entrepreneurial toolbox presented by jaine lucas, executive director innovation and entrepreneurship...

ENTREPRENEURIAL TOOLBOX

Presented By

Jaine Lucas, Executive DirectorInnovation and Entrepreneurship Institute

Temple University

February, 2013

The Art and Science of Bootstrapping


A Dream and $10,000: Slingshot SEO• 3,597% growth in three years; #58 on the Inc

500 list of fastest growing firms• “Looking back, it’s clear three major factors

led to our exceptionally rapid growth in spite of our financial limitations, extremely limited staff and, basically, a zero-dollar marketing campaign. Those three factors were treating our customers right, focus and innovation”

• Strategies included:– Unprofitable projects to prove the concept– Didn’t take a salary for the first year – Every penny reinvested into the company


INC Magazine’sTop Growth Businesses That Can be Bootstrapped*

Green & Sustainable Building Construction – 23% Healthcare Consulting – 6% Digital Forensics – 13.7% Photography – 2% Artificial Grass Turf Installation – 12.3% IT Consulting – 3.2% Relaxation Drinks – 24.8% Translation Services – 2.8% Environmental Consulting – 2.8% Elderly & Disabled Services – 4.7%

5-Year Projecte

d AnnualGrowth Rates

* Data from independent research firm IBISWorld to pinpoint the best industries for bootstrapping a company right now.


START-UPS ARE TYPICALLY CASH POOR

The average small business start-up kicks off with $30K or less in capital (2009 Ewing Marion Kauffman Foundation) Companies launched with $10K or less in initial capital had almost the same median growth rate as those with abundant capital (2002 Inc 500 Survey) Like it or not, bootstrapping is an essential skill set for entrepreneurs!


WHAT THE HECK IS BOOTSTRAPPING?

Using a variety of techniques to strategically maximize the impact of the venture’s available cash Using creativity and ingenuity to launch and grow a business with few available resources Starting a business without an infusion of cash OR maximizing the impact of funding invested by the entrepreneur or others AND continuously optimizing cash flow and preserving capital Living the mantra: Cash is King!


QUITE SIMPLY…

Bootstrapping means you scrape by until cash flow becomes positive

through bartering, sharing, delayed spending and creatively exploiting

opportunities


WHAT BOOTSTRAPPING ISN’T Not just finding the cheapest way to

get things done Goals, objectives and milestones must be met Never spending money – you’ll have to! Behaving immorally or unethically

Not just for small or emerging businesses

Large corporations are bootstrap to preserve cpaital & maximize efficiency, cash flow and profitability

It’s not just something you do because you can’t get debt or equity funding


WHY DO FIRMS BOOTSTRAP?

Limited or no funding available Banks don’t finance start-ups Less than 0.038% of firms receive venture capital $6.5 billion in 890 deals in 3Q of 2012, according to the MoneyTree™ Report from PricewaterhouseCoopers LLP and the National Venture Capital Association

Postpone or eliminate need for external funding Avoids “dilution” maximizes % of ownership Maintain control over venture Can keep “special sauce” secret


WHY DO FIRMS BOOTSTRAP?

Build wealth and income Cash flow is maximized, valuation too Increased cash flow builds cash reserves faster

Minimize exposure to risk Build cash reserves of 30 to 180 days Guards against catastrophic events or economic downturns

Maximize operational efficiency Utilize capital where it has the most impact


DISADVANTAGES OF BOOTSTRAPPING

Requires sacrifice and persistence – it is frequently uncomfortable and is often painful Not all businesses can be equally bootstrapped

Pharma and medical device firms Capital and labor intensive firms

Being outrun by well-financed competitor Missing “window of opportunity”

Especially true for IT businesses There is always something new coming from behind


SIMPLISTIC BREAKEVEN

TOTAL FIXED COSTSUNIT PRICE – UNIT COST

=UNITS TO BREAKEVE

N Business breaks even when operating profit from selling its products or services covers its overhead costs (wages and materials) Lesson: minimize fix costs, contractual arrangements and other stuff you can’t get out of


BOOTSTRAPPING & BREAKING EVEN

OVERHEAD (FIXED) EXPENSES LOWERED

LOWER OPERATING COSTS LEADS TO

HIGHER OPERATING MARGINS

BOOTSTRAP MARKETING LEADS

TO INCREASED SALES

LESS TIME TO

BREAK

EVEN

LESS FUNDING REQUIRED, EASIER

CREDIT

DRAW SALARY SOONER

HIGHER PROFIT MARGINS & CASH FLOW INCREASE

VALUATION

BEN

EFIT

S


OVERHEAD EXPENSES

General and administrative costs Support staff salary and benefits * Rent, utilities, equipment, software,

supplies, etc. Professional services: legal and

accounting Marketing

Capital costs Warehouses, machinery, equipment,

technology, vehicles , etc.

