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by Brian Pontarelli, CEO of Inversoft
“One of the earliest and most critical decisions an entrepreneur must make is whether to self-fund a startup by bootstrapping, or raise outside funding through venture capital.” – Forbes
The majority of bootstrapping content is centered around being overly frugal – not paying founders and pinching pennies. Bootstrapping is not always easy, but there are a few entrepreneurial best practices that can help you bootstrap without all the pain.
First and foremost, you must identify a market need. What makes you so sure that people are going to spend money on your service or product? What is the industry lacking that you can provide? What differentiates you from the competition? Once you are confident there is a demand, start with a minimally viable product to test the concept and gain valuable feedback before you are in too deep.
Don’t Quit Your Day Job, Yet.
Bootstrapped businesses work best when created on the side, on nights and weekends. With hard work, focus and ingenuity you can balance your day job and build your new business.
I came up with the idea for CleanSpeak while working at a startup. The company I was with at the time needed a profanity filter to screen AdWord text before our tool automatically posted an AdWord for the user. I couldn’t find any good solutions available, so I built it. The company I was at didn’t have any interest in a profanity filter so they said I could build it myself outside of work. I coded at night, on weekends, on trains and buses. After about 6 months I had a prototype and I launched my website. Sure enough people slowly started buying licenses, but not at a rate that would have generated enough revenue to pay all my bills. Therefore, I continued working at my day job. Success does not come overnight.
As a general rule of thumb, look at what is coming in from your product. If you can make about half of your yearly salary off of your product, then you can start thinking about quitting your day job. Once you have validation through sales and some money flowing, you can take the plunge.
The day I secured a large contract with Nintendo I decided to jump ship and quit my day job to focus my energy on building out Inversoft.
Ready, Set, Launch.
This might sound obvious, but some people never make it to launch day. They get caught up in a vicious cycle of constantly adding features and making updates. They never feel ready to launch. Don’t let this happen to you. Create a schedule, set a launch date and stay on track. It takes a tremendous amount of focus and sacrifice, but without a launch there is no business.
Don’t Be Too Proud to Contract.
You can run through money quickly after you quit your day job. If you are only making a portion of the salary you made before, you’ll need to supplement the revenue from your product sales. Always remember that you can fall back on contract work. You still have the skills that got you your last job and you can use those skills to make money. Contracting is a great way to fill in the gaps and earn extra money to keep business afloat. Get creative. Reach out to your network and contract under your company name to gain credibility. In doing so, you can often get away with charging a higher rate, similar to a professional service rate rather than a direct contract rate. Work a contract for a month at a standard corporate consulting rate and you’ll be able to take two months off contracting to refocus on your product.
When I first started Inversoft, I did a lot of contract work to keep the lights on. I would pick up a 4-week project, collect the check and use that money to help fund development and build out Inversoft’s main products and services.
Cash is King.
Money is everything for bootstrapped companies. Without it you cannot cover your expenses. You cannot pay employees; you cannot pay yourself. Get in the habit of constantly watching your cash flow and be prepared to make budget cuts when needed.
Over the years, Inversoft ran tight on cash occasionally. We survived by turning off AdWords, shutting down additional services and telling vendors to put our accounts on hold. After a few sales were made and checks came in, we slowly began turning things back on. I learned from this experience, and to this day I check the bank account, question our efforts and discuss our spending plan daily.
Today, venture capital is a hot topic. People might think it is crazy to even consider starting a business without major funding. However, bootstrapping Inversoft was the best decision I’ve made.
I slowly obtained paying customers and built a cash-flow-positive business without investments or debt of any kind. I am proud of this accomplishment. I never went without a paycheck and I didn’t have to eat ramen every day. I was able to maintain total control over my company and keep the equity to myself. I never lost sight of customers, I hustled for my product and pushed for sales because it was my money at stake. The freedom bootstrapping provides far surpasses the restraints imposed from outside funding.
CEO of Inversoft Brian Pontarelli is responsible for overseeing the direction and vision for the company. He founded Inversoft in 2007 and is the architect of all Inversoft products. He splits his time between development, sales, marketing and finance. With over 14 years of experience in the software industry, Brian has a deep technical and management experience with a range of companies including BEA, US Freightways, Orbitz, Texturemedia and Naymz.