Artboots

trappingThe Art of Bootstrapping by Guy Kawasaki

Someone once told me that the probability of an entrepreneur getting venture capital is the same as getting struck by lightning while standing at the bottom of a swimming pool on a sunny day. This may be too optimistic. Let's say that you can't raise money for whatever reason: You're not a “proven” team with “proven” technology in a “proven”market. Or, your company may simply not be a “VC deal”--that is, something that will go public or be acquired for a zillion dollars. Finally, your organization may be a not-for-product with a cause like the ministry or the environment. Does this mean you should give up? Not at all. I could build a case that too much money is worse than too little for most organizations—not that I wouldn't like to runa Super Bowl commercial someday. Until that day comes, the key to success is bootstrapping. The term comes from the German legend of Baron Münchhausen pulling himself out of the sea by pulling on his own bootstraps. Here is the art of bootstrapping. 1. Focus on cash flow, not profitability. The theory is that profits are the key to survival. If you could pay the bills with theories, this would befine. The reality is that you pay bills with cash, so focus on cash flow. If you know you are going to bootstrap, you should start a business with a small up-front capital requirement, short sales cycles, short payment terms, and recurring revenue. It means passing up the big sale that take twelve months to close, deliver, and collect. Cash is not only king, it's queen and prince too for abootstrapper. 2. Forecast from the bottom up. Most entrepreneurs do a top-down forecast: “There are 150 million cars in America. It sure seems reasonable that we can get a mere 1% of car owners to install our satellite radio systems. That's 1.5 million systems in the first year.” The bottom-up forecast goes like this: “We can open up ten installation facilities in the first year. On an average day, theycan install ten systems. So our first year sales will be 10 facilities x 10 systems x 240 days = 24,000 satellite radio systems. 24,000 is a long way from the conservative 1.5 million systems in the top-down approach. Guess which number is more likely to happen. 3. Ship, then test. I can feel the comments coming in already: How can you recommend shipping stuff that isn't perfect? Blah blah blah.”Perfect“ is the enemy of ”good enough.“ When your product or service is ”good enough,“ get it out because cash flows when you start shipping. Besides perfection doesn't necessarily come with time--more unwanted features do. By shipping, you'll also learn what your customers truly want you to fix. It's definitely a tradeoff: your reputation versus cash flow, so you can't ship pure crap. But youcan't wait for perfection either. (Nota bene: life science companies, please ignore this recommendation.) 4. Forget the ”proven“ team. Proven teams are over-rated--especially when most people define proven teams as people who worked for a billion dollar company for the past ten years. These folks are accustomed to a certain lifestyle, and it's not the bootstrapping lifestyle. Hire young, cheap, andhungry people. People with fast chips, but not necessarily a fully functional instruction set. Once you achieve significant cash flow, you can hire adult supervision. Until then, hire what you can afford and make them into great employees.

5. Start as a service business. Let's say that you ultimately want to be a software company: people download your software or you send them CDs, and they payyou. That's a nice, clean business with a proven business model. However, until you finish the software, you could provide consulting and services based on your work-in-process software. This has two advantages: immediate revenue and true customer testing of your software. Once the software is field-tested and battle-hardened, flip the switch and become a product company. 6. Focus on function,...