* Typically highest recurring cost


REDUCING GENERAL/ADMIN COSTS

Bootstrapping employee costs: Entrepreneur multi-tasks & works long

hours Family and friends help at no cost Shared admin supports Using temps for high volume periods Use unpaid interns and retirees, but

beware of legal implications Bring on seasoned talent for equity Stretch employees to max, use perks

& incentives


REDUCING GENERAL/ADMIN COSTS Office space

Incubation space, shared office space, rent unused space from downsized company, work from home

Utilities: Go Green Unplug electrical/electronic devices when

not in use, maintain reasonable office temps, reduce water consumption, turn off lights

Opt for free software or free trials Purchase used computers and furniture Volume purchase w/other businesses



Reducing legal costs (average is $4-6K) Free legal clinics: Temple Small

Business Development Center and many legal trade organizations

Filing your own incorporation paperwork Writing your own contracts Templating and modifying available

documents (legalzoom.com) Friends and family

Pay for the critical stuff only Get referrals, estimates, rates, etc.



Reducing accounting costs Accounting software packages Retired bookkeepers Contract unemployed accountants Keep meticulous records, be prepared Hire MBA student or accounting grad

student Friends and family Get referrals and estimates Barter if possible


REDUCING OPERATING COSTS

Operating costs = expenses to produce products or provide services

Goal is to reduce cost per unit Inventory and/or process

management tools to increase efficiency (Six Sigma)

Leverage competitor or similar business “best practices”

R&R: Read and research Poll employees for cost cutting ideas Use independent contractors


REDUCING OPERATING COSTS

Outsourcing can be “smart operating”: Reduce space and staff costs Manufacturing overseas can be

cheaper Can eliminate/reduce capital costs Frees up time to provide additional

value to customers Eliminates inventory costs Can reduce liability Leverages economies of scale Increase speed to market Can improve or decrease quality


BOOTSTRAPPED MARKETING Attracting customers and driving sales is

key to growth and sustainability Marketing is the process that gets it done Bootstrap marketing = entrepreneurial

marketing: maximize bang for buck Easier today than ever before thanks to

the web and social media Think long and hard about messaging and

media – both have to be spot on Don’t “build it and hope they will come.”


LAY THE FOUNDATION FIRST Establish a brand with a consistent voice,

personality, core value and tenets Understand market and industry trends Understand the customer

What matters most? Where do they go for information?

Don’t try to sell the kitchen sink: focus on one or two key product/service benefits

Segment and target the market properly Can you market to it efficiently? Where is the competition?


SHOE-STRING MARKETING

Word of mouth Networking Public speaking Customer referral programs Buzz marketing campaigns Post customer testimonials

online

Viral marketing – WOM spread via internet YouTube Blogs

People are watching 4 billion videos a day on YouTube and uploading 60 hours of video very minute. 4 billion hours are watched monthly!

In 2012, over 31 million bloggers in the US alone, and over 42 million blog

sites.



Publicity/Public Relations Has “third party” credibility Minimal cost NEW is NEWS worthy Press releases – include

“hook” and make it interesting, intriguing and thought provoking

Know the media, establish relationships

Create innovative events



Social Media Builds online communities Provides a variety of ways to

dialog, connect, message, comment and share content

Allows entrepreneur to build awareness of business and products, and maintain a relationship


ACCORDING TO CHATTERBLAST MEDIA

To create brand awareness As an online reputation

management tool Learning, research and

competitive recon For recruiting and

partnering As a lead generation tool

to find potential business prospects

FIVE WAYS SOCIAL MEDIA CAN BE USED FOR NEW

BUSINESSES


BOOTSTRAP MARKETING ODDS & ENDS

Great design sells – an impactful, strategic and eye catching logo is essential

Websites are “cost of business” and an indication of credibility

Online directories and classified listings Craig’s List – it’s free!

Brochures, flyers, business cards Street teams Newsletters Trade shows – but watch for hidden

costs and select carefully


MANAGING CASH

Beware: A business can be profitable but have negative cash flow

The #1 cause of start-up failure is death Death = Cash Depleted

Create systems to enter and track the inflows and outflows of cash

Bill promptly, ask for deposits in advance

Review customer accounts receivable – look at incentives for faster payments

Anticipate price increases, shortages, loss of customers, etc and plan ahead


ALTERNATE CAPITAL – Use it!

Intellectual Capital Be smart, be intelligent Study, go to seminars, read

and learn Add value

Relationship Capital Build relationships and help

people “Cash in” your relationship

capital only when you need it most

INTELLECTUAL CAPITAL + RELATIONSHIP CAPITAL = FINANCIAL CAPITAL


Seven Bootstrapping Tips from Mashable Test the market

Assess potential interest in the product & validate model – justify the firm!

Keep the team & salaries small; use incentives and equity as compensation

Interns – a “win win” Marketing – Social media; MediaSync and

Help a Reporter; Outsourcing: Staff and projects Social Networks: connect with customers

and prospects & become the expert


FINAL WORDS

You must have a business plan Recognize the difference between “wants” and “needs” Don’t bootstrap to the point of strangling growth Eliminate all unnecessary costs, minimize necessary ones and maximize impact of available cash Look for additional revenue streams to increase reaching “breakeven” and fund organically Don’t quit your day job Get out of debt before launching a new enterprise Treat every dollar like it was your own personal money


Go Forth and Bootstrap!

entrepreneurial toolbox presented by jaine lucas, executive director innovation and entrepreneurship...

Documents

cash flow

science of bootstrapping

equity funding slide

cash poor

infusion of cash

ventures available cash

abundant capital

initial capital