Bootstrapping Your Way Into Business
If all you know about starting a business came from reading the financial pages during the 1990s, you might think the process works like this: Think up a killer idea, write a business plan, raise money from venture capitalists, launch the business. "Then you pitch the money on a bonfire and hope there's a company there before you run out," jokes Greg Gianforte, CEO of RightNow Technologies, a business software company he founded in 1997.
But Gianforte, whose company is now public and worth more than $500 million, estimates that less than 1 percent of businesses are started that way--certainly none of the five that he's started. Gianforte's a classic bootstrapper, a person who starts a business with his own savings, credit cards--and maybe help from friends or family. He has written a book, Bootstrapping Your Business: Start and Grow a Successful Company With Almost No Money. RightNow is Gianforte's first business ever to use venture capital, and that wasn't until it had 160 employees.
It's not necessarily that bootstrappers can't raise big bucks. Rather, these go-getters think financing on the fly is the smarter way to start a company. "When you raise money, you are spending all your energy on finding out what your investors want and proving you can return their capital in a certain amount of time," says entrepreneur Bijoy Goswami. So attention is diverted from focusing on potential customers and what's needed to build the best business possible. Having little money to spend forces the bootstrapper to innovate and be flexible.
When Goswami started his software company, Aviri, in 2000, he raised outside capital from a few "friends of friends," he says. "And that was my first mistake." Goswami says he used that outside cash to grow too big, too fast. By late 2001, the company had 12 employees and no customers. So Goswami's cofounder quit, and he "retreated back to the garage" to work as a one-man operation. Not long after, he landed his first contract for $25,000. Now the business has morphed into something quite different--part software developer, part consulting firm. "None of this would have been in any business plan," he says. "I just Forrest Gumped my way in it."
Here are some bootstrapping keys:
Ideas are overrated. Bruce Judson, author of Go It Alone! and an entrepreneurship instructor at Yale University, recommends writing down every hassle you encounter during your day. "At the end of the month, you will have 20 business ideas, and some of them will work," he says.
Forget marketing at first. Gianforte recommends marketing by talking to potential customers. He started RightNow by first calling 300 possible buyers and pitching his concept. Their feedback allowed him to tweak the offering.
Use the Internet. The Web lets you test-market a product nationwide, Judson explains, by selling a demo on eBay and seeing how much interest it gets. That also helps you figure out pricing. With Yahoo! Small Business, $30 a month will get you a basic E-commerce setup.
Isolation is a dream killer. No one understands a bootstrapper's struggles the way another bootstrapper does. A network can provide answers to problems and emotional support. Goswami has set up an online bootstrapping community called Bootstrap Austin, which has spread to other cities.
And remember this fave quote of Judson's, from choreographer Twyla Tharp: "Whom the gods wish to destroy, they give unlimited resources."
This story appears in the March 27, 2006 print edition of U.S. News & World Report.