August 27, 2009

Spare No Expense- A Philosophy for Bootstrapping

by mikemoyer in Articles0 Comments

Let’s all agree that the reason for embarking on your start-up mission is to make money. There could be other reasons, but for argument sake we’ll pretend the point of the start-up is to generate positive cash flow so that it can get past the “start-up” phase, into the “growth” phase and finally into the “acquire-Google-phase”.

In the beginning it is you and your idea- nothing else. In order to get past the start-up phase you will need be pragmatic about spending the two things of which you are no doubt in limited supply: time and money. You need a spending philosophy that will guide your decisions.

The philosophy is simple: if the spending gets customers, spare no expense, if the spending does not get customers try not to spend a dime or a minute. The hard part is determining which activities and expenses get customers and which ones don’t. The bright-eyed, bushy-tailed entrepreneur can be easily fooled.

Lawyers, office space fancy chairs, 401Ks, business cards, human resource manuals and complicated web sites are great examples of activities and expenses that generally do not get customers. Of course you will need some legal advice, of course you will need office furniture, of course you will need all of these things- if your company is successful. For the cash-strapped bootstrapper, however, these are all optional.

The key to making the philosophy work is to spend time figuring out how to sell your product or service before you actually invest time and money in producing your product or service. Most people do this backwards. They spend night and day and all their money producing a fancy web site or a great product and forget to set aside any resources driving traffic to their site or finding customers to buy their product.

You may think I’m suggesting that you go out and try to sell smoke and mirrors. If you are thinking this, you are right. Sell the dream. If you find some actual buyers figure out what you did to find them and do it again. If it works a second time and a third time then you may have found an acquisition model that works- stick with it and, in the meantime, build your product.

When you invest in your product you are actually investing in the retention of the customers you just acquired. The same basic bootstrapping philosophy still applies, if it keeps customers, spare no expense. That is, if the customers return you have now found a retention model that works. Keep going. You have discovered the keys to what will make your business grow: getting customers and keeping customers. As you grow, you can continue to invest what you need in your product to improve your retention rates.

Now that you have built a business model that actually works you can spend some time doing all those other things that, while possibly important, won’t get customers. Things like lawyers, office space fancy chairs, 401Ks, business cards and all those little things that makes your business feel like a business.

Bootstrapping is all about setting the right priorities. In a start-up the priority should always be on finding and keeping customers. If you have customers, you have a business. Without customers you have nothing.



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