to a video on bootstrapping over the
course of this video we're going to talk
about what bootstrapping is we're going
to talk about the reasons for
bootstrapping are reasons to suggest
that bootstrapping is something that we
want to do and then we're going to get
into some practical techniques that can
help us as we try to secure financing
for our ventures so to start us off
let's talk through what is bootstrapping
it's important that we have sort of a
working definition as we kind of get
into more of the nitty-gritty
so bootstrapping really is what we call
creative financing and this creative
financing is meant so that we can get by
with as few as resources as possible
now one thing I want to convey real
quick regarding bootstrapping is
bootstrapping is really a mindset it's
not so much solely about financing
although that's really the purpose right
we've have a business idea and we
evaluated it we've determined that there
is some degree of viability here and now
we need to get to a place tool we're
kind of executing our business to an
extent but really it's a mindset for how
we look at paying for things right not
looking at solely as money as the means
to actually buy things and pay for
services and really for a lot of people
when we look at having the resources we
look at what money is and that's one of
the mechanisms of course to pay for
start-up expenditures and to pay payroll
costs and to acquire inventory and all
these different things but the reality
is is if we look at money as the only
way that we can actually start anything
then if we don't have money the problem
then is that we don't go anywhere
and so bootstrapping is looking at all
of the available resources that we have
at our disposal money of course is one
of those resources but is not the only
resource and so if we find ourselves
getting into the mindset that really I
just need money well then the reality
becomes several years down the road
you're still in the same position
because you still need money and people
aren't gonna magically find you and hand
you a bunch of cash so you can start
your business so if we really are
serious about starting something we've
got to think about creative ways to get
there some of times we will not have
money at our disposal so there's a
couple of reasons why we should get
involved in bootstrapping and one of
them is I kind of mentioned already is
this lack of access to capital which is
really a mindset shift but one of the
first big reasons as to why we should
engage in bootstrapping is first what we
call risk reduction now we know that the
perceived risk of something increases
when we increase our commitment so our
risk is higher when we're increasing the
capital involved and ultimately we're
increasing like the time invested in a
venture and so we know that based upon
Lean Startup principles are
we want to try to minimize these things
and still get valuable feedback from
markets so but if things don't turn out
the way we think they will then we're
not really out a great deal maybe a
little bit of time a little bit of
capital but not a lot
so by bootstrapping what allows us to do
is it allows us to get started by using
a minimum amount of resources so instead
of dumping boatloads of cash into the
venture if we just invest small amounts
and if we try to engage in some creative
practices that were going to go into in
a few moments instead of really just
using cash then in the event that
something doesn't pan out the way we
think it does we're really not into it
for a great deal and so reducing our
risk is a primary reason for engaging in
this idea of bootstrapping the other
thing that I would mention as a
proponent for bootstrapping is it helps
us to speed up our launch
we know that if we don't have access to
money and if we're constantly waiting
for it as I mentioned before then we're
gonna be in a very precarious situation
where you know where someone is saying
well I'll give you money if you give me
data and give me some market you know
information it's regarding sales and you
say well I'll give you sales if you
actually give me money and so you're
kind of in this situation where you
can't really do anything and so we know
that there are creative things that we
can do in order to try to create
products and to get feedback and to get
sales and so part of that is we want to
be able to speed up our launch and so
instead of waiting several years to
acquire the funding why can't we start
now why can't we think creatively and
acquire resources in a creative way so
that we can get started today versus in
several years or even several months so
let's talk about some techniques for
bootstrapping there are actually several
and some of these might not necessarily
make sense for your business but what
you'll find is you might be able to use
these in a brainstorming session and
identify other possible opportunities
for generating additional resources so
the first thing that I always recommend
is trying to outsource initially and
outsourcing involves paying someone else
for different services and so as an
example of this you know you're probably
thinking it's like well you just told me
that I shouldn't spend money and the
first thing you told me to do is to
spend money and that's partially correct
or partially not so outsourcing is
obviously taking a particular need of
the business and having someone outside
of the organization perform that so that
can involve paying somebody so a common
example would be handling your books in
order to close out your your books at
the end of the month and reconcile your
income statements and your your bank
accounts you can hire a bookkeeper that
would be an example but the other thing
that you can do also to think creatively
is you can actually look for volunteer
work and you can partner with some local
organizations that a component of being
in a certain program is volunteer work
