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Operating a bootstrapped startup is a herculean task, which explains the reason for insane clamor for fundraising among founders and co-founders. However, despite all the financial troubles and risks involved in running a bootstrapped startup, there is no taking away from the fact that only a bootstrapped startup can make you feel like a real boss. After all, bootstrapped startup’s founder and co-founders own 100% equity of their own company and hence never have to work under pressure or influence of any investors.
But not having the advantage of external funding also means that bootstrapped startups have to undertake several disciplinary and preventive measures. These measures or factors ensure the long term sustainability of startups and eventually play a pivotal role in transforming them into a successful company. Not that these measures are not applicable on funded startups, but lack of funding cushion makes bootstrapped startups exceptional case altogether.
Below we’ve shared some of the key factors and measures that bootstrapped startups have to undertake to ensure their long term sustainability. Adapting these measures will surely help self-funded startups to navigate through trouble waters and stand head-to-head with their successful funded counterparts.
1) Be frugal, even when it comes to taking your own salary:
Since founders of bootstrapped startups purely rely on their own hard earn money to run their company, their adherence to exercising financial discipline becomes even more critical. This means that founders should literally count every penny that they spend for their startups. From basic expenses like electricity bill to critical expenses like paying off employee salaries. Any expense – even if it is an insignificant amount – that does not add to their business simply needs to be chopped off from company’s balance sheet.
It also goes without saying that founders should exercise immense constrain on over-spending over things that can be otherwise avoided. This means that those fancy office interiors, doling out perks to employees, outsourcing work, installing a coffee machine and everything that constitutes over-indulgence can wait until the business starts generating a solid cash flow.
Lastly, founders should restrain themselves from drawing fat salary for themselves if financial discipline is really high on their priority list. Nowadays it is actually pretty common thing among founders of self-funded startups to give up on fat salaries. This is their way of making humble sacrifice that eventually leaves the company with much needed extra-cash.
2) Taking risks without proper calculation is simply too risky:
There is generally a difference between how a funded and bootstrapped approaches any risk. Since funded startups have comparatively deeper cash reserves, it can afford to be less cautious or can try out several innovative experiments without even thinking about the immediate impact on their business. However, bootstrapped startups with their shallow cash reserves cannot afford to take such bold decisions. Not at least when their recent bold decision had backfired very badly. Simply put, the lines between risk and calculated risk are certainly very blurred when you’re bootstrapping a startup. Founders should be very mindful of overstepping these lines especially if their company’s cash reserves are under immense pressure.
Logically, any startup (be it bootstrapped or funded) should have enough reserves to stay afloat for minimum 6-7 months if some of their recent risks have failed to delivery results. Those 6-7 months will offer a much needed breathing space to think about ways to rescue the company from adverse times.
3) Getting anywhere near bad debt trap is the end-game of the business:
Having a debt is not a bad idea, since today most businesses can’t operate without raising debt from the market. This is especially true for businesses and startups that operate in highly competitive industry. However, pushing your business anywhere near the trap of bad debt is not only a bad, but disastrous idea.
Bootstrapped startups are more vulnerable to this disastrous idea, since lack of external funding makes them over-reliant on banks and NBFCs to meet their working capital and other needs.
Even if any self-funded startup enjoys a good credit rating, it is always highly advisable to carry out complete due diligence of company’s finances and also market conditions before taking any loans at unreasonably high interest rates. Taking big loans without seriously carrying out due diligence process obviously accounts for poor management practice, something that can lead to complete liquidation of the company. Not to mention that the founders and promoters will be saddled with huge loans that may take lifetime to pay back.
One of the common mistakes that several founders do is taking frequent loans on their credit cards to pay salaries and office bills. Credit card loans are not bad per say, but having high propensity for it is easiest way of getting into hole of bad loans.
4) Be the marketing wizard of your own company:
No one can be the best ambassador of your company than you yourself. This may sound little cliché, but nothing can be further than truth for bootstrapped startups as they have to cope with limited marketing budget. Putting the best show for your company during industry conferences and coincidental meetings with industry leaders can unexpectedly land you plump projects.
Even if you’re not able to secure immediate benefits, your oozing confidence can create positive impression about your startup among market leaders. This positive impression counts in the long run as it helps in brining contacts, lucrative projects and even a mentor to help your company get out of difficult times.
As hinted above, confidence is the key to become a marketing wizard of your company. But be mindful of the fact that you don’t end up getting too pushy about marketing your company as it may be perceived as a cheap PR tactics.
