September 19, 2012 | 4-minute read (729 words)
Bootstrapping doesn’t mean that you have a permanently small business. In fact, bootstrapping says little to nothing at all about the kind of business you are running or where your business is heading. Bootstrapping simply means that, in the early stages, you are starting your company with little capital. This is just one stage in the development of your company—and no reflection on your future growth and potential. The goal is just to bootstrap your way from self-funding towards sustainability.
To do this, you need to manage for cash flow, not profitablity. In other words, you’re running your business in the present, day-to-day and week-to-week, rather than running it in a fashion designed for the long-term.
The first step in managing for cash flow—and preparing for future growth—is to create a bottom-up projection, using real-world variables. (see my previous article on Bottom-Up vs Top-Down Forecasting). The data you glean from your bottom-up forecast will give you insight into how very tight you’ll have to pull those boot straps and where you’ll especially need to focus on controlling costs.
One of the greatest expenses of any company is its people. To reduce your burn-rate—and effectively bootstrap—you need to consider ways to save money on staffing. Let’s take a look at three ways you can intentionally keep your staffing costs low to survive another day:
1. Hire Potential: Of course you want to hire the best (who doesn’t?), but is that realistic given your cash situation? Instead of going for broke, paying the big bucks for the big guns, take a step back. An untested team is better than no team at all. So, hire for affordability and potential instead of proven experience. Besides the lower cost, a team of newbies has other potential advantages including their fresh perspective and willingness to learn.
As you grow, you may get to the point at which it’s the right time to hire more experienced staff. But in the early stages, you need to pursue the tack that will give you the best ROI for your staffing dollars.
2. Understaff: Too many employees is a huge drain on your funds. In addition to the recruitment and salary costs, there are additional physical costs such as a necessarily larger office space, equipment, and supplies. There’s also the psychological cost: what will happen to these people if your company doesn’t grow and you need to lay them off? And don’t forget the all-important reputation cost as well: how will it look to investors and others if you have to disassemble your team? Instead, hire slow as you go. Spread yourself and your existing team a bit thin, if you need to. Just don’t rush to hire.
3. Outsource Non-Core Competencies: But what if your team is already spread as thin as can be or you just don’t have certain skills or expertise in-house? The answer is simple: outsource. Outsource as much and wherever you can. You can easily outsource administrative functions, such as payroll, accounts receivable/accounts payable, cash management, financial statements, taxes, and more. You can outsource technical development. You can even outsource strategic functions. For example, why hire a CFO when you can outsource this position?
Contact Early Growth Financial Services for finance, accounting, and corporate governance support on an as-needed basis.
To successfully bootstrap, you just need to keep steady focus on the prize; that is, the purpose of pinching pennies is to take your company to the next level. Staffing is an unavoidable expense, but the cost can be decreased and managed through bootstrapping. Save on staff and use that money to invest back into your company and to focus on your core business.
How are you bootstrapping your company? Let us know in comments below or contact Early Growth Financial Services for help developing your financial strategy and reducing your burn rate.
David Ehrenberg is the founder and CEO of Early Growth Financial Services, a financial services firm providing a complete suite of financial and accounting services to companies at every stage of the development process. He's a financial expert and startup mentor, whose passion is helping businesses focus on what they do best. Follow David @EarlyGrowthFS.