Consider bootstrapping

Filed in archive Entrepreneurship on May 26, 2008

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I've often argued that trade is a bit like gravity.

We may quarrel about how the benefits are distributed-how much should go to those who do the trading, to those who create the product or service being traded or to the person or entity that enables the product to be created or the trade to take place.

However, trade, the exchange of something we have or create for something we need, is a basic hallmark of civilization and the degree to which it is hampered or regulated may determine that civilization's success.

Also, ignoring its importance, like ignoring gravity, may have dire consequences.

Two great recent posts, "Go big or go home" by Seattle-based entrepreneur Andy Sack and "Start-up regrets..." by Canadian start-up guy Jeff Fedor suggest something similar about bootstrapping as it relates to starting a business.

Why? Here are some thoughts:

Finding your business. In his evaluation of another Seattle-based start-up, Sack observed that the two man team had a "good product" but not a "good business". His recommendation? Figure out how to generate income from the product now rather than looking for funding and figuring out how the whole enterprise would make money sometime in the distant future.

Assessing potential. People who read business plans like projections. If you're ever going to write one of these things for potential investors or even for your team, bootstrapping your business by generating sales of your product or service now is the best way to calculate what you may be able to make in the future.

Establishing ownership. Obviously, as Fedor hints in his recommendation to wait on outside investment, the more ownership you can retain in your company the better. This is not due to greed but simple pragmatics. I like blogging, but the income it provides for paying bills is an added incentive to keep it up. It's a given that an entrepreneur will do his/her best work with a stake in the outcome.

Spurring growth. Fedor also points out that bringing investment in too early can result in oversized or unfocused growth in expectation of oversized profit or of an unsubstantiated outcome. This is putting the cart before the horse instead of allowing increasing revenue and a naturally evolving market to define the rate and direction of growth.

When planning your next business venture, consider bootstrapping even if you decide to take outside funding later on. It may be the difference between success and failure or between a business and no business at all.