How to Bootstrap a Business

You have no money, but you want to start a business. How do you bootstrap your business? Startup on a shoestring?
how to start a business with no money
When you’re the boss, no one limits your “vacation days,” tracks your hours rather than your productivity, or demands you stay late when your child has the chicken pox. In other words: no one arbitrarily restricts your freedom.

Unfortunately, many people assume they need big dollars to start a business.

Let me debunk a myth: You’ll need many traits to start a business — like persistence — but you don’t necessarily need a lot of money.

Very overhead-intensive companies — such as companies that need brick-and-mortar storefronts — need money. But you don’t HAVE to start an overhead-intensive company. There are loads of businesses you can launch on a dime.

Can You Bootstrap Your Business Idea?

Before we go any further, you need to figure out if the idea kicking around in your head is bootstrap-able (look, I invented a new word!).

Here’s a quick litmus test: Does your dream business require tons of equipment, such as forklifts and cranes?

Second, does your dream business need talent that can’t be outsourced, like neutering animals? (I know that’s a weird example. But you can’t outsource pet-neutering to a virtual assistant in India. I’m just sayin’.)

If the answer to both of these questions is “no,” you probably have a business idea that can be bootstrapped.

The Problem With Bank Loans

Most small businesses are launched with business loans, which are usually borrowed against the owner’s house. This poses a massive risk: both your job AND your home depend on the startup’s success.

I’m pretty pro-risk, which is why I’m always encouraging people to quit jobs they hate. But borrowing against your home verges on gambling.

The Problem With Investors

It’s also a myth that starting a business requires you to find angel investors or venture capital backing. Loads of businesses launch without it.

In fact, having money and backers for your startup could be a hindrance:

  • You could get caught in the unimportant. The more time you spend with your investors, the less time you have to listen to your customers.
  • What matters most is passion. Investors want a piece of the action in exchange for their dough. Since I believe wholeheartedly in my business, the notion of selling pieces of it makes me queasy. Dilute your ownership of the company, and you risk diluting your passion for running it.
  • You forget how to bootstrap. Startups require sacrifice, which include sleeping at the Motel 6 on business trips. Launch your business with a boatload of investor capital, and you might forget the core of what you’re doing: you’re fundamentally trying to earn enough money each month to reliably pay someone’s salary – and that’s an incredibly tall order.

So How Do I Bootstrap A Business?

Saving money in your business is no different than saving money at home – you simply need to ask yourself: “How can I do this, but more cheaply?” Here are the 10 best tips I discovered though old fashioned trial-and-error:

#1: One nice suit makes a stronger impression than 5 mediocre ones.

#2: Don’t rent an office until you have at least 2 employees.

#3: Make Powerpoint presentations in rooms you can rent by the hour. Many public libraries, colleges and some Starbucks locations offer these.

#4: Don’t settle for mediocre. As you grow your business, you’ll start to look with envy at friends who get steady paychecks, benefits, and clock out at 5 pm. Remind yourself that there’s a reason you aspire to something different than this. Be strong.

#5: Before you invest in a brick-and-mortar storefront, take your product to a festival or open-air market stall. See if anyone buys it.

#6: Offer your employees a SIMPLE-IRA retirement benefit instead of paying $200/mo or more for some third-party to administer a 401k program. (Worse yet, after sucking you dry for $200 a month to administer a plan for just one single employee, the 401k administration company may charge you a $1,000 cancellation fee. Ask me how I know!)

#7: Protect yourself from lawsuits by shopping around for liability insurance, which may protect you if you get sued by a client.

#8: Use your friends as a “beta” test group as you develop your product or service.

#9: Meet people in your field though local chapters of professional groups or through meetup.com.

#10: (If you’re in the U.S.) Use Nolo Guides to get templates of legal documents. Nolo’s books are great (although its website, in my opinion, needs improvement). I used a Nolo Guide to create an LLC agreement with a couple of partners. If the legal help you need is straightforward, this is cheaper than hiring an attorney.



Thanks to evhead for that cute photo. Notice it misspelled “entrepreneur”?

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24 Responses to “How to Bootstrap a Business”

  1. Kevin @ Thousandaire.com
    19. Aug, 2011 at 9:25 am #

    My recommendation would be not to hire employees as long as possible. Contractors are usually cheaper (depending on the type of work they are doing) and don’t come with all the legal complications and benefits expenses.

    • AffordAnything.org
      19. Aug, 2011 at 5:19 pm #

      @Kevin — Oooh, good one!! You and I should open a business together. Do you know how to neuter puppies? :-)

  2. World of Finance
    20. Aug, 2011 at 3:26 pm #

    I think home-based businesses have become much more culturally accepted now. This can help a ton to keep monthly expenses low and help reduce the risk factor in the business venture. Many businesses survived the recession this way.

  3. South County Girl
    21. Aug, 2011 at 2:39 pm #

    With places like Etsy and Ebay, selling homemade goods is a lot easier now a days…

    If we were to start a business it would be home based things we could sell at swap meets and online…

  4. The Money Grower
    21. Aug, 2011 at 5:16 pm #

    All great answers above and my couple to add:

    1) Know your plan for scaling up.

