The Art of Boot-Strapping
from the book “The Art of the Start” by Guy Kawasaki 12-09
enhanced by Peter/CXO Wiz4biz 6-14
1. Focus on Cash Flow, not Profitability. The theory is that profits are the key to survival. If you could pay the bills with theories, this would be fine. The reality is that you pay bills with Cash, so focus on Cash Flow. If you know you are going to Bootstrap, ideally, you should start a business with a small upfront capital requirement, short sales cycles, short receivables terms, long payables terms, & recurring revenue. It means passing up the big sale that takes twelve months to close, deliver, & collect. Cash is not only super star, it’s the glue that holds the Team together for a Boot-strapper.
2. Forecast from the Bottom up. Most entrepreneurs do a “top-down” forecast: There are 150 million cars in America. It sure seems reasonable that we can get a mere 1 % of car owners to install our satellite radio systems. That’s 1.5 million systems in the first year. The bottom-up forecast goes like this: We can open up ten installation facilities in the first year. On an average day, each can install ten systems. So our first year sales will be 10 facilities x 10 systems x 240 days = 24,000 satellite radio systems. That’s a long way from the conservative 1.5 million systems in the “top-down” approach. Guess which number is more likely to happen; who will get funded.
3. Ship, then Test. “Perfect is the enemy of good enough”. When your product or service is good enough, get it out, because cash flows when you start shipping. Besides, unwanted features, not perfection, come with more time. By shipping, you’ll also learn what your customers truly want you to fix. It’s definitely a trade-off – your Reputation vs Cash Flow – so you can’t ship pure crap. But you can’t wait for perfection either.
4. Forget the “proven” Team. Proven teams are over-rated – especially when most people define Proven Teams as people who worked for a billion-dollar company for the past ten years. These folks are accustomed to a certain lifestyle, and it’s not the Boot-strapping lifestyle. Hire young, cheap, & hungry people; People with wild ideas, and not necessarily locked into the stratus quo. Once you achieve significant Cash Flow, you can hire Adult Supervision for them. Until then, hire cheap, passionate people and make them into great Teamers.
5. Start as a Service Business. Let’s say that you ultimately want to be a SW company: People download your SW or you send them CDs, and they pay you. That’s a nice, clean business with a proven business model. However, until you finish the SW, you could provide consulting & services based on your work-in-progress SW. This has two advantages: immediate revenue and true customer testing of your SW. Once the SW is field tested and battle hardened, flip the switch and become a product company.
[ 6. Focus on Function, not Form, 7. Pick only a few Battles to win, 8. Under-Staff, 9. Go Direct, & 10. Position against the Leader – in Premium Content ]