perceived substitutes.

 

Exit: Emotional Smarts

We should always hope for the best but prepare for the worst.  On a good day, you will hit the ball out of the ballpark and enjoy incredible success with your business.  However, it is worth remembering that, as a matter of fact, 9 out of 10 new businesses will fail.  Too many factors contribute to this for anyone to have a replicable and winning formula to protect against it.  Most of us are too emotionally attached to our businesses to know when to quit, and continue to risk our life’s savings into a business that has negative book value.   Sometimes the best run businesses will fail to make it due to shifts in market forces or general economic slowdown.  As a business owner/ manager it is imperative that you have audits in place to help you recognize the signs of demise.  The sooner you are able to identify problem areas, the sooner you can address them.  Alternatively, if the worse comes to worst and you know that the business cannot be salvaged, then you can plan for a dignified exit while minimizing damage to your shareholders.   You will do yourself a favor if you are able to separate out the emotional from the practical.  Almost perversely, it will build your credibility as a good and astute manager.

 

Bootstrapping is the mindful way to build a viable business.  I will go as far as to say that in today’s tight credit markets, it is the only way to build a business.  Be bold, be creative and be unafraid to try atypical methods of reaching your customers.  Too many of us become crippled with existing knowledge about how things work.  You can, and should, break out of the mold and, maybe, you will be that 10% that go on to build a lasting enterprise. 

 

--©Copyright 2012 Maheen Hamid

Disclaimer

The views expressed are those of the author and not necessarily The University of Texas at Austin.

About The Author

Maheen Hamid

Chief Financial Officer, Breker Verification Systems

Maheen is an entrepreneur, small business evangelist & philanthropist. She is a Bangladeshi American raised in an entrepreneurial family. The...

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