When it comes to money and a young startup, my best advice is to save your pennies at the outset. Being smart about how you spend at the beginning may give you the valuable extra time you need later on for venture success. Delays and setbacks, often unforeseen, may extend your business timeline as you are wait for your business model to blossom. Pressures will arise for you to give up as your funds run low. Time in the venture startup is such a critical element and like dog years, 30 or 60 extra days in a startup may be equivalent to years in a more established business. How often do you hear entrepreneurs tell the story of the day they decided to fold up shop and a critical phone call came through or contract was signed? The rest is history.
When it comes to money management, the experienced entrepreneur has one tool is his or her toolbox that the less experienced entrepreneur may not readily have. It is knowing how to bootstrap his or her venture. Bootstrapping is a term used to describe alternatives undertaken by the entrepreneur to avoid or delay outside investor funding or the use of bank debt. The latter may not even be an option for the business as it starts up unprofitablely.
The most common form of bootstrapping is when the founding entrepreneur uses personal savings to finance the venture. As the venture moves forward, the entrepreneur may tap into a second mortgage on their home, borrow from friends and family, and even use their credit cards. A number of years ago a fairly successful Hollywood movie by first time director, Robert Townshend, was funded using credit cards. The publicity surrounding the novel way the movie was financed contributed to the movie's publicity and success. It brought to the forefront a financing option that non-entrepreneurs did not readily imagine would be done. People were wowwed by the story. Unfortunately, it may have inappropriately promoted this high risk financing vehicle which should be the last tool to be used by the entrepreneur, if at all. Though Robert Townshend had a critical success, for others the excessivley high credit card interst rates may create a financial burden that may take years to overcome.
After the business owner has tapped personal funds and family loans, there exists a number of other alternatives that may improve the cash resources of the company. One is being smart about the credit terms offered to customers such as rewarding early payers, doing accounts receivable or purchase order financing, and avoiding slow paying customers. All are considered a form of bootstrapping. On the flip side entrepreneurs can walk the tightrope of relationship building by choosing to pay some suppliers slowly to stretch out their cash reserves. Keeping inventory lean is an asset management tool that also frees up cash.
Moving away from the monetary tools that can be used, sharing resources is bootstrapping. Sharing an office space, equipment and even sometimes employees, moves the business venture forward while minimizing the use of cash and freeing up financial resources for other needs. Bartering is an excellent tool, where there is no cash outlay as two parties exchange products or services that each other need. As your company's cash reserves tighten, you will be surprised as to your creativity in finding bartering opportunties that otherwise would have gone overlooked.
Bootstrapping exists in employee hiring, as well. Commission only sales employees is a less threatening step for a young startup that can not afford to bankroll the ramp of a new sales representative. It may take more work to find the right individual willing to start this way, but in some situations it truly gives the company an opportunity to grow without taking on more risk.
For many science and technology startup companies, government or research grants are considered bootstrapping. Federal grants enable the researcher an opportunity to prove out their concept before seeking angel or venture capital funding which would require them to give up a portion of their company ownership to investors. Research and technology companies are capital intensive, so bootstrapping may be critical when planning the launch of such a venture. Know your grant sources going in.
Whatever your venture, thriftiness and bootstrapping are valuable skills that the lone entrepreneur may most appreciate in hindsight when they realize where the turn in the venture occurred in relation to the remaining funds they had to keep going. These are some of the best stories offered by successful entrepreneurs.
Jeanne Gray is founder of NJEntrepreneur.com and has been an entrepreneur for most of her career. She now works with entrepreneurs and emerging growth companies. She may be reached at 908-917-9900 or
jgray@njentrepreneur.com
Entrepreneurship 
