from: Geoff Ficke
The most useful financing technique for financing a company is the oldest: bootstrap
My consulting firm for the development and marketing of consumer products is approached almost daily by entrepreneurs seeking to launch a new business. For many of these aspiring business owners, their main concern is the funding requirements they deem necessary to allow for a successful launch. Many think they should raise funds from angel investors, venture capital or banking sources. Very few will succeed by following this path.
Capital is extremely selective in placing highly valued investments in uninitiated startups, managed by something less than experienced entrepreneurs. It rarely happens. Expectations of professional investment sources are simply too difficult for most beginners to be able to meet the stringent requirements on return on investment, use of funds, professional management teams or the advantage of the first operator.
When we explain to capital seekers for the first time the complexities and difficulties they will face in successfully securing a round of financing, we are almost always faced with resignation. The inevitable question we hear is, & ldquo; Well, how do you start & rdquo;, There are many options but the simplest, and the oldest is the concept of & ldquo; bootstrapping & rdquo;.
The bootstrap is simply self-financed. Some of the biggest hits in business history have been self-financed by Bootstrapping. The most famous is MicroSoft, closely followed by Hewlett Packard. Leslie Wexner launched The Limited in Columbus, OH in the 1960s by starting a clothing store in a mall. Estee Lauder created the world’s most successful cosmetic brand in her Bronx kitchen table. King Gillette did the same thing in 1890 when he launched his eponymous shaving brand. There are hundreds of publicly traded companies around the world that were initially cultivated with bootstraps.
The beauty of not accepting or looking for a stock investment partner is obvious: there is no partner who shares ownership and the need to achieve the performance scores required to obtain financing is eliminated.
True, bootstraps can hamper the speed of growth. But the bootstrap process requires discipline and imposes cost controls that become part of the company’s DNA while growth takes place. Expenses are weighed and taken into consideration before committing very expensive capital.
The three Magi were smuggling incense merchants. Every pioneer farmer or smith was initially a bootstrapped businessman. Your insurance agent, real estate agent, most of the sellers, lawyers, shop owners or artisans are doing the bootstrapping for their income. To the extent that capital is needed to open a restaurant, a coffee shop, a spa, a sales agency, a franchise business or create a landscaping enterprise, the funds needed to be able to start these opportunities come from savings of friends, family or personal.
The Venture Capital community has a well-known phrase to describe the source of initial funding: “Start-up funds come from Friends, Family and Fools.” Money flows easily to new, new business concepts, but only after a concept demonstration has been confirmed and commercial traction is demonstrated.
Bootstrap is not glamorous. It requires total commitment and concentration. The elegant offices, fresh cut flowers in the reception area, the expense account lunches and luxury leased cars are not budget line spending items for bootstrapping companies. You may need to select credit cards. Home equity used. Aunt Jane approached for a loan. If the entrepreneur is guided, there is nothing that can deny them the opportunity to turn their concept into a problem. The bootstrapping is the simplest, the oldest and, in most cases, the only strategy available to start a new business.
from: Geoff Ficke