Funding Your Startup: Bootstrapping Part 3

That Special Case
Businesses developing services or applications for the Internet, that are using Bootstrap self-funding techniques, can grow in both phase 1) and phase 2) simultaneously. Internet service/application/software companies can actually grow in all phases at the same time!

angelsThere may not be a ‘GAP’ for businesses developing Internet Services or Applications! They develop their App’ or Service while operating in the target medium using its technology.

These companies would fall into the ‘Type 2’ category (above), similar to a spinout; they are in effect extending the capabilities provided to an existing market. Bootstrapping is a very effective strategy for Internet/Web based startups!

An important area of consideration for a Bootstrapped Internet company, like others, is the time to success, or to when wages can be paid. Internet companies can actually be category 1, 2 or 3 (above).

Many of them ‘are’ lifestyle companies, providing incomes to the founders but some of them eventually received VC funds and grow to be giants, Yahoo, eBay, etc.

The Bootstrap GAP
The GAP is a time or activity period in which Bootstrapped labor and techniques can still be used effectively to generate revenues and operational growth.

The GAP comes between a startup’s first growth phase ‘internal’ and the second growth phase ‘external’. Bootstrapped self-funded companies may actively use the GAP period to Bootstrap revenue (maybe op’s) growth and generate cash.

Some companies will have little or no chance of creating cash for themselves in the GAP! Consumer-product companies could face this issue.

Bootstrapped companies must accept lower performance targets, and develop strategies that will allow them to gain traction in their target markets; strategies like ‘targeting and tailoring’ an offering to a niche market.

When the GAP is in Play
Knowing when the GAP is in play is very important for all startups.

1. Is the target market $s > 100 times the total capital available?
2. Is the business consumer-product based?
3. Will the end- product sell for > $1000?
4. Is the business developing Web based products or services?
5. Are current operational costs > 50% Bootstrapped?

If you answer in the affirmative to questions 2 or 4 the GAP is not in play for you; if you answered in the affirmative to question 2 you need to develop a special strategy of how to get your product to market; Bootstrapping will not work! If you answered in the affirmative to question 4, Bootstrapping will work just fine for you in all stages of your business development.

Answering in the affirmative to questions 1, 3, or 5, means that the GAP is in play for you! You need to develop a strategy that will allow you to Bootstrap your way to making sales! Answering in the affirmative to 3 means that Direct Sales strategy might work for you. All others should think about Niche Marketing or developing a Strategic Alliance.

Using the GAP
A company’s ability to use the GAP will also be a function of its ‘type’!
Type 4 companies (from the definition above ‘Revolutionary’) will have a tough time utilizing the GAP; the requirement to create awareness and to create a markets requires cash. These companies must develop strategies that will generate revenues in as short a time as possible.

Companies selling high price capital goods will find it easier to use the GAP in their growth strategies. The very nature of their product will force them to target, and they will have little need for mass marketing, they can use direct sales effectively to generate revenues.

If the GAP is in play (or not) startups must manage their moneys to maximize its potential and benefit. The best way to do this is to control finances using ‘Zero Based Budgeting’; this forces continuous attention to managing cash usage and to operating on a project basis.

Bootstrapped Businesses Marching Orders

• Determine the ‘type’ of startup being launched
• Develop a Zero Based Budgeting process
• Determine if the GAP is in play
• If the GAP is in play, develop a GAP Strategy
• Consumer-product companies should develop a ‘niche’ strategy
• Revolutionary businesses should develop a ‘strategic alliance’
• All businesses should develop Post-GAP revenue objectives