The art of bootstrapping (Guy Kawasaki)
Guy Kawasaki author of The art of the start, has a must read post on his blog, called the art of bootstrapping. Bootstrapping is what you do when you are starting your business, You fund the project yourself by a variety of means to avoid external investors until absolutely required. Here’s a summary of the key points:
- Focus on cash flow not profitability – If you know you are going to bootstrap, you should start a business with a small up-front capital requirement, short sales cycles, short payment terms, and recurring revenue. It means passing up the big sale that take twelve months to close, deliver, and collect.
- Forecast from the bottom up – The bottom-up forecast goes like this: “We can open up ten installation facilities in the first year. On an average day, they can install ten systems. So our first year sales will be 10 facilities x 10 systems x 240 days = 24,000 satellite radio systems.
- Ship, Then Test – When your product or service is ”good enough,“ get it out because cash flows when you start shipping. Besides perfection doesn’t necessarily come with time–more unwanted features do. By shipping, you’ll also learn what your customers truly want you to fix.
- Forget the proven team - Hire young, cheap, and hungry people. People with fast chips, but not necessarily a fully functional instruction set. Once you achieve significant cash flow, you can hire adult supervision.
- Start as a service business - Start as a service business while initially developing your product, for example doing consulting at the same time as software development.
- Focus on function not form – Design great stuff, but buy cheap stuff.
- Pick your battles – Bootstrappers pick their battles. They don’t fight on all fronts because they cannot afford to fight on all fronts.
- Understaff – Bootstrappers understaff knowing that all hell might break loose. But this would be, as we say in Silicon Valley, a “high quality problem.”
- Go Direct – The optimal number of mouths (or hands) between a bootstrapper and her customer is zero.
- Position against the leader – Don’t have the money to explain your story starting from scratch? Then don’t try. Instead position against the leader.