Last Update: September 3, 2015
By nature, entrepreneurs are quick, creative thinkers. Ideas seem to come out of the walls, the sky is the limit, and innovating is everything. But part of being a successful entrepreneur is knowing when to go big — and when to bootstrap.
The truth is, bootstrapping makes you a better businessperson. When your business is bootstrapped — or self-sustaining — you have to actually make money from your business, rather than simply find creative ways to spend someone else’s money. This forces you to hone certain business skills that other entrepreneurs, with well-funded businesses, don’t get to build:
Resourcefulness. If you’re going to turn a profit fast, you can’t afford to have a fancy office, large staff, or ineffective marketing campaign. Going virtual isn’t just a trend; it’s a necessity for bootstrapped startups.
Marketing Accountability. You don’t have money to waste on marketing campaigns that can’t be measured, no matter what “branding” benefits they promise. Instead, you quickly learn that every marketing dollar that goes out must come back with a new customer or profit (or, ideally, both).
Focus. When you’re building a bootstrapped business, you can’t pursue a plethora of business ideas, regardless of how many or how quickly your entrepreneurial-minded brain is churning them out.
Clearly, bootstrapping builds skills invaluable to any business owner. But it’s not an easy journey. Here are a few tips to help you pull yourself up by your bootstraps when the road to success gets rough.
1. Sell high-margin products and services.
Small business or not, there’s no reason to waste time with small margins. Large profit margins allow a small business to thrive and do what small businesses do best — out-service the competition. You get the opportunity to serve a customer and truly do whatever it takes to make him happy.
Larger profit margins also allow you to spend more on advertising than your competition and pay more for each customer, while still making a profit. Then, you can quickly scale your small business through marketing.
2. Build partnerships.
Starting now, begin building partnerships for your business. You’ll be able to grow your business much faster if you’re not reinventing the wheel when it comes to resources.
Joint Venture partnerships: Cross-promote with similar businesses to acquire customers faster — and for free.
Performance-based partnerships: Pay people — or other businesses — when they send you referrals. Once again, you’re gaining more customers for a low acquisition cost.
Content marketing publishers: Partner with targeted magazines, blog owners, and other experts to provide free advice or training to their audience. You’ll build your business’ brand with just a little work.
3. Build recurring revenue into your business.
As entrepreneurs, we fight incredibly hard to get customers in the door with the initial sale. Unfortunately, most entrepreneurs stop there. It’s imperative that you build a recurring revenue component into your business from the very beginning. As you bring in more customers, that base will continue building and provide financial stability and flexibility.
Recurring revenue doesn’t mean you literally need to have your customers’ credit cards on auto-bill each month (though that might be ideal). It just means your customers should have something to come back and buy from you on a regular basis.
For example, if you own a dog grooming business, offer an unlimited membership that allows a customer to bring his dog in whenever he wants throughout the month for an automatically charged monthly fee. You’ll always need to watch your numbers, but most people will use the service far less than what you’ll be collecting from them. Think about it: How many people do you know who still pay for gym memberships they don’t use?
You can also go the Keurig route. This multimillion-dollar home-brewing coffee machine company has a brilliant business model that makes its money from the same customers month after month — without an automatic bill.
When a customer buys the $200 machine, he literally cannot use it without buying “K-Cups” filled with coffee grounds. The machine works amazingly, but requires a new, disposable K-Cup with each use. Not only has the company made money off the initial sale, but it keeps making money for as long as a customer wants to use the machine.
4. Measure your marketing.
Smart direct marketing can grow a small business into a big business very quickly, and unmeasured direct marketing can make a small business into a non-business just as quickly. The key to marketing is to measure it. You need to know exactly how much profit each campaign generates; that way, you’ll know how to scale, adjust, or eliminate it.
5. Hop on the scale.
When I started out, I made the mistake of going from one e-commerce store to 30 in about six months because I realized new stores were a quick way to bring in revenue. But the headache and additional staff ate up all the profits. To realize the biggest gains in profit as a bootstrapped entrepreneur, it’s important to focus on scaling within a limited number of products or services.
Bootstrapping your startup can be intimidating, and it’s not an easy road. But it is extremely rewarding — especially when you own 100 percent of your company, and therefore 100 percent of the profits. Plus, those profits may allow the serial entrepreneur in you to pursue your next idea … and the next … and the next. After all, the sky is the limit, right?
Matt Clark is a serial entrepreneur, author, speaker, and health and fitness enthusiast. He is an entrepreneurial thought leader, and founded a multimillion-dollar product distribution business enterprise. He welcomes anyone to reach out to him on Twitter, LinkedIn, or Google+.