Many owners of brand new small businesses and startups have trouble raising capital during the early days, or don’t want to turn to outside investors, so they can hold onto the equity as long as they can. Some never raise capital. They instead fund growth through cash flow, a process known as bootstrapping.
There’s a fine, intuitive art to bootstrapping. Many investors gravitate to companies that do it successfully. “We find the CEOs are very strong operators,” says venture capitalist Christopher Yip, partner and managing director of Real Estate Technology (RET) Ventures in San Francisco. “They have that entrepreneurial spirit and vision of what a business can become. The execution is very strong.”
Here are three bootstrapping tips you can apply to your business, whether you run a one- or two-person operation or a scalable startup.
Make sure you can execute your business plan even without a cash infusion.
“If the business doesn’t work unless you raise capital, you get stuck in a Catch-22,” says Yip. “You need to know if you don’t have access to capital, you still have a sustainable business plan.”
Do your homework.
Lucas Rotter, CEO and co-founder of Valcre, an end-to-end appraisal software solution for the commercial real estate industry, and his three other co-founders started the La Jolla, Calif.-based business with $13,000 in capital they contributed personally. “We’ve never put any additional capital into the business,” he says.
One reason they were able to do this was Rotter’s familiarity with the industry. He’d already built a software platform for the commercial real estate broker Colliers International and spent eight years talking to experts about what was important to commercial real estate professionals in a valuation platform. “We started a business that really leveraged and captured a lot of the knowledge I learned from them,” he says.
The business, founded in 2016, took off, and today they have 30 employees. Although he’s open to raising venture capital, he says,” We haven’t needed to take on extra capital from outside to make us move faster.”
Find the right product-market fit early.
Brent Steiner, CEO of Engrain, a Denver-based software company that specializes in property touring and mapping technology, is a veteran bootstrapper. Although he’s run the company, which now employs 135 people, in various forms for 15 years, he only raised the first and second round of venture funding over the last year and a half.
“It’s very important to find the right product-market fit while bootstrapping,” says Steiner. “If your software solves an actual need, then someone will be willing to pay you for it, even if it’s a minimum viable product. Then constantly get feedback and iterate on it. Then you won’t be taking such high risks with other people’s money.”