I often hear entrepreneurs tell me how they don’t have cash to fund their startup dream and that’s why they are not even going to try.
I understand there are many circumstances where you just don’t have enough cash to fund the business for growth, and many situations where the cash is needed to pay the initial expenses, so I am mindful of telling most folks that this is an excuse and that “you really dont want to get started”.
There are though, an increasing number of ways to bootstrap your business and I thought I’d ask many of my friends who have built a good business to tell me how they got started and generalize the means to do it for others.
- Customer funded software assignment. Many software companies actually get started this way. A customer with a problem asks for a bespoke / custom piece of software to be written that they can use. A good friend Greg Anderson, actually got started this way. When Cisco systems wanted a configurator for their order systems written, he wrote the version 1 and licensed it to them. They were the first customer and then Comergent was created.
- Consulting assignment: Possibly the most frequently used bootstrapping method ever. This is how I got my start early on. A consulting engagement with 2 companies led me to understand the market and need for reverse auction systems. After 2 consulting engagements, we started on building a generic platform for the same.
- Freelance your skills, on Contract. Slightly different from consulting, where you spend most of your time with one client and actually build the product and learn it for the first time, the “freelancing” opportunity is more to help you get “cash flow” to keep food on the table while you work on your startup. eLance (UpWork) is where one of my friends got started, doing small gigs and projects, building websites and working on SEO, for other businesses before starting his company.
- Factoring receivables. This is more risky, but one of my friends, Ricardo Jenez got started. eTimeCapital did factoring for a long time. The basic idea is to finance your receivables and ensure you get cash early to fund your expansion or growth of your business. It is debt finance, where you expect to get money from customers, over time, but another company or organization (typically a financial institution) tends to loan you the money before you get it. They do charge you an interest for the loan.
- Side projects: Many of my friends have a side project, while they have a full time job. This is to bootstrap their business as well. The side project is typically in a different business than their work, and you have to ensure it is declared free of conflicts of interest to your employer, but this is another way to bootstrap.
- Crowdfunding campaign: A good friend actually paid for his book completely with a crowd funded project, which they resulted in speaking engagements, paid consulting and now a good steady software SaaS business. The crowd-funding revenue was enough to last him 4 months, which was the time he needed to write the book and in the meanwhile, he also helped get his speaking engagements lined up.
- Credit card debt, savings funding etc. This is possibly the most risky, but also most frequently used mechanism I have heard of. Many entrepreneurs I know were in lots of credit-card debt before they built their company and many others have dipped into their “Rainy Day Funds” to start their company as well.
The bottom line is if you are motivated and passionate, you can find a way to get where you want to be. Else you will find many excuses to make capital a key bottleneck to getting started. Choose wisely.