Introduction
Bootstrapping a business refers to starting and growing a company with minimal external funding or resources. Instead of relying on loans, or significant outside investment, the entrepreneur uses personal savings, revenues generated by the business, and other available resources to fund operations and growth.
SaaS companies tend to need investment to grow, but earning that investment is not as easy as it seems. SaaS businesses still at the product design stage – or pre-revenue as they are classified – will find it especially difficult (and I would advise those companies to seek out Grant funding as a stop gap).
But … you CAN build something meaningful with little investment. Here is what you need to know. Here is how to bootstrap your business!
Over my last two articles, I have helped readers with the basics of business planning and management. I have also highlighted areas to consider if requiring a bigger pot of funds to get started.
This insight provides my advice to you if you are expecting to self-fund your startup.
Let’s put your mind at ease and promote the advantages of a bootstrapped startup.
Let’s Look at Cost Efficiency
Firstly, from my experience, I see far better efficiency in spending – whether that be costs or investments – from people who are spending their own money on items they wish to buy, and those spending other people’s money on items they are not sure of.
It’s just way more considered. I’ll provide an example of buying a £10 gift.
The most efficient means for buying a gift would be if YOU use YOUR money to buy the present for YOURSELF. This way, you get precisely what you wanted, at the price you were prepared to spend. Highly efficient. Zero waste.
A less efficient means is when you spend your money on a gift for someone else, not knowing if they will want or like it.
And the by far, least efficient method of spending is when you are using someone else’s money to buy someone else a gift – or should I say, investment bankers investing other people’s money, in other people’s business.
I genuinely see the difference between the above scenarios every month.
As I mentioned in my second article on Funding, comparing a business with too much investment against a business with little, can be like watching a cycling race between Bradley Wiggins and Augustus Gloop. It’s not about the bike.
I can’t possibly say that the bootstrapped business will win every time, but the bootstrapped business will be far more efficient with their spending, will likely have a far better team culture, and often provide a more personal level of customer success.
Organic Growth (the Bootstrapped way)
Starting small and slower focuses the mind on understanding the marketplace, your competition, and most importantly your desired customers.
The urgency is enhanced when you’re running out of money in eight weeks. You need to be efficient with both your money and your time (your resources).
I spoke to my friend Mark Masters who has shared his thoughts on the best route to success.
Mark Masters from marketing consultancy You Are The Media is someone who believes in bootstrapping and demonstrated the ability to bring people around the business message.
He went out to prove this with You Are The Media, a marketing and media learning and training community. Mark highlights that when it comes down to little investment, relevance and adding value are core strengths.
Mark explains, “One of the most liberating things is to build people around your space. This could be customers, this could be prospects, this could be people who are interested in what you have to say and want to get a bit closer.”
“As well as knowing the marketplace you are selling to (and a need for it), we can now raise the game, by delivering value to those who are interested and ready to buy. In my world, this is by sharing useful articles (such as what you are reading here), audio, or video.”
“It all starts with making a stand for something you believe in that aligns with what you do as a business. Over time, people can see you are a good person to work with and connect with. This in turn builds trust, which then can lead to revenue. I believe you can build something organically that attracts people. It is hard work as you have to make sacrifices and when you start with very small resources, time becomes your biggest asset. You can build something meaningful with little investment.”
Let’s Get Technical about Bootstrapping
We must concede that company’s with a heavy investment can scale quicker. They do advertise more and they invest more in their product. The problem I see most often is that they can do too much of each of these.
Marketing Budget is wasted. New employees are brought in far too quickly and some of them do not work out, plus the team culture is quickly diluted too.
The You Are The Media message and community would not have been enhanced with a £20k per month advertising budget. Would greater investment in the product have helped to?
The accounting formula Return On Capital Employed (ROCE) – an equation I present to clients as a part of the Monthly Management Pack (under the right circumstances) – is a good baseline for understanding the efficiency of your business.
Of course the less you have invested, the more efficient the return.
So, say your business makes £25k in profits for each of the next 3 years. This is a good start. But it’s better if we can measure this against what you’ve invested. If you’re a freelance consultant, you may have invested just £500 to get started. That’s a Return of 50x, every year!
If however, you received £100k from investments to get your business off the ground, still, after three years, you’ve not broken even on that investment. Furthermore, you may have to split those profits with your kind investors.
What is the Key to Successfully Bootstrapping your Business?
The most successful businesses – both startups and more mature enterprises – have a plan. They will have agreed targets, agreed objectives, and they will understand what needs to be achieved, by when, and how they are going to do it.
It could be a list of five things to achieve in the year.
- Achieve the website redesign in January …
- Start investing more time in Social Media by March …
- Employ a part-time someone by July …
It really could be as simple as that.
Using outside expertise or consultants is a valid means of understanding how you are going to do it, by the way. You do not have to do everything yourself. You do not need to know how to do everything. Neither do you have to feel comfortable performing every element of the business operations (such as sales, social media, finance).
Finally, successful businesses have a grasp of the numbers too.
They will certainly have costed their plans through an Annual Budget (or Financial Business Plan) as well as keeping forecasts updated monthly.
They will then want to be updated on their progress (or financial Actuals) and re-allocate their resources accordingly.
If you are prepared to put in the work, know your market and your marketplace know you, bootstrapping without an abundance of outside investment can result in the development of a success SaaS business. It is achievable.
This post was written by Christopher Grubb. You can find out more about me here.
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I hope the above has helped.
The role of the Finance Director does not need to be a full-time overhead for someone to be committed and make a difference to your business. My aim is to simplify the financial performance, planning and strategic positioning for SaaS and Tech businesses who just want their world to be uncomplicated and thrive.
Please feel free to message me with any comments or questions. Or find me on LinkedIn here.
