The Benefits of Bootstrapping: 6 Things You Need to do in Order to Succeed Without Investors




benefits of bootstrapping

Have you ever seen the show Shark Tank? If you haven’t, it is a reality show that features various inventors and business owners pitching their businesses to a panel of entrepreneurs (sharks). The goal is to strike a deal that exchanges entrepreneurial funding for a percentage of the business.

Shark Tank is immensely popular, and when a plucky business owner strikes a deal with one of the sharks, the music swells and the audience is led to believe that this is the beginning of their success.

It makes me cringe.

I have been working as an entrepreneur in Los Angeles for more than twenty years. I have founded and sold a variety of businesses, and the companies I have developed currently exceeds $1.1 billion in valuations.

I have been fortunate to enjoy tremendous success, and in my experience, it is always better to grow a company without the interference of investors. Investment is not the way to launch your company into the stratosphere, despite what most people believe.

Once you accept funds from an investor, you are beholden to them.

Their ideas, desires, and financial considerations cannot be ignored. The moment you accept external funds, you relinquish control of your business. I firmly believe that start-ups will soon have more options for funding, but at the moment, I encourage entrepreneurs to chase success without the support of investors.

After all, bootstrapping is the American way. We need to stop seeing investment as the finish line and start seeing it as an albatross. If more people found ways to keep their start-ups independent, the creative minds that are responsible for these startups could retain control.

I have been starting and running businesses without investment for years, and I have developed a few key practices that have allowed me to avoid outside funding. Here are the six tips every business owner and entrepreneur needs to do in order to achieve success without external investment.

  • Prioritize Profits

In recent years, businesses operating in the red have become trendy. Amazon famously spent more than they made for over a decade, but companies like Amazon are the exception, not the rule.

I see a lot of business owners overspend on office spaces, branding, marketing stunts, and corporate perks when they should be focused on creating a product or service that people will pay money for. Investor money tends to lull business owners into a false sense of security.

They think: Well I have all of this money, why not go on a golf weekend with my executives to inspire them? Instead, business owners should be using profits to inspire their executive team, not perks.

I see the generation of revenue as the turning point of a business.

Before your company actually starts making money, it is nothing but a foundation. Too many people get stuck on the foundation phase and forget to focus on the build of the actual house. They spend hundreds of thousands on a gorgeous website, rent a luxurious office space, and launch expensive marketing campaigns before ever selling a thing.

As a business owner, you are responsible for setting a profit-first culture. Get your executive leadership aligned on profit goals early, and reinforce them often. Remember that a company does not need a huge trade show installation, catered lunches, or celebrity endorsements to succeed.

All of those things can certainly help to grow a business, but the first stages of any company should consist of a strict strategy that focuses on bringing in more money than is spent.

If you are worried about this attitude creating dejection among your team, don’t be.

People respond to the culture you set up for them. Instead of handing your team perks before they deliver results, offer them perks as a reward for results. Instead of treating your team to lunch every Friday, only treat them to lunch when revenue goals have been met.

So many business owners have this backward. Prioritizing profits is the only way to achieve financial success without relying on external investors.

  • Obsess Over Your Budget

When most people think of business owners and entrepreneurs, they think of the fun and flashy side of things. They picture Richard Branson and other rockstar entrepreneurs enjoying the spoils of their good ideas and creative leadership.

The reality is that any given snapshot of a business owner’s life should see them pouring over spreadsheets, tracking every single dollar that their company spends.

This tip goes hand-in-hand with the first one on this list. Without a complete understanding of every expense your business is subject to, prioritizing profits becomes difficult if not impossible. Knowing your budget is absolutely vital. If you do not know how much you are spending, you cannot know how much you are making.

Nothing makes me crazier than when I see a budget presentation from a business owner who cannot speak to their entire spend. I like to ask these people things like: How much money does your company spend on coffee on a monthly basis? And What kind of per diem do you offer to employees who travel? How much travel do your employees do in any given month?

If they cannot tell me off the top of their heads what their current spend is, then I know that they do not fully understand their budget, and therefore cannot give me a confident answer about their profits.

Watch your dollars like a hawk!

If you want to grow a business without the interference of investors, then you need to watch your dollars like a hawk. When there is no stream of incoming investor money, it means that you are fully responsible for making and managing your own funds, and both your customers and your employees are relying on you to do it right.

There is no one to call for a bailout. You are the last line before bankruptcy, and you need to take that responsibility seriously.

  • Celebrate Small Wins

Success is a game of inches. It does not happen overnight. You can obsess about your budget and prioritize profits all you want, but it is equally important to understand that money will not magically start rolling in. At the beginning of any business, the wins are small.