and that's can be a way for you to
benefit
from you know some some pretty expensive
labor you can also look to interns if
you have a community college or a
university that's in your area and they
have a particular program that might
produce graduates that have certain
skill sets that you might be in need of
you could offer to set up an internship
where they get credit for completing a
certain amount of work and you in turn
get some additional help and some
much-needed skills so the the the point
here is we're trying to alleviate the
onset of payroll and and commitments to
ongoing employees now I'm a huge fan of
obviously paying people since I employ
many people and run different businesses
and so this isn't something I'm saying
you should avoid paying for people I'm
certainly a proponent of paying people
for the work that they've done but early
in the business one of the things that
you want to be really leery of is
incurring what we call fixed costs and
we've talked about this before in the
course but those expenses that we have
to pay regardless of what income comes
through the door we want to try to
eliminate those or at least reduce those
as much as possible especially early in
the business where we might not have a
stable revenue stream so instead of
committing to payroll what would it look
like maybe if we used freelancers like
on a service like up work or we can hire
freelance people to perform a variety of
skills whether it's graphic design to
make some logos whether it's bookkeeping
services to handful handle our monthly
financials whatever the case might be
right thinking about I don't have to
hire someone now eventually you'll
probably get to the point where it'll
make sense to have somebody on staff
that you can ask questions to and then
could you know obviously can you know
you're evaluating their performance and
you have more oversight in those sorts
of things but early on you can kind of
give up a little bit of that control
assuming you create a pretty decent
structure and it can eliminate this kind
of ongoing expense that you're committed
to when the reality is you might not
have enough revenue coming through the
door to be able to support it the second
thing that I'd recommend as far as
bootstrapping techniques is trying to
rent or lease instead of buying
now under normal situations buying is
typically preferred right if you were
gonna use something for many many years
buying typically works out better right
but there's a break-even as to when
buying actually makes sense because you
have the initial cost and the most
important thing that you want to protect
early in your business is your cash
right this is the most important thing
that you have at your disposal and if we
purchase something whether it's a piece
of equipment that's relatively expensive
or a piece of property or a building we
are using up a very critical resource
that we can probably devote to other
areas that are more important instead
maybe we can rent equipment maybe we can
rent a space maybe we can find ways to
reduce our expenses one creative thing
is if you were going to operate a
catering business or something where you
produced food instead of building an
actual kitchen a commercial kitchen
which could be quite expensive maybe you
can rent one maybe if you're running a
bakery you can find an existing
restaurant and in the off hours use them
so that you can obviously produce your
product in a very kind of Health
compliant sort of way so looking for
creative ways to rent and lease can be
very very helpful for a time we used to
outsource the use of our coffee roaster
to different local businesses and so
they would pay a fee and they can use
our roaster and so that helped them
avoid the purchase of a coffee roaster
which can be you know tens of thousands
of dollars typically on the lower end
and so that's a great way to kind of
maximize cash flow and also make sure
that you get access to a critical
resource that you need to run your
business a third option for
bootstrapping is you can actually share
workspace and this works really really
well especially if there's another
business that might need access to a
space and to reduce the cost associated
with renting that particular space you
can kind of coalesce which gives you a
little bit of flexibility but also gives
you access to the physical location as
well that you need and there are a lot
of different co-working spaces that you
can use that can help with this right we
work is the
kind of the big company that's trying to
go public at least as this video and
having some trouble doing that but
locally probably in your community I
know in my community there's probably
three or four different co-working
spaces and they offer different plans
that have varying degrees of financial
cost associated with them so you can get
started for pretty cheap and as your
business grows you can kind of graduate
to a bigger kind of place the next
method of bootstrapping I'd recommend is
obtaining what we call trial run data
now trial run data is basically running
an experiment or a test that involves
you selling a particular product so
instead of acquiring a bunch of
something and then going through the
process of trying to sell them we try to
test and fail on a small kind of level
and then assuming that data is
encouraging then we can kind of graduate
a little bit more so I'll give you one
example that you can certainly look into
further and that company is Groupon
which we all know is the one of the
larger daily deals sites went public
several years ago and Groupon got
started as a PDF and so in Chicago the
guys that wanted to create Groupon
thought of an idea and they didn't know
if people would actually want to you
know redeem this discount in order to
you know kind of save a little bit of
money but also it has to make sense for
the businesses right that are you know
for going a little bit of revenue and
