Startups: how did you do it?

joshchristy

For those of you who have created your successful business or are in the process of doing so, did you bootstrap or did you finance? What are some of the pitfalls you have encountered in doing so.

Timberman5191

This site is a great resource for anyone tryying to beat the odds.... But as far as yoru question goes, be creative, DONT borrow money. All borrowing dose is put streess on your business, it will turn your dreams into a nightmare. Think about it like this..... If you were creative and bootstraped your business than making $3,000 will be amazing, but if you borrowed $10,000 than until you manage to make over 10 than all of your sucess will be viewed as a faiuler. If you have never made a dime from business than dont borrow money.

joshchristy

that is the route that I have approached all of my startups from. It has been slower than I wanted, but I didn`t have to worry about income not being there.

robertj

While I agree that going in hock to start a business induce a lot of stress - I would also say that trying to start/build a business on a shoestring can produce stress as well. As Clint Eastwood says in several movies: " A man (woman) has to know their limitations". I think it`s imperative for each of us to examine our situation and understand our personal relationship with "money" - before we decide how to proceed.
Some years ago, I was in a room where the topic of discussion was RISK. After a lot of exchange , the discussion centered on the risk of going broke and having to file bankruptcy. Again much exchange, but one person kept responding -"yes, but what if you don`t care about that". True it was hard for me to "relate" to such a position- but since then I have actually met several people who did not have any emotional attachment to going completely bankrupt if their passionate project failed. Not for me!
 

SecurityProfessional

I started one business with absolutely no money and no credit, and used all sorts of creative "financing" techniques to bootstrap the business and stay alive.  I later started another business with good credit and adequate working capital that I had accumulated prior to starting the business.
Both businesses proved to be successful in the long run, but I can tell you that, for me, running an adequately financed business is a lot more fun and allows you to think strategically rather than live from day to day. It also allows you to make a few mistakes along the way that might have been fatal had you been living closer to the edge.
Running a well-financed business is a little more boring however. In the days of the earlier business, just going to the mailbox was high adventure. I would either experience the exhilarating joy of seeing a check in the mail, or the heartbreaking disappointment of just an empty box. Now days getting a check in the mail is a non-event.SecurityProfessional2007-8-23 3:22:52

iouone2

SecurityProfessional... I agree, but at the same time having "plenty" of capital can cause over spending, and less oversight of financial details. Mismanaged money ends a lot of great businesses. I bet some of this mismanaged money comes from having too much. After all, look at our politicians use of our tax dollars.    

InvestorFunding

Hi, A lot of great comments here.Bootstrapping can be a slow process and even lead to failure in some cases where you are not able to cease the opportunity.  However, in most cases  your success better enjoyed .For one business I had I bootstrapped the day to day operations and financed the inventory. This worked very well for me as I had a strong market, quick turnaround, hight profit margin. The inventory and my signature,(name), was the only collateral. This is one of my personal favorite business success stories. On the other end I was not so fortunate with another type of business which I financed using banks. I was one of the many who managed to end up bankrupt and in major debt with the dot COM boom/bust. Because I had my personal credit on the line here I was force to only use bootstrap or other creative financing methods to start over and launch a new business.Now I would personally never finance with banks again for my ventures. Not that I have not been successful, but that I would never want to be under that stress and bondage again. I have so much more freedom in decision making and personal satisfaction knowing I did something with out going into debt.With a little education in marketing and understand of capital gains anyone can leverage a small amount of money to meet funding goals for almost any venture.

fc07

I have only joined this forum to-day and I have already learned a new word for what I have been doing for a long time the term is "bootstrapping" great word now I know I am not the only one who trades in this way. Thanks.fc072007-10-27 10:26:36

CoveredBridgeCellars

For our business we used our own capital. I have modeled out a base case scenario in which we grow relatively slowly, utilizing only internally generated cash to expand our production each year. If demand is really strong then taking on some amount of debt to finance that growth would be an option. Once we get a better idea of the timing of sales utilizing a line of credit to finance inventory might also be something to look at. The bottom line is that borrowing involves risk and depending on your situation it may or may not be a good idea to leverage up. 

CoveredBridgeCellars

Well, paying with personal cash is essentially the same thing as a capital injection on your part.. From an accounting perspective you would simply be adding to your capital base, which increases cash, which allows you to pay some amount of the new debt each month.
My thinking is that IF you have a strong handle on your revenue and cash flow projections then you would be able to borrow up to the point where you could service the debt with internally generated cash flow and still have a good working capital cushion. This approach would not require new capital on your part but requires precise understanding of the timing of cash inflows and cash outflows. If you miscalculate when the revenue comes in you could be screwed and might have to end up injecting new capital anyway.
A lot of people view debt through the wrong lense. Its a tool and one that should be used judiciously. The better you understand your business the more flexibility you have in this regard.
Of course, in some situations where demand is exceptionally strong right from the start--rare, but it happens--both debt and new capital would be required to grow revenue at its potential.

Badger82

I agree that, if possible, financing on your own is ideal - the stress comes from seeing if your business will succeed rather than having a monthly P&I payment to make as well. I`m not sure how practical that is for everyone, though. Especially when one realizes that one of the main risks or reasons for early failure of startups is lack of ongoing cashflow as revenue slowly builds to match expenses. Bootstrapping inherently makes us think of "What do I need to purchase today?", rather than what the cash flow forecast will be for the first 6-9 months of business operations. I would try to look at it from the future backward - make a solid business plan that includes the best proforma projections you can make, then decide how much money you need and at what time it will be needed. Then, decide how to get those funds. These projections are always wrong in some way as time goes on, but at least you can modify an already existing plan rather than come up with a whole new one every month as the next financial calamity hits.
 
As another complicating factor, the current credit crisis makes loans from traditional sources for startups even more difficult to get.