Bootstrapping

A new school of thought has it that this is the best way of injecting seed capital in the business as one retains the full ownership. With boot strapping, VCs and angel investors only come in if you deem it fit for them to provide more than you can get access to. Boot strapping is simply the funding of a personal business from one’s regular (monthly or weekly) income. So for those who have a pay cheque, they take some of their salary to fund their starting business or inject capital for expansion.

We will take a unique approach in delivering the content here in by having three sections of exploring the benefits of bootstrapping, the skills required for successful bootstrapping, and the down side of the entire process.

Benefits

Assured Capital

In the African economy which is not as advanced as the American or European market but loans are easier to come buy if one is employed on permanent and pensionable terms. This is because the steady income at the end of the month offers a guarantee that the monthly payments will be made without fail.

Even without taking on a facility with the bank, someone can plan their finances in such a manner that they can spare some percentage of their income to be funding their business. Assuming one wants to run a vegetables and fruits store, the capital required could easily be about 10% of one’s earnings for two or three months. Operating capital of some staff salaries and other incidentals can also be catered for from the 10% in subsequent months until the business stabilizes and can sustain itself.

Multiplicity of revenue sources

Successfully managed, the boot strapped businesses can morph into reliable sources of income for the entrepreneur thereby making the initial pay check a side income. There are numerous examples of people who sacrificed some portion of their income to start a business whose income was meant to supplement the meagre earnings from an employer. With time, dedication, discipline and a heart for not giving up, the business began bringing in more income than the salary. The entrepreneurial spirit in such individuals can lead them to start other business complementing the first and the result is a multiplication effect on sources of income for the individual.

Building on other people’s strength

With office hours being anywhere between 8 am to 5 pm, it is near impossible to run your own business. Money is not the only thing that a business requires. It also requires time, people and leadership. For an after working hours business, one can try and extend their hours into the night (but it can only be for so long before fatigue checks in). So what happens when the business needs to be done in the day and you don’t want to steal time from your employer or you have the kind of job that ties you to a desk from the time you step through the main door? You look for people who have the skill, passion and diligence to work for you.

If for instance you are bootstrapping a trucking business, have an efficient transport manager, if it is a café have a reliable manager who understands the dynamics of a café. Bootstrapping will allow you to interact with all sorts of people and you will steadily build a good business working with those who complement you.

Skills

Financial management

Anyone who is boot strapping their business, needs to have some basic financial skills. Be able to know where the money you are bringing into the business is going, how is it being used, how is it multiplying, and is it making sense to do the business. You should be looking at your books every so often with a fine-tooth comb. Numbers rarely lie, and they always tell a story. Do not always trust the green and red numbers. The truth is in between. It is possible to buy a burger from a reliable cafe with fresh bread but the stuff in between is stale. It is also possible to buy the same burger with stale bread, but the stuffing is as fresh as when you bought it. Either way, the burger has a problem. That is the same thing with numbers.

Leadership

Let’s start with a statement that would beg for pages to explain; a leader must not be physically present in his business to get it to be successful. A leader sets a clear vision for the business, motivates the team and guides the staff through the work process and builds morale. You need to make people see what you see about the business in its future state. Do you see branches and outlets? That is what the team should also see, and they should see themselves as important and necessary for the business to get there. You can’t motivate someone by not knowing what they are after. If someone has a low self-esteem, it doesn’t matter how much commission you promise them for closing a sale. They still won’t do it, because it is not about the money. Bootstrapping allows you to give the team the tools they need to execute their role in achieving the vision. Once everyone understands their role and is present in carrying out the job, it is possible to lead through others as you employ tactics such as delegation, employee engagement and empowerment.

Delegation

Due to the fact that one is working, and he has entrusted his business to other people, delegation is a key skill to have. It is the ability to identify what needs to get done, who can do it best, getting them to do and generate the expected results. It requires one to be articulate in what the expectation is and then leaving someone to do it within the parameters of the business. Delegation means that you trust people to get the results you want even if they don’t follow the route you would have taken to the same results. It also means that you appreciate the efforts put in and you can offer support when it is required.

The cons

Possibility of over / unnecessary expenditure

With the knowledge that one has of an assured income, a bootstrapping businessman is almost always sure that there is money to fund the business. With such a mindset, it is easy for the business to get money it doesn’t need and end up spending what it did not need to spend in the first place. What normally happens is that those involved directly in the business see that the owner is able to fund the business, so they ask for things that make the business activities comfortable but even if those things were absent, the business would still be efficient and functional. This can be dealt with by working with budgets and having business performance analysis sessions with the key staff in the business.

Implementing Cost Reduction Initiatives will also help plug the many holes where money disappears into.

Divided attention

Being employed and owning/ running your business at the same time is not an exercise for the faint hearted. In Kenya, I recall a gentleman who had a managerial day job and he went ahead to bootstrap a transport business by having a matatu (public service vehicle) on one of the busy routes. Before he got into the rhythm of the business, he would always be called by the driver that either they have been caught by the traffic police for a misdemeanor, or they have had a minor accident, or they have been arrested for double parking. Six months into the business and still servicing a loan for the vehicle, he pulled out of that business because it was beginning to affect his output at work. He would constantly receive phone calls or be forced to cancel or reschedule important meetings to go and bail out his vehicle and the operating crew. It is possible to do business while in employment, but the biggest risk is that your business will call on you to interrupt your day job in the oddest of times.

A merger of entities

The challenge of bootstrapping a business especially in the formative and expansion stages, is that the entrepreneur and the business are one. The business’ success is primarily dependent on the owner’s presence and cash injection. In the absence of both, there is no business. On the other hand, the entrepreneur has so

believed in their business such that if it fails or does not shape up the way he expected it to, more often than not, they and the society at large consider themselves as a failure. Only a moment of reflection and knowledge will bring home the fact that just because the business has failed, the owner is not a failure. He may have done some wrong things, but he is not the failure.

Unfortunately for many an entrepreneur, this reality comes in a bit too late and many are still struggling with where to draw the line because of the burden of knowing they took family money to start a business. Entrepreneurs who are bootstrapping their businesses need to demarcate themselves from their business as much as it is possible and that takes us back to the quality of leadership and ability to delegate.

Bootstrapping your business is your practice ground for being a smart angel investor or venture capitalist in the years to come. Consider your company as the first business in your portfolio.

For more insights on Bootstrapping, we recommend the book “Driven: How to Succeed in Business and In Life” by Robert Herjavec