How to bootstrap your startup without losing your sanity (part 1)

The author, Anthony Coundouris, is the founder of accounting and analytics firm Futurebooks. A version of this article was first published on the Futurebooks blog.

Making revenue in a free world can be daunting when you have to pay rent and salaries. But if you decide to bootstrap your business, you are not alone. 85% of startups worldwide fund their startup idea by consulting and contracting their labour. 20% of Futurebooks clients bootstrap their companies.

To make the process hopefully a little easier, here’s a two part guide on how your startup can do well without funding from investors (read part two).

Definition of bootstrap

Investopedia defines entrepreneurs to be bootstrapping “when he or she attempts to found and build a company from personal finances or from the operating revenues of the new company.”

There a few ways to bootstrap a company using operating revenues. They include:

Corporate salary. One co-founder keeps a corporate salary job, and the other founder runs the startup. The salary-maker is the cow that is milked each day to feed the business.

Consulting. Normally quoted at an hourly rate, founders dedicate twenty percent of their time adding high value to a corporate firm. For example, a startup creating a platform to manage shipping inventory may use their high-level knowledge to design special parts for ships.

Production. Normally quoted as a project fee, a startup hires low-cost employees and contracts labor to build customized products. For example, a startup that creates a platform to serve videos may produce video content for content providers.

White labelling. A product is manufactured by a startup, and packaged and sold by other companies under varying brand names. This is a great way to get paid to test a product in the field. Startups like Dealised have made white labelling their entire business model.

Corporate sponsorship. Secure sponsorship dollars by building unique value for a corporate client. An example is offering exclusive use of a product for a limited time that will reach a new segment of customers.

Start with a function, not a business

Recently, US tech founder Glen Coates began bootstrapping his startup Handshake. In 2011, the company processed over US$100 million orders.

“I never decided to ‘bootstrap’ Handshake. My point of view was that I should be able to build something useful that people would be willing to pay for. If I could do that and get a small number of them to pay, that would be proof that I should continue what I was doing,” say Glen.

Handshake focused on creating a single, beneficial function, eventually expanding to become a business over time. The key was to start simple, but not so simple that no one would pay for it.

“Looking back, I was able to bootstrap Handshake because my idea wasn’t a ‘change the world’ idea to begin with. It was to build a simple iPhone app that would make sales people’s lives easier.”

Incubate using consulting fees

Let the customer bankroll the startup

Experiment, but stay focused

Final words from Adrian Teh