Think You Need Venture Capital Backing to Start Your Business? Think Again. Use this five-step guide to build your business on your terms.
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2021 has been a banner year for venture funding with an all-time high of over $288 billion invested within the first half of the year globally. These investments have yielded flashy headlines for brands and an assumption by the general public that these businesses are positioned to win.
But there's an alternative approach equally deserving of the flashy headlines — bootstrapping. In the Twittersphere and beyond, bootstrappers are speaking up, fighting for their stories to be heard.
Some founders go the bootstrapping route because they want to maintain equity and control. Others don't know the first thing about fundraising or have been rejected by VCs one too many times. Whatever their reason for wanting to build their businesses without investor money, these founders wear bootstrapping as a badge of honor and are fired up to prove themselves.
With the hard work, major sacrifice and substantial risk that bootstrapping demands, founders are in for a wild and often daunting ride. But it is possible to build a successful business without raising investor money. And my story, along with many others, is proof.
In 2010, I founded Schmidt's Naturals and bootstrapped the brand over seven years to $25 million in revenue and a nine-figure acquisition by CPG giant Unilever. Now as a bootstrapper turned investor, when founders come to me with a pitch, it's not uncommon for me to talk them out of raising money and instead try my recipe for bootstrapping success.
1. Build your baseline
In the early years of starting your business, it's important to take time to build up your own seed money and create the foundation for growth.
Start by working side jobs while you're taking things slowly at the beginning and, if possible, focus on opportunities where you'll learn something useful that you can apply back to the business later. Maybe it's a store where you want to see your products sold, or where you can get a peek into the inner workings of retail and build meaningful connections.
Stay eager, DIY everything you can, and learn as you go.
Related: How We Can Beat Venture Capital's Diversity Problem
2. Ditch the hustle mentality
We've all seen the tweets and stories from business owners flexing about fast growth, big financial gains and how they only get four hours of sleep a night to maintain their success. It's important to think about the future and how today's actions will impact your outcomes, but you have to grow at a speed that works for you and your circumstances.
Focus on laying the groundwork for what your business needs, and put the blinders up on competitors who are focused on landing big investments.
You are laying the groundwork for growth that is manageable and sustainable.
3. Learn who to hire and when to hire them
It is hard to run a business solo — if you're a new parent like I was, it's a thousand times harder — and it can be tempting to hire someone right out of the gate to share the workload and responsibility. Staying lean at the beginning not only saves money, but also allows you to refine your vision for the business.
When it is time to hire, bring on one new employee at a time. Start them part-time and expand their role as they prove their value. Operate with a lean and strong team, and make every employee count. Don't assume you need a C-suite, and look into contracting some services for cheaper.
Related: Funding: What Is Entrepreneur Capital vs. Venture Capital?
4. Be smart with your money
You must be both frugal and willing to spend — the trick is knowing where. Start by prioritizing expenses that have a direct impact on sales that give you the return on investment to keep going. Pay close attention to what's working and what isn't. Your money is incredibly valuable no matter how small or large your business becomes, and it's critical to cut what's not delivering to focus on the things that are.
Negotiate everything. Shorter payment terms with retailers means faster money in the bank, while longer payment terms with suppliers allows you to sell inventory before paying for raw materials. Nurture these relationships for favorable order minimums and better pricing.
Make space to pay yourself a humble salary. And don't forget taxes.
5. Be realistic and have a backup plan
Bootstrapping requires recycling all profits back into the business. Have a plan for getting more cash quickly if you need it. Explore options for lines of credit and other loans. Start building relationships with investors, even if you aren't raising now. Be realistic about the risk and sacrifice required of you and your family. Be comfortable living with uncertainty, and have a Plan B.
There are times when outside investment will make sense. As an investor myself, I know the positive impact that an infusion of capital can do to scale a business to its full potential. But the rewards of building your business on your terms will be huge in the end.