trying to get volume and that sort of
thing so their MVP you might say was a
basic PDF and they circulated that PDF
to everybody in their you know in their
office and they just emailed it out via
Gmail right so Gmail allows you to send
I think a hundred emails at the time at
least it did then and so they literally
have to like add a hundred people
individually then send it and resend it
but they created just a simple basic PDF
for this pizza company that was
downstairs at the bottom of this kind of
big workspace and they measured how many
people actually used it and they've got
some encouraging data and for them that
was enough to propel them forward and
they had some data to support that this
idea wasn't completely crazy and people
would in fact kind of redeem that
discounts and things and it made sense
for the business as well so thinking
about trial run data is really really
important a lot of times we want to jump
to the very end where we're operating a
restaurant or a full-scale business but
there might be smaller things that you
can do to gauge whether or not the
business is actually valuable and if
there's demand for your business before
you start dumping a lot of resources
into it the next thing you might want to
think about is bartering now bartering
isn't necessarily common anymore in our
economy at least our economy here in the
United States simply because of the fact
that we've got a paper currency that
although it changes in value is fairly
stable for the most part and money has a
lot of benefits right it's divisible its
fungible all those things if you
remember from like your econ one a class
your macroeconomics right all those
characteristics of money or the reason
why we use money it's easier to use
people you know understand it it can be
used for a lot of different things and
so it makes it easier to do but when
you're starting early on in your
business and you might not have an
abundance of financial resources and so
bartering might be a really cool thing
to do for you to be able to get the
resources that you need so a basic
example of this could be if you're
thinking about running a bookkeeping
service and you need a little bit of
work for maybe a trademark or some kind
of legal work maybe you can swap
services with the illegal firm who
they'll be willing to you know if you
help them with their books if it's a
small firm in exchange you can get some
some actual legal services so that could
be one example in my classes I used to
do a really fun exercise which was
called the barter challenge and it was
kind of built off of this old show that
was on a any years ago called barter
Kings you can probably look it up and
find it I don't think it's I don't think
it's on currently I think it's been out
of service for several years but the
idea was these two guys would start with
one basic item of really small value and
then they would in a series of trades
they would work their way up to
something of more value and so they'd
start with like a fishing rod and they'd
work themselves all the way up to a boat
and the whole I
wasn't that these guys were like super
smart although they were seemed like
they were smart guys but the basic idea
behind bartering is that value is
subjective and although something that's
sitting in our garage has zero value to
us because we've had it for years and
never used it they might have value to
something at somebody else and so by
engaging in trading you can of course
change exchange objects that are
valuable so like going back to the
exercise I used to use in class I used
to require students to take an item that
was valued at no more than $10 and they
had to conduct a series of trades to try
to get as much money as possible we made
a phone me like a little game instead of
class and to see who could get the the
most the item of most value and we'd
have students that would start with
pretty simple items whether it's like
tools in their garage or like old shoes
or just random stuff and they would get
two things that are of like pretty good
value that the greatest one offhand that
I'm aware of is a student starting with
like a fishing lure and worked his way
up to like a really old 1980s like honda
civic that actually ran so those are
just some examples of thinking
creatively and a lot of times you know
we have everything that we need for the
financing aspect of it it just takes a
little bit of legwork for us to be able
to kind of get there right we have to
think a little bit more out of the box
you might say one thing also just in
line with this idea of outsourcing is
for production standpoint you might also
want to think about outsourcing to keep
your cost down but this goes back to
understanding how to price so if you're
if you're gonna price your product you
might want to also include maybe it's
Amazon's
fulfillment by Amazon fees and shipping
fees you can build that into the price
of your product and then you don't have
to hire people to pack boxes and to ship
things or another example could be if
you have to produce a product maybe you
can get set up with the manufacturer
that can do it for you and so instead of
hiring employees again to produce this
thing you can do it and make it
automated for the most part so another
way to possibly think creative but
ultimately when we're looking at
bootstrapping we're trying to think
about opportunities to get by with as
few a resources as possible so whatever
that looks like I encourage you to spend
some time brainstorming these are just a
few different options that I found that
have been helpful and over the years
I've used a combination thereof for
different businesses but something for
you might look a little bit different
but the reality is is that if you have a
great business idea and the funding is
the issue we got to look outside of
monetary resources and look at other
things that we can do to be able to move
the idea forward