The business concept of bootstrapping is akin to the D.I.Y. approach in rock ’n’ roll.
Imagine the young band that practices in a garage and records in its own makeshift studio. Then it burns CDs and shares MP3s, all while using social media for marketing. There’s no big advance from a ritzy record label, just the band members’ own wits and creativity, along with a lot of hard work and sweat.
Bootstrapping — from the old “pull yourself up by your bootstraps” saying — in the business sense means that same sort of self-reliance. As a recent story on smalbiztrends.com details, there are two main stages. First, it means starting out by using your own money from savings, or funding help from friends and family, rather than outside investors or venture capital. Second, the money that comes in goes right back into the business.
There’s a long list of success stories with bootstrapping backgrounds, according to the website, including Microsoft, Oracle, Cisco and eBay.
From Zero to $10 Million in Four Years
Take Gleb Budman of Backblaze, an online backup company in California. A feature on inc.com explores how the company started in 2007, aiming to provide “unlimited backup storage for $5 a month.”
“We wanted to build a company where the culture was focused on building an actual business whose customers paid for a service, and the business supported itself and was profitable,” Budman says.
Backblaze expects revenue in the $10 million range this year. Here are some highlights of the bootstrapping journey, according to Budman:
- The team went a year without salary.
- Their workspace was someone’s apartment.
- They wrote the software themselves.
- They employed a technique called “drive farming,” which Budman defines as “buying external drives from retail stores, cracking open the cases, and placing the drives in our servers.”
- Cash dictated all. When there was enough for another server, they bought one.
Tips from an ‘Extreme Bootstrapper’
Another example is Jerry Jao. He’s the cofounder and CEO of Retention Science, a Los Angeles company that offers customer-retention solutions, which in its earliest stages was a bootstrapping effort. As inc.com details, Jao calls himself an “extreme bootstrapper.” He handles the company’s books and taxes. He drives a “clunker.” And he and cofounder Andrew Waage didn’t take a salary from the company for two years.
Jao’s 10 tips for “extreme bootstrapping” includes several sound business ideas. Here are a few:
- Manage your books yourself: Use QuickBooks to manage your accounts, rather than relying on a bookkeeper or accountant. Knowing what comes in and what goes out can also encourage a frugal approach to your business.
- Go easy on the Web and promotions: A good website is important, but the free varieties offered by WordPress are enough to get you started. And handle any marketing yourself, rather than paying someone to do it.
- Seek hand-me-downs and discounts: Look for computer equipment on Craigslist. Other failed start-ups may have discounted merchandise available.
So, what’s the downside? Growth may be slow because of the bootstrapping approach. Eventually, after your business is running and profitable, it might be wise to seek additional funding. Budman and Backblaze faced such a situation.
“For a long time, we said no,” he told inc.com. “We thought it would take time away from growing the business and change our culture … until we finally reached the point where it made great strategic and operational sense. Raising capital allows us to do smart things ahead of the cash-flow curve, but ultimately we will always make sure we are self-sustaining. That’s our core culture, and that will never change.”
