Conall -
Solid, solid article. Thanks for sharing. A few takeaways ...
1.Small, if for no other reason than to learn & and to keep a full stomach. A couple things came to mind:
- Design competitions. Link small businesses with creative designers to tackle a specific design problem. The twist is that you provide the business challenge to multiple designers and hold a pot of gold at the end for the winner. (This one has been on the mind for a few months)
- Beer vendor for college students. Need beer? We'll bring it to your dorm/apartment door any night of the week.
- Massages on college campuses at the library. Engage the University to pay for it.
- Consulting 101, the real thing. You know all those guys/girls at top Universities who want nothing more than to work at a consulting firm. Teach them, charge them.
- Timely and cost effective transportation for the night shift community. The middle and lower class are frequently overlooked, but they are huge (7.6 M HH) and growing (Hispanics accounted for 49% of population growth from 2000 to 2004).
2. Government loans. I like it. Tell me where and how, I'm there.
3. Buy small companies and make them lean. How many businesses do we walk into and recognize that they are focusing large amounts of resources in the wrong areas? Kinkos, sandwich shop down the street. Set up people with what they want to buy! Also, this is a great way to take another perspective on your own business plan. If I wanted to buy the business I am trying to start, what would I do differently on the first day? Small time private equity ...
4. Start with what is free. Who has a vested interest in providing you with low cost/free stuff.? Companies based on advertising ... facebook and whateverlife.com come to mind. For me, how can I engage a philanthropy early on to assist in purchasing the first round of product?
The overall message of the article is really powerful - easy and cheap. Its a great way to bring the challenging proposition of starting a business down to size ... and making it executable. Test, learn and keep moving ... keep getting better. Its exciting.
Best,
JP
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The Benefits of Using
Your Own Bootstraps
June 10, 2007
When Seth Riney started a hybrid-auto taxi service in Boston in 2003, the 33-year-old aerospace engineer didn't pursue private investors. Instead, he found a more compatible financier: himself.
Mr. Riney traded in his 2002 Dodge Dakota pickup truck for a Toyota Prius. He kept a day job and worked early mornings and evenings ferrying around friends and family willing to pay for a lift. After a few months, he squirreled away enough money to hire his first employee and put a down payment on a second Prius. He kept adding more hybrids and more drivers as his cash stash grew.
Today, Mr. Riney's business, PlanetTran, has grown to a fleet of 35 hybrids and about 75 employees. He recently expanded his taxi service to San Francisco with the help of some investors. The company had $1.5 million in revenue in 2006, and Mr. Riney expects it will reach $4 million this year. "It was the kind of business that could grow organically without spending a lot of money in the early stages," he says.
Less Can Be Better
Would-be entrepreneurs often think starting a successful business requires a large cash infusion to pay for an office, employees and professional marketing to make a cannonball splash in the market. But many are discovering the advantages of "bootstrapping" -- or using little or no external capital and conserving as much cash as possible to grow the business. It's about finding effective ways to build a business yourself without running thin on cash.
There are many compelling reasons to do it. For one, the fewer outside investors you take on, the less equity and control you forfeit to people who often have vastly different priorities than yours. Outside investors may want the business to grow as rapidly as possible so they can see quick returns on their money, even when slow growth is the better business model. "When you bring on other investors, you're instantly conflicted because what's in the best interest of shareholders may not always be in the best interest of you as the CEO of the company," says Bill Payne, an expert on private investing for the Kauffman Foundation, a Kansas City, Mo., center for entrepreneurs. What's more, keeping a tight lid on spending during the start-up phase means the mistakes you make will be far less expensive than if you'd spent a lot, he adds.
Keep the Day Job
There are many methods that bootstrappers use to self-finance and save on cash. For starters, many tap into their own bank accounts, credit cards, and home-equity lines of credit. Of course, this is risky if the business fails. So like Mr. Riney, one way to make sure you don't go broke early on is to keep a day job until the business is profitable enough to stand on its own.
There are also business-plan competitions and government grants available to some start-ups, as an alternative to outside investors. And sometimes businesses can strike deals with their suppliers and other business associates to delay bills and get paid early -- at least until the business is profitable enough to stand on its own.
Wendy Fergerson, president of Integrated Printing Solutions, an Overland Park, Kan., corporate- fulfillment service, bought her business for $170,000 in 2004, while the company was $1.2 million in debt. She spent the following months calling the company's vendors and suppliers to explain the situation and renegotiate terms, including scoring a $400 discount on monthly rent from her landlord. She also devised a strategy for maximizing her use of personal credit cards. She kept moving around $60,000 worth of credit-card debt among about 15 cards and paying off the balance in the grace period before interest kicked in. She also made use of 0% interest introductory offers as much as possible.
Today, the company is in the black and had $1.7 million in sales last year. "I used personal resources and personal skills to save this company," she says.
Other bootstrappers do as much as possible to keep their costs low, whether it's buying used office equipment on eBay, using interns and freelancers instead of hired help or seeking out free advice.
Home Base
Mark Roberge last summer launched a social-networking site, PawSpot.com, for pet owners looking to swap pet-sitting duties, arrange play dates and share information on local pet-services vendors. Starting the business as a Massachusetts Institute of Technology graduate student, he pulled together $500,000 from outside investors to help fund his start-up needs. Although there were opportunities to raise more, he didn't want to forfeit more control of the company.
So, instead of buying or leasing office space, Mr. Roberge worked from home for several months and held meetings in cafes. He paid four graduate students about $1,000 a month for 10 hours a week of freelance help with marketing and technology analysis. And, he used several open-source software programs -- software often available free or at low cost online to the general public -- to test out potential site features before investing money to create them internally.
He also signed up for affiliate-marketing programs and Google's AdSense program to make some extra cash from the site when visitors clicked on ads or purchased goods from the advertisers.
Pro Bono Help
There are numerous resources for start-ups looking to minimize costs, says Candida Brush, an entrepreneurship professor at Babson College in Wellesley, Mass. Many colleges and universities offer free and low-cost help to local entrepreneurs, such as legal or intellectual-property counseling by law students.
Joining local business networking groups or a small-business development center can also give entrepreneurs the opportunity to get advice from other entrepreneurs and perhaps even barter for necessary services such as accounting help, instead of paying cash.
Some recently launched Web-only businesses now offer traditional services -- such as legal help with incorporating a business, public relations and creating spot TV ads -- for a fraction of what they traditionally cost. So entrepreneurs who shop around for services, Ms. Brush says, can find numerous ways to keep their costs low.
"Cash is king," Ms. Brush adds. "If you manage your cash well, you're probably going to do a better job of making the business work."
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