Seven out of every 10 start-ups fail – not a great statistic to promote entrepreneurship, but a fact nevertheless.
The start-ups that survive and flourish do so because the founders and management teams work tirelessly, with a real purpose and unflinching tenacity, not because they have money.
Unless you’re a developer and can build your first website, or a service provider such as a consultant with virtually no cost of sale, it’s likely you will need some capital to start a new business. But not as much as you think.
I started my first company in 1999 with a small amount of redundancy money. In fact, I’ll tell you exactly how much I started up with: £9,000. I spent £4,500 on the first version of my website, set aside £2,000 for marketing and £2,500 for working capital (or, more accurately, to cover my bills for the first few months).
Now, £9,000 isn’t much, but it’s everything I had at the time. I was risking the possibility of bankruptcy if this didn’t work out, with no way of paying any of my bills or mortgage if the money ran out.
I knew I had three months to start generating revenue or to gain enough traction to enable the business to raise a bit of seed money.
Like every entrepreneur I know, I’m a risk taker and prepared to lose everything in pursuit of my dreams.
I read a quote some years ago that has stayed with me ever since, sadly I cannot remember who said it.
“I am prepared to live like most wouldn’t, so I can live like most can’t in future”
Bootstrapping your business
In 1999, social media didn’t exist. Reaching an audience almost invariably cost money. Google didn’t introduce AdWords until 2000, so reaching a consumer market without spending a lot of money was hugely challenging, while the return on your marketing spend was almost impossible to measure.
Today, money is less. Yet, it amazes me how many founders chase investment and make it a priority to raise money before any kind of MVP has been created.
If you are not prepared to fund your company initially, meet your own personal living costs and spend whatever time it takes to prove the concept, stay in the day job.
So many founders (almost always first time founders) I meet expect the investor to take all the risk. Its nonsense.
Let me put it another way. Would you invest in a startup with no traction (revenue/ customers) or MVP if the founders didn’t have anything to lose and all the risk was yours? Of course you wouldn’t.
Many start-ups fail because they are not focusing on the right areas.
Establish a set of goals and define metrics for success against each goal. Then identify where your effort and time is best spent to deliver the quickest wins, not the biggest.
The bigger the gain, the longer the cycle. Small, quick wins boost confidence, generate revenue, enable early feedback and help you to reach proof of concept.
If you need money, use your own, or family money, or the bank’s. Obviously if you have your own money, it’s best to use this as it’s uncomplicated and you retain full equity in your business. As I mentioned above, it also shows a deep commitment for future investors too.
It’s 2017, the technology era: a time when bootstrapping a business and reaching revenues or a proof of concept doesn’t have to be expensive. But it will involve a ridiculous amount of your time and hard work.
But if you’re not prepared for that, then you probably won’t have read this far. Follow me on Twitter – I love to hear about how startups are progressing.