    2) Know that if you hit on a money maker, it’ll not be long before the imitators are going to appear. Think about how you are going to counteract this. I think this is particularly important for small businesses with low barriers to entry.

    3) Working for yourself can be very lonely and you have to be a proactive person. Add to that that many people will think you don’t have a ‘proper job’ and will thus assume your working day is social time.

    TMG

    • AffordAnything.org
      22. Aug, 2011 at 1:20 pm #

      @The Money Grower — Great points!! I’m really experiencing the third point — that it can be lonely, and your friends/family won’t understand that you need to work during the work day. It’s too easy for all the household tasks to fall to me, since I’m working from home all day. I like to set strict “work hours” — to pretend that I’ll “get fired” if I leave work to run an errand mid-day. Still, it can be tough!

  5. Harri @ TotallyMoney
    23. Aug, 2011 at 8:47 am #

    Great tips! I’d also add to that make the most of ‘free’ online marketing tools (Facebook, Twitter, cheap website-building tools). Once upon a time the barriers to entry for most new businesses were really high, since you needed to shell out a small fortune on marketing spend. Those days are over. As a smaller business you’re more nimble and can even outmanoeuvre larger competitors by using online marketing effectively.

    • AffordAnything.org
      23. Aug, 2011 at 10:14 am #

      @Harri — Love it! Great tip! I love that barriers to entry for small businesses, especially web businesses, are so low, and I think this means that the younger generations are going to be overwhelmingly entrepreneurial.

  6. Silme
    25. Aug, 2011 at 6:31 pm #

    Soo… about #6: How do you know?

    • AffordAnything.org
      25. Aug, 2011 at 6:56 pm #

      @Silme — Unfortunately, my family business experienced both #6 and #7 — paying a company $200 a month to administer a 401k for ONLY ONE EMPLOYEE (ridiculous!). When I reviewed the company’s finances for the first time in 2010, my jaw dropped when I saw this expense. We’d paid $200 a month for almost 10 years!! I told my family to cancel it immediately, and — to rub salt in the wound — the administration company told us there would be a $1,000 “cancellation fee.” Ahhhhhh!

      The family biz did #7, too — rented its office space through a broker. Apparently I’m the only person in my family who has ever heard of Craigslist. *sigh*

  7. Kyle
    25. Aug, 2011 at 6:48 pm #

    Great tips! As someone who bootstrapped my business/website back in 2001 I can relate to a lot of these. I still work from my home office and never hired an employee other than my wife and never went into debt. Secret for me was low overhead, low barriers to entry in my business idea (gotta love the Internet), and I didn’t quit my day job until my business made more money than my day job. It took 2 years.

  8. Staci
    30. Aug, 2011 at 1:09 pm #

    I love bootstrapping and I always encourage entrepreneurs to create a solid budget that will allow them to save the money they need to start their own business instead of heading straight to the bank. Sometimes businesses don’t make as much money as you plan in the beginning, and if you have to repay a bank loan you might be underwater before your business even has a chance.

    • AffordAnything.org
      07. Sep, 2011 at 3:07 pm #

      @Staci — right on!! Most small businesses that fail do so because of a cash flow problem … like you said, they run out of money before they even get a chance to make it. Keep your costs down, and you’ll give your business (especially your startup) a better chance!!

  9. Monica Clark
    30. Aug, 2011 at 1:24 pm #

    Your article is right on the money (no pun intended)! You listed great tips for starting and nurturing a small business, and it is so inspirational to hear success stories, including your own. I just quit my job to work with my husband to grow our web business, and I am terrified because we have a large family to support; however, I feel that it is the right thing to do and the end result will be success and a better life for me and our family. Quite frankly, that matters more to me than any amount of money or possessions! Love your blog

    • AffordAnything.org
      07. Sep, 2011 at 3:06 pm #

      @Monica — Congratulations on quitting your job and having the courage to take that leap!! You said you “feel that it is the right thing to do” — and that feeling is what should guide you. You know deep down that you’re making the best choice. Focus on the positives and the opportunities, and best of luck with this new adventure!!

  10. Ravi Chopra
    31. Aug, 2011 at 1:54 am #

    Very well written… Thanks for that… I believe thinking of capital is the biggest hindrance in starting business ventures in countries like India. As you have rightly mentioned, what you require is passion and persistence.

  11. Lee Dejesus
    05. Dec, 2011 at 12:47 pm #

    Your article is right on the money (no pun intended)! You listed great tips for starting and nurturing a small business, and it is so inspirational to hear success stories, including your own. Soo… about #6: How do you know? Think about how you are going to counteract this.

    • AffordAnything.org
      05. Dec, 2011 at 2:00 pm #

      @Lee — Ooof, that’s a long story. Suffice to say that this EXACT situation happened to my family’s business.

  12. Larry
    29. Jan, 2012 at 4:38 pm #

    May I have your premission to post this article; How to Bootstrap a Business, only my website blog with all the credits to you with links here? Thank you.

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