Tuesday, August 7, 2007

The Art of Bootstrapping

A friend of mine who does financial/angel/VC consulting brought an interesting idea to me last week. Actually, it's not the idea that's so interesting as the circumstances.

A former CFO of a major company here in Dallas decided she had had enough corporate life. She's taken a few months off and is now ready to embark on a new adventure... founding her own non-profit. Now, this woman has 20+ years of "big company" all over her resume . I'm not saying she doesn't have a great idea and I'm certainly not saying that she can't pull it off. It's just that anyone who's thinking of making such a radical leap in business culture really needs to know what they're getting in to. Which got me thinking...

From Guy Kawasaki's blog:
"Someone once told me that the probability of an entrepreneur getting venture capital is the same as getting struck by lightning while standing at the bottom of a swimming pool on a sunny day. This may be too optimistic.

"Let's say that you can't raise money for whatever reason: You're not a 'proven' team with 'proven' technology in a 'proven' market. Or, your company may simply not be a 'VC deal'--that is, something that will go public or be acquired for a zillion dollars. Finally, your organization may be a not-for-product with a cause like the ministry or the environment. Does this mean you should give up? Not at all.

"With that in mind, I give you THE ART OF BOOTSTRAPPING
1. Focus on cash flow, not profitability. The theory is that profits are the key to survival.
2. Forecast from the bottom up. Most entrepreneurs do a top-down forecast
3. Ship, then test. I can feel the comments coming in already: How can you recommend shipping stuff that isn't perfect? Blah blah blah. ”Perfect“ is the enemy of ”good enough.“
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.
5. Start as a service business.
6. Focus on function, not form. Mea culpa: I love good ”form.“ MacBooks. Audis. Graf skates. Bauer sticks. Breitling watches. You name it.
7. Pick your battles. Bootstrappers pick their battles. They don't fight on all fronts because they cannot afford to fight on all fronts.
8. Understaff. Many entrepreneurs staff up for what could happen, best case. ”Our conservative (albeit top-down) forecast for first year satellite radio sales is 1.5 million units. We'd better create a 24 x 7 customer support center to handle this. Guess what? You sell no where near 1.5 million units, but you do have 200 people hired, trained, and sitting in a 50,000 square foot telemarketing center.
9. Go direct. The optimal number of mouths (or hands) between a bootstrapper and her customer is zero. If you don't create demand, all the distribution in the world will get you bupkis.
10. Position against the leader. Don't have the money to explain your story starting from scratch? Then don't try. Instead position against the leader.
BONUS #11. Take the “red pill.”This refers to the choice that Neo made in The Matrix. The red pill led to learning the whole truth. The blue pill meant waking up wondering if you had a bad dream. Bootstrappers don't have the luxury to take the blue pill. They take the red pill--everyday--to find out how deep the rabbit hole really is."


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