Bootstrapping Your Startup

Brian Ballan '13 of A&B American Style shares what you need to know about bootstrapping your startup — credit cards, friends and family, and side hustles are all part of the story.

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Bootstrapping a business means a lot of different things to a lot of different people. At its core, it means self-funding the business rather than receiving a large outside investment and using it to get from point A to B. I want you to walk away from this article with an idea of how that term gets used and when it might be the right choice for your business. These strategies are not scientific. They are the way I have done it and how a lot of people I know have done it. Your experience will vary and I would love to hear about it. Get in touch!

Is that a wall or just stairs?

At the start, funding your business may look like you need a $4 million seed round to scale a wall. When you get into it, you may discover that you can bootstrap your way up the steps. Bootstrapping allows you to de-risk an idea for yourself and potentially for future investors. It allows you to right-size your eventual investment to match the opportunity.

I've done a few different things as I started A&B American Style. I grind every day to keep growing the business. Managing triple digit revenue growth has been a challenge, but credit cards, friends and family and side hustles are all part of the story.

1. Cash

The way to do it is to focus on your cash. Watch your personal cash and your business cash. Get revenue. Execute. Repeat. Watch your cash. Shorten your cash conversion cycle. Don’t waste cash. Cash is king. Keep an eye on your cash position. Have I made my point?

There are two ways to make your cash go further. First is to be amazing at deploying it. Second is to get more of it. They both fall into the “duh” category. Tactically, here are a few things to do. You should get creative within each one. And, if you think of another, please let me know @bballan!

2. Debt

Debt is one way to get more capital. Try to time your repayments with your investment horizon. For example, credit cards are due early and often, so you probably don’t want to use them to fund a product that won’t result in sales for several months. A loan may have a longer time horizon, but may have only one balloon payment. Don’t get caught having to negotiate in a bad cash position.

3. Supplier funding

Get credit terms (i.e., Net 30) from your suppliers. You may be able to find suppliers that are willing to release goods without payment. That’s probably only true if you are working with suppliers that are well-funded. If you can turn their supplies into your sales more quickly, you can grow with less cash.

4. Customer funding

Stay on top of your accounts receivable. If you offer credit terms to your customers, you can be sure they will not pay on time. Offering discounts for early payment sometimes works, but often gives bigger customers the chance to take a discount on every order without actually mailing the check on time.

Make it easier for customers to pay you. For example, accepting credit cards can help you keep your accounts receivable clean for the cost of a credit card processing fee.

Require a deposit or do not offer credit terms if you can avoid it. Note that this is the same way your suppliers will treat you, in reverse.

5. Barter on the margins

You can trade your product to another person for theirs. If you need web design and you sell business plans, look to barter. In my case, I make food (without added sugar or artificial preservatives and with very low sodium #justfoodinyourfood), and trading A&B American Style Pepper Sauce for meals is pretty easy and allowed me to live while drawing less from the company to feed myself.

6. Friends and family

You can borrow money from friends and family. Some people raise millions from their network and call it bootstrapping. So, if you want to be bootstrapped, decide how authentic that needs to be.

More importantly, if you need something, ask for help. People will help you out — and help can come in many forms. In the early days, friends helped make Pepper Sauce, worked the markets, packed boxes and did all sorts of other weekend afternoon tasks that accept pizza and beer as repayment.

7. Side Hustle

If you are doing a good job with your company, you may get offered consulting projects. Take them when they are relevant and you can fit them in. Never pay to learn what you can get paid to learn. Keep track of your expenses related to them. Write them off your taxes.

The most important message is that there is no secret sauce. It takes discipline to get through the early stages of any business. Having less capital means you have to be more creative to ensure your existence. Good luck!

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