Saturday, June 30, 2007

Why bootstrap your business? So when is bootstraping not a good idea?

There is just too much to say about the topic and I have been warned about being too verbose with lengthily postings so this is a 3 posting series. Following is the third and last posting:

So when is bootstraping not a good idea? Almost never!

However … there are times that injection of external funding is crucial to the delivery of value and no revenues can be generated unless significant investments are made. In these cases the bootstrappong duration may be shortened but not eliminated.

When things are not in your control or costs are very high:

1- You are in the pharma or medical devices business and an FDA approval is needed before you can sell – these ventures usually involve significant upfront research and multiple scientists , require expensive lab equipment and need to have trial results from hundreds to thousands of people. In this cases the SBIR and other grants are critical and should not be overlooked – not only they are non-dilutive, they help provide credibility – building university and commercialization partners are also critical.

2- Chip design – regardless of the simplicity of semiconductor chip ventures, the need for working with fabs and uncontrollable time periods between testing cycles is a killer – every time you make a revision in design you have to wait for 4 to 12 weeks for a turn around – the wait is expensive. These ventures almost always need a lot more money – in these cases the market must be very very large and the innovation very very novel for the investors to engage early – SBIR grants are also often feasible.

3- Situations where the time to revenue is a function of “mass traction” – these would include social networking and some internet projects – this group of ventures will benefit significantly in terms of valuation and funding chances if they can show traffic traction – the novelty in these type of projects is slowly wearing off and targeting and niche play is becoming paramount. A word of advice do not worry bou technology scalability – worry about getting traffic first.

And here are a few against the grain comments on the topic!

Although some are believers in the first to market argument – I am not one of them. If your value proposition is solid, you can be the second to market and win - often is the second mice that gets the cheese. We need significant money now or we will lose market share is an argument against the strength of the value proposition!

I am also not a believer in “we are losing customers” argument either – if your value proposition is compelling converting an opportunity into a sales should be the focus. Customers are your best source of cash (surprise) and they are non-dilutive.

And that is one man’s opinion.

Monday, June 18, 2007

Why bootstrap your business? 2- Some Good Reasons

There is just too much to say about the topic and I have been warned about being too verbose with lengthily postings so this is a 3 posting series. Following is the first posting:

Some Good reasons to Bootstrap

1- Bootstrapping ensures that you build your business on legitimate, real world value propositions. You truly focused on customer value from day one.

2- Bootstrapping initiates the critical sales learning process sooner, not later.

3-Bootstrapping does not waste money: the focus here is on the early and closer customer contact.

4- Bootstrapping accelerates time to market and time to profitability – if you can not possibility wait for the next version to get ready, you compromise and try to make money from what you have.

5-Bootstrappers are less likely to make big, fatal financial mistakes. Being alert about survival makes people much more alert about catching fatal mistakes.

6- Bootstrappers are forced into unconventional thinking – necessity is truly the mother of invention.

7-Bootstrappers have more freedom and flexibility – when you take money you become slaved to the business plan.

8- Bootstrappers end up owning much more of what they create – and that is a good thing.

Coming next a few words about when you should not bootstrap & some of the negatives.

Why bootstrap your business? 1- The big picture, 2- some good reasons, and 3- a few negatives

There is just too much to say about the topic and I have been warned about being too verbose with lengthily postings so this is a 3 posting series. Following is the first posting:

The big picture of bootstrapping

Bootstraping, in my opinion, is not about conserving cash or paying out of your credit cards (although those may become ways to achieve it). Bootstrapping is about taking the right action at the right time. It is about making quick and timely decisions. And it is about being focused on cash flow and incremental progress.

There are a few key elements / drivers that make bootstrapping generally lead to better results:

1- When in Bootstrapping mode, the margin of error is much smaller and more importantly the entrepreneur knows it. This causes decisions to be more focused on generating results and on making money, and that is a very good thing.

2- The risk is personal and decisions are reduced to absolute “value” delivery. Being the one who would hold the bag if things don’t work and being conscious about the responsibility to our family makes the risks to be taken very personal. Naturally the game becomes much more dangerous but the danger brings with it a wonderful force of reason that makes us focus on doing the things activities and products that delivers value to the customer – the only way to make money is if we sell & collect and the only way to do that is if the customers see a compelling value in what we do – personal risk forces us to focus on the essentials, and that is a very good thing.

3- Time is a commodity in bootstrapping mode - this makes agility the norm. Being pressed by time makes us move faster, make quicker decisions and deal with our errors faster – being conscious of time, makes the entrepreneur place more focus on the process, the strategy and people – the three elements of execution - time limitation makes us more creative in finding solutions to issues and more agile in dealing with correcting our errors – and that is huge thing!

Coming up some next posting: good reasons to bootstrap.