Maybe you’re ready to start your own business, or maybe you’ve been up and running for a while, and you realize a very important thing: You need more money. If you’ve already secured multiple loans or you’re just trying to avoid incurring more debt, you do have another option. It’s called bootstrapping, and it’s pretty common.
What is bootstrapping?
Bootstrapping is the act of financing your company’s startup or growth by using the input or support of others. That’s a pretty broad definition. For our purposes, a better definition might be: The ability to successfully use a smaller budget to sustain your business and compete with other businesses that have larger budgets while forgoing some of the more traditional means of financing, such as loans and outside investors. Condense that even further, and it’s the ability of your business to do more with a smaller pool of resources.
Why would I want to bootstrap my business?
The primary reason many small businesses bootstrap is to remain fiscally conservative and keep debt low by avoiding high interest rates or monthly payments that may come with loans or investors.
Is it hard to bootstrap my business?
It’s not necessarily easy, but saying it’s “hard” might be a bit much. It is definitely a learned skill, as some entrepreneurs are really talented bootstrappers, and others are not.
But what is it exactly?
Any time you manage to make your operating budget stretch farther than it has before, you have bootstrapped. It’s a method of reducing your operating costs and business expenses. Here are eight other examples of ways you can bootstrap your business and make your money go farther.
1. Get creative with marketing and branding
Marketing and branding can be two of your business’ largest expenses. But the beauty of our current digital-first environment is that advertising and marketing costs have been substantially reduced.
Some business owners prefer to get even more resourceful by using guerrilla marketing, a subversive technique that requires flexibility and a willingness to take risks. Perhaps one of the most successful guerrilla marketing campaigns was for the 1999 film, The Blair Witch Project. By leaking supposed “documentary” video footage of film students investigating a haunted house, the film’s marketing team generated so much advanced buzz that it grossed more than $250 million. That’s remarkable when you consider that the film itself was made on a budget of $50,000.
2. Trade equity for knowledge and support
If there are any aspects of your business where you feel you need some help, finding someone who is an expert in the field and then offering them a small piece of your business in exchange for their knowledge might be a great way to get what you need. Even though this professional may not invest physical capital into your business, his or her expertise could pay off in the future. This is sometimes called “sweat equity.”
3. Conduct your own market research
It’s important to understand your market, your competitors and your customers. This information, however, can often come with a hefty price tag from an agency or outside consultant.
But again, the proliferation of online tools makes it easier than ever for you to conduct your own market research. Using free tools like Google Alerts or Twitter can allow you to stay up-to-date on any information relating to your competitors. These tools can also help you stay in touch with your sales team or your customers, which can help you understand how customer needs may have changed or evolved.
4. Try bartering
Similar to swapping equity for expertise, you can also try to barter for other products or services that you might need without exchanging cash. Here are a few techniques that are necessary for completing a successful barter arrangement:
- Qualify the arrangement: Make sure you measure and document what’s been given and received so that you can ensure both sides are receiving something of equal value. You also want to be sure that the person you’re exchanging with is qualified to do so by checking references or asking for an overview of his or her experience.
- Make it official: Use a written agreement that outlines the bartering arrangement. You’ll want to include a timeline, deadline and milestones, as well as how you will communicate with your bartering partner throughout the length of your arrangement.
- Treat the barter like income: Although you are receiving goods or services via a barter arrangement, it is still considered income and is therefore taxable. Make sure to keep complete records and consult with a tax professional if you have any questions.
5. Use the space you have
If you own the building where you conduct business, you might want to consider renting it out and earning money from tenants. Also, if you’re leasing your office space, consider the savings of having your employees work from home. Depending on the type of business you run and how often you entertain clients, it may not be an option, but it’s worth considering, as it will help cut back on rent and utilities.
6. Negotiate with your equipment suppliers
If your business requires an inordinate amount of equipment in order to function, you might find that a lot of your capital is tied up in equipment purchasing. Often, you can purchase this equipment from manufacturers on loan by honoring a credit contract.
There are two common types of credit contracts:
- Conditional sales contract: This allows for the equipment purchaser to use the equipment while making payments toward the total cost, similar to making payments on a car. Once the contract is paid off, the manufacturer will transfer the title to the purchaser.
- Chattel-Mortgage contract: This means that, as soon as the equipment is delivered, it becomes property of the purchaser. The manufacturer, however, holds a mortgage against it until a set amount is paid.
7. Let your customers do promotion for you
Word-of-mouth is still one of the most effective marketing tools you can use. So the best people to sing your praises are your satisfied customers. Speak with your customers about testimonials or leaving reviews on free review sites such as Yelp or Foursquare. These are free and pretty painless of methods of spreading the word that can make a big impact.
8. Jettison any of your older, useless equipment
Take a look at some of your older systems, and see if they can be upgraded or maybe abandoned altogether. Additionally, ask yourself if your current equipment meets your current business needs. Do you really need a landline? Is that fax machine collecting dust in the corner really doing you any good? Do you need to send your clients invoices via snail mail, or can you get away with going to an email-only system that uses a blank invoice template and automatically fills in the data for you? What about other ways you can cut down on the amount of paper you use?
There are a variety of little tweaks you can make to your processes that can result in significant savings. While making these changes may seem trivial, the savings make it worthwhile.
When done prudently, bootstrapping your business is a very effective and financially responsible way of profitably sustaining your business. It’s all about staying flexible and open to new ways of looking at financing and investments.