The goal should be to develop a steady stream of small wins that swell and grow into a massive over-all win. Every dollar of revenue, every sale, and every customer conversion should be celebrated since it contributes to a larger whole.

I said earlier that business owners set up a culture of profit prioritization. Similarly, they set up a culture of celebrating any and all wins so long as each win is understood to be in service of their profit prioritization.

Think of it this way, success on day one may be one customer conversion. Success on day 365 might be 200 customer conversions, but does that make a single customer conversion any less important? It does not, since your success on day 365 is actually made up of 200 small wins.

Incremental improvement is what success is.

It does not look the way most people expect it to since it happens gradually and over time. This fundamental misunderstanding of business success is why so many contestants on Shark Tank are thrilled when they get their investment. They think that a big sum of money equals success when in reality true and independent success happens gradually.

As a business owner, if you take a moment to celebrate each achievement as it comes in and reward your workforce for contributing to your bottom line, eventually your entire business will be a success.

  • Think Like a Lazy Man

Hard work is absolutely necessary for starting and running a successful business, but unnecessary work can mean the death of a small business.

When I was 13 years old I found work on a cattle farm at the California/Mexican border. It was grueling, dirty work (often in 115-degree heat), and I went home every day absolutely exhausted. One day, my boss approached me about a special project. He asked who I would like to select to help me. I chose the man who was the hardest working and most eager to help out. He never shied away from a task, and always did what was asked of him without complaint.

Shockingly, my boss told me that he believed the hard-working man to be the wrong choice, and gestured to a man who was literally sleeping in the dirt. He explained to me that lazy men were often creative thinkers, and pointed out several homespun inventions and pulley systems around the farm that made our job easier every day.

Up until that moment, I did not realize that the lazy man was actually responsible for these inventions. In his desire to avoid hard work, he had come up with creative solutions that made life easier for all of us.

Man hours are one of your most expensive resources.

That lesson has stuck with me ever since, and I have applied it to every company have I founded and run. Man hours are one of your most expensive resources. Do not waste time doing things manually when they can be automated. Always ask yourself and your team: Is there an easier way to do this? And always, always, always, choose the easier way. As a result, your team will be more efficient, your expenses will be lower, and everyone will come to work happy.

  • Never Rely on your Gut

So many successful people claim that they have a “knack” for recognizing a good business opportunity, but the truth is that intuition is nothing more than years of experience at work.

When you are starting a business, you absolutely should not “go with your gut” because your perspective is limited. With every business I have ever started, I have built an airtight model that was designed to generate revenue, and I have lived and died by that model.

Throughout the course of business, people will come up with fun and flashy ideas. They will case study themselves and think: Well if I was the customer, this is what I would want to see. But the thing is, if an idea doesn’t fit the model, it simply is not worth exploring.

Don’t make guesses about your customers.

It is vital to put time and effort into understanding your consumer, build your strategy around that, and then put every new idea through that lens. Do not try to make guesses about what people may like or respond to. Perform tests, lean on what has already been successful, and never let someone’s intuition be the reason behind a major decision.

  • Foster Strong Relationships

The people you choose to surround yourself with have a massive influence on your life. Your friends, spouse, and business partners will all impact the way you think, the way you make decisions, and how you feel about yourself. It is supremely important to be discerning about who you let have your ear.

By extension, who you choose to form relationships with is incredibly important to success. Hard work is not enough. Knowing the right person can open doors that you didn’t even know were there.

I have found business partners, incredible team members, and tremendous exit opportunities through networking. I am ruthless about keeping my network tight and about only allowing in people with a positive influence, and in that way, I have fostered some fantastic and incredibly beneficial relationships.

Who do you know? Who knows you?

Hard work is only part of the equation. The other part is who you know and who knows you. If you only ever work with your head down, doors of opportunity will always remain closed.

When in Doubt, Don’t Take the Money

An investor flashing a check is incredibly appealing, but remember that all money comes with strings attached. It is possible to found and manage a successful business without venture capitalist funds. I have done it.

The sharks on Shark Tank are referred to that way for a reason. They are not your friends. They will keep you lean, hungry, and constantly chasing their goals instead of your own.

Before you find yourself on ABC celebrating a new burden disguised as an opportunity — try these six tactics and see if you can’t do it by yourself. You may be surprised by what you can accomplish.

Image Credit: karolina grabows; pexels

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Original article: The Benefits of Bootstrapping: 6 Things You Need to do in Order to Succeed Without Investors
Author: Blake Johnson