Bootstrapping for start ups (for bootcamp)
- 1. Bootstrapping for Start-ups Beg, borrow and barter your way into business Simon Boot Student Enterprise Development Manager
- 2. Who am I? Simon Boot Student Enterprise Development Manager at LMU My background: • Lawyer • Business Developer • Pop-up Coffee • Tasmanian Leaders Program
- 3. A quick exercise A 6 month period List all possible expenses you might encounter
- 4. A quick exercise Think about the all the expenses you might encounter during the start-up phase of your business Where How Marketing Others?
- 5. A quick exercise Think about the all the expenses you might encounter during the start-up phase of your business, eg: Where Office rent, retail space, fit out & decorating, office furniture How Staff & skills, machinery, tools & equipment, materials & inventory, computers, printer, software, telephones Marketing Brand & graphic design, website & hosting, signage & advertising, content (website/social media) Others? Insurance, subscriptions, meetings, general supplies, travel & transport … what else …?
- 6. Funding your business Businesses need money. Two options: • External funding Equity & borrowing • Internal funding Making do with your own (limited) funds, aka BOOTSTRAPPING
- 7. It’s all about Cash Lifeblood. Great business, but no cash = no business. As a start-up: Your limited funds vs Burn Rate
- 8. Costs: Burn rate Burn Rate - another term for what you spend. Monthly figure. Everyone has a Burn Rate (rent, travel, food). For business, how fast it will eat through its available cash. If the funds are exhausted, the business will either have to: - start making money, - find additional funding, or - close down.
- 9. Costs: Burn rate A basic example You are operating a small business from your bedroom. You have £2,400 in cash. Your fixed monthly expenses total £1,000: - Rent, bills, food, £600 - Sundries £190 - Website hosting, £10 Your Burn Rate is therefore £800 per month. So, Cash / Burn Rate (2400 / 800) means that with no sales you can survive for 3 months.
- 10. Costs: Burn rate Why do we need to know? If the funds are exhausted, the business will either have to: - start making money, - find additional funding, or - close down. Forecasting
- 11. Bootstrapping Your cash is #1. So, taking actions to: • INCOME Reduce the time until you have cash inflow ** Cash flow vs profit • EXPENSES Reduce the cost of getting to that point ** Cut costs to the absolute minimum ** In
- 12. Income Relentless focus on revenue. Out of direct control. Need to: - Grow sales - Get cash coming in
- 13. Drive sales Customer service - You’re an unknown, outperform - Focus on customer service, exceed expectations (refer, recommend – army of marketers) Marketing - Social media: cheap, blog heavy sector Profitability - Focus on your most profitable products
- 14. Get it coming in Moonlighting Receivables – cash flow is a huge issue, especially for start-ups. ** see cash-flow vs profit example Cash on delivery - don’t let customers buy on credit. If you have to extend credit - Agree terms (7, 14 days) - Actively pursue payment Deposits for larger orders. Legal terms (payment, transfer of title)
- 15. Title retention clause (short) For wholesalers (not relevant for retail) Title to {the Goods} shall remain vested in {the Seller} and shall not pass to {the Buyer} until the purchase price for {the Goods} has been paid in full and received by {the Seller}.
- 16. Liquidity (profit vs cash flow) An example You have just launched a 'label' and are going into business manufacturing clothes. You have decided to Bootstrap your business using the £5000 pounds you have saved! Recently you took your first order for 200 pieces. Yay. The Unit Cost to produce each piece is £20, comprising: - £10 in materials, and - £10 in labour The (Wholesale) Sale Price per piece is £40.
- 17. Cash flow vs Profit An example, cont … Your profit from the order is: Income: 200 x 40 = £8000 Expenses: 200 x 20 = £4000 Profit: £4000 Yay! But they don’t pay you for 60 days. And your supplier wants payment upfront. And you have to pay your manufacturing staff. Cash: £5000 Less expenses: £4000 (200 * (25 + 15)) Leaves remaining cash: £1,000 … BUT also fixed monthly expenses. Be aware of cash flow & liquidity. Deposit. What if they don’t pay (or go belly-up)? Terms.
- 18. Costs This is within your control. Costs will end your business, not lack of sales. As long as you have cash, you are in business. S l o w i n g our Burn Rate But you are more than experienced that you
- 19. Avoid, defer, reduce Be nimble – avoid overheads Bare essentials needed to generate income. Mindset: Do I need this - is it essential? Yes. Do I need to pay right now? Yes. How can I reduce this expense? – be creative. Some examples.
- 20. Avoid rent Huge overhead. Work from home or coffee shops for as long as possible. “Buying five lattes a day is cheap rent.” Use a virtual space – Accelerator! Access to an address and meeting rooms. Smartphones & “the cloud” (storage and software) makes it easier than ever.
