Bootstrap strategies for start‐ups
Or, Using (Scarce) Resources Creatively
Start-up companies often lack financial resources. But through well-considered and creative organisation, they can use their limited resources to achieve a maximal result. This is called ‘bootstrapping’ – using whatever means are at hand to pursue and achieve your objectives. Research has shown that this effort ultimately stimulates the company’s growth.
Vlerick Professor Sophie Manigart and colleagues Miguel Meuleman and Tom Vanacker have used their research findings to create a ‘Checklist of Bootstrap Strategies’ to help companies think creatively about generating – and using – financial resources. Their suggestions include:
- Avoid customer pre-financing
- Share equipment with others
- Co-develop with customers or suppliers
- Minimise stocks
- Use personnel creatively, including temporary workers and interns
- Find all subsidies that apply to your business
- and much more...
Bootstrapping is suitable for young companies as well as any organisation with little money.
Prof. Sophie Manigart, Vlerick Business School
5 Bootstrapping Guidelines to Keep in Mind
1. Being creative with scarce resources:
- compels you into creative entrepreneurship to realise your dreams
- keeps you sharp and alert at all times
- makes budding talent grow stimulates collaboration
- leads to improvisation and thus to innovation
2. As a start-up, you can use a whole arsenal of bootstrap strategies to keep your company’s financing problem as small as possible. Several strategies even have a positive effect on your organisation’s growth: the use of interim employees, short payment periods for your invoices, and shared infrastructure.
3. Bootstrapping is not only for non-profit organisations: for-profit start-ups can benefit just as well. In fact, bootstrap strategies can be applied by every organisation that wants to achieve something new.
4. Position yourself professionally at all times – don’t let (too many) people see that you are working on a bootstrap budget. A professional attitude commands respect and confidence from suppliers, partners and (potential) customers. Also pay sufficient attention to professional communication.
5. Be daring! ‘Daring’ is very important in a company’s transition to true professionalism.
How does your company score on creatively seeking – and using – financial resources?
Financing Through (the Immediate Surroundings of) the Owner
- Taking out a loan under a private name for the company
- Using the owner’s personal credit card
- Borrowing from family or friends (e.g. win-win loan)
- Having the owners not pay themselves a salary
- Employers work part-time in other organisations for pay
- Family and friends work for the company at the normal market rates
Avoid Customer Pre-financing
- As much as possible, request payment prior to delivery (e.g. through codevelopment)
- Establish procedures to accelerate invoicing
- Establish procedures to accelerate customer payments
- Analyse whether factoring would be advantageous for your company
- Charge overdue interest to late payers
- Stop delivering to late payers
Joint Use of Resources
- Avoid purchasing company properties in the start-up phase
- Borrow materials that you do not need often from other organisations
- Consider joint purchase of major investments
- Coordinate joint purchases to negotiate discounts
- Trade instead of buying/selling (e.g. media sponsors)
- Initiate joint sales efforts with complementary organisations
- Develop win-win relationships with other partners
- Buy second-hand materials
- Lease and rent goods instead of buying them
- Negotiate long payment deferments with suppliers
- Co-develop new products in collaboration with suppliers
- Develop procedures to optimise stock control
- Negotiate Just-In-Time procedures with suppliers
- Find out about all of the subsidies available to your company (e.g. via Agentschap Ondernemen / Enterprise Agency)
- Request all subsidies that apply to your company
Creative Use of Personnel
- Fill temporary personnel shortages with interim personnel
- Students can be an inexpensive addition to your workforce
- Students on work placement often work for free in the context of their studies
Tom Vanacker, Sophie Manigart, Miguel Meuleman and Luc Sels. A Longitudinal Study on the Relationship between Financial Bootstrapping and New Venture Growth. Entrepreneurship and Regional development.