Bootstrapping: A term used to refer to the process of using only existing resources, such as your own personal savings, personal computing equipment, or garage space, to start and grow a company.
One of the most common myths about starting a business is that you need funding. A search of some of the most famous companies in the world, like Dell Computers, Apple, Microsoft, Facebook and Coca Cola, will show that for many enterprises, very little capital is needed to get started.
An example of one such South African company is Fetola, a small business development company that has helped thousands of small businesses become sustainable. Founder and CEO, Catherine Wijnberg – whose specialty is lean startup strategies – started the company from her dining room with just a laptop and an idea.
“The starting point is to identify a market, in other words, something people need and will pay for. Family, friends, or church community are great starter markets for small businesses,” advises Wijnberg.
If you see there is a demand for a transport service, you could create a solution by finding your first client, then finding someone with a vehicle and putting them together for a small fee. In essence, this is what Uber is – they are the match-maker in the middle and don’t own a single car. Similarly, if fashion is your thing, you could help someone to choose or create a design, assist them to buy the right fabric and then outsource to a seamstress for a small fee. You could do the same with cakes, parties, cleaning services.
The opportunities for service-orientated businesses are almost endless, and once you have something that works, you can refine and improve it until you have built yourself a business of real value.
“If you think that starting a business in this ways seems like long and hard work, you are right. The reality though is that most successful businesses are just like that – the difference is that if this is your passion, it won’t feel like hard work at all; it will feel like a miracle is unfolding right there in your dining room or your garage,” says Wijnberg.
Nowhere in the world is it easy for people to get money for their first business idea. Most people’s first ideas are just a trial run for the real thing, which is why it’s so important to just get started. Encourage your kids to try a business adventure while still at school so they (and you) can get used to the idea of little failures along the way, which are just the lessons you need to succeed in the future.
Investors and funders are looking for businesses to put their money into, but first, they want to see your track record, feel confident that you know what you are doing, and are a good investment risk.
For this reason, it’s really important to keep a full financial record of your early business journey to use as evidence. Once you have proven your business model and shown your own determination and business skills, the money for growth finance will be easier to obtain.
How we did it: Three entrepreneurs share their bootstrapping stories.
LUCIEN THOMAS is the owner of Afrimealz, which provides healthy, cost-effective meat alternatives to health conscious as well as poorer communities.
“I did not have any funds to start my business, but it did not stop me from venturing into the unknown. I was a technical manager in a food company and when I resigned, I believed that my provident fund would carry me through until I started getting a steady cash flow. It did not happen as planned, and soon all the funds were spent on paying bills and no turnover.
I bought a scale and a heat sealer, and with these assets I started packing down commodities into smaller units which I sold. Bootstrapping was the only means of survival, as I did not want to incur more debt by borrowing money from the bank or family. My bad credit record was also a hindrance; I applied and was rejected every time.
This is not the most practical way of starting a business, but if you continue focusing on alternative means of obtaining revenue then it pays off. The revenue generated was placed back into the business. I did not receive a salary, but there was a steady growth with turnover. It made me realise that I did not need funding for the day-to-day operations, but I might consider funding or a bank loan when I want to scale. Bootstrapping also forced me not to spend money on unnecessary items or wasting time on fruitless ventures.
I don’t wish I had done things differently. I am more confident and less dependent on other’s money to become a success. I had to think outside the box, be more creative, innovative and always look for the next hustle. If I had been funded, then my approach would have been disastrous, and I would have spent funds on unnecessary items. Bootstrapping helped me become disciplined.”
NOMASWAZI TINUS is the owner of African Mamas Crafts, which sells a selection of handmade, beaded accessories, home décor products and gifts made by women entrepreneurs in rural areas.
“When I resigned from my corporate job, I used a portion of my provident fund to start African Mamas Crafts. There are different ways of accessing funding, as well as different sources of funding which all have their own requirements. I started my business with my own funding, because I wanted to test the concept or idea I had at the time.
I have a social science background, BSc (Hons) Geography, and have worked for a number of years in the planning and development space. I was challenged by research around the livelihoods of women in informal settlements and urbanization of South African cities. I therefore