Both feet forward

Shoes on step Bootstrapping is a term frequently associated with those start up companies trying to avoid using the financial resources of external investors. Eddie Anderson, Pentec, provided some useful tips for would be bootstrappers at the recent Cambridge Enterprise Conference. Justin Richards reports.

Bootstrapping, according to Ebben and Johnsen, can be defined as 'a collection of methods used to minimise the amount of outside debt and equity financing needed from banks and investors'. While bootstrapping involves a risk for the founders, the absence of any other stakeholder gives the founders more freedom to develop the company.

In today's difficult financial climate getting a new business off the ground can be an onerous and costly task riddled with hidden pit-falls and subject to long hours of self doubt and hair pulling. For one thing start-up companies need to be aware of the limitations of raising capital from venture capitalists - after all VCs are not altruistic but are lending money for a higher return further down the line.

Anderson noted that start-ups first need to prove their value proposition or general market need. Only by doing this will they succeed in obtaining customer endorsement and attract the right sort of people to their team. He also suggested that new businesses spend wisely and do their research before purchasing equipment or hiring staff.

Eddie recommended that starters use mashup technologies to help develop products and open source software. He also suggested that start-ups consider outsourcing what they can’t do in-house and build stock in the company. Online forums are also very useful for getting the word out there, including blogs which are a cheap method of advertising products and skills.

Sales

When it comes to sales Anderson advised to do it locally and build up a local network of interested parties. He suggested that would be entrepreneurs should call in favours with friends and family to help invest in their fledgling company.

Additionally it was noted that start-ups, in particular, should always listen to their customers and react positively to what they have to say. New directors have to persevere until they get their sales pitch right - it's something that only really comes with practice. The key thing to remember is that the start-up owner is probably going to be the best sales person anyway, knowing, as they do, their product inside out.

Finance

A start-up probably won't need full time financial support at the beginning. Getting a demonstration off the ground shouldn’t cost too much. Start-up cash is best begged from friends and family who will undoubtedly offer better rates of interest. Finding like-minded partners to build the company up with is an excellent idea according to Anderson.

He also suggested that partners check out what soft money might be available to them, for example, in the way of grants, etc. Best of all start-ups should try to get money from customers in the shape of pre-orders. Eddie also suggested that start-ups might want to think about getting a so-called 'business angel' to help although he emphasised that some of these can be unsatisfactory and less than helpful in the long term.

Marketing

Anderson encouraged the use of viral technologies, such as viral emails, wherever possible and to outsource if necessary.

Approaching a venture capitalist

When asking for additional funding from a venture capitalist a start-up needs to be able to articulate its strengths and needs to be able to demonstrate a good knowledge of the market it is operating in. A start-up needs to be able to demonstrate strong value proposition. Forming an alliance with a venture capitalist should have a collaborative effect; hence they should be selected carefully.

Conclusion

The key to bootstrapping is to continue doing it and prove to others your start-up can be a success in other towns with new customers from different regions. If you get a lucky break you need to be aware of that and capitalise on it. And finally, remember you're only as good as your last customer.

October 2008

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