- 21. Equipment and supplies Borrow or rent equipment instead of buying. Consider buying used equipment. Bargain hunt – garage sales, estate sales, bankruptcy auctions or unfinished furniture stores. ** coffee cups Freecycle www.freecycle.org/group/UK/london Neehoy www.neehoy.com Buy cheap? You only need the tools or equipment to last until your business is making money. Always buy on credit.
- 22. Job materials & inventory Don’t carry stock – illiquid. Buy materials when needed. For expensive materials or a large order, consider having the customer buy them upfront, or pay a Deposit.
- 23. Staffing Avoid employees – overhead, admin. Outsource, use freelancers (outsource online, bid for job) - www.odesk.com, www.elance.com, - www.peopleperhour.com, www.freelancer.com Use interns – win/win Sweat equity (a) employ for equity, or (b) you do the work instead of paying someone else. NB may take longer + know your strengths (only those tasks you can complete to required quality). BUT don’t compromise Core Business.
- 24. Defer costs and expenses Buy on credit – either use their Terms, or a credit card (buy pay on-time) Some must be paid before you start business - license, insurance premiums. But, many can be deferred until your business is operating at a cash profit, eg, purchasing: - a new computer - materials for future jobs - equipment you won't need right away
- 25. Free software • Office software • Graphics software openoffice.org gimp.org docs.google.com • Survey tools • CRM surveymonkey.com zoho.com • Social media management • Calendar hootsuite.com calendar.google.com • Email marketing • Online forms mailchimp.com wufoo.com • Invoicing • VOIP (Telephone) www.invoiceberry.com skype.com • Website builder • Online backup weebly.com dropbox.com
- 26. Barter, bargain & beg Barter It’s been working for thousands of years. Work with people who like what you do. Time or goods (pay gross, spend retail) Bargain If you don’t ask, you don’t receive. - ”Is that your best price?” - If it costs £3, tell them you only have £2. - Is there a discount if I pay cash? (for credit cards) Beg Ask ànyone who will listen. Leverage your networks: Facebook, LinkedIn**
- 27. Recap A series of questions to ask yourself: • Is this essential? Income creating. Be • Can I find it cheaper? creative. • Can I borrow it? • Do I need it right now? • Can I barter for it? • Can I get it for free? • Can I get someone • Can someone else get else to pay for this? it/give it to me for • Can I bargain a better free? deal? ** NB considerations of quality, reliability, customer support etc. Never compromise core product, brand. Finally, it’s not forever – it’s a temporary phase. The goal is a cash-flow positive, profitable business.
- 28. For your Business Plan Bootstrapping is a really practical exercise. You live it day to day. But ask these questions when preparing the budget for your Business Case. - Realistic and robust - Awareness - Burn Rate vs Projections (be aware) - How much funding (Fiona)?
- 29. An exercise, continued … Revisit your list Look at the costs you listed and ask for each: - Is it essential to the start-up phase of your business? - Could you avoid the cost? How? - Could you defer the cost? - Could you reduce the cost? Barter for it? Get it for free?
- 30. Questions?
Editor's Notes
- #4: Equity – can only sell it once. Diluting.Borrowing – difficulty to obtain, providing security (unsecured loans), interest (expensive)
- #5: Equity – can only sell it once. Diluting.Borrowing – difficulty to obtain, providing security (unsecured loans), interest (expensive)
- #6: Equity – can only sell it once. Diluting.Borrowing – difficulty to obtain, providing security (unsecured loans), interest (expensive)
- #7: Equity – can only sell it once. Diluting.Borrowing – difficulty to obtain, providing security (unsecured loans), interest (expensive)
- #8: Equity – can only sell it once. Diluting.Borrowing – difficulty to obtain, providing security (unsecured loans), interest (expensive)
- #12: Equity – can only sell it once. Diluting.Borrowing – difficulty to obtain, providing security (unsecured loans), interest (expensive)
- #13: Equity – can only sell it once. Diluting.Borrowing – difficulty to obtain, providing security (unsecured loans), interest (expensive)
- #14: Equity – can only sell it once. Diluting.Borrowing – difficulty to obtain, providing security (unsecured loans), interest (expensive)
- #15: Equity – can only sell it once. Diluting.Borrowing – difficulty to obtain, providing security (unsecured loans), interest (expensive)
- #17: Equity – can only sell it once. Diluting.Borrowing – difficulty to obtain, providing security (unsecured loans), interest (expensive)
- #18: Equity – can only sell it once. Diluting.Borrowing – difficulty to obtain, providing security (unsecured loans), interest (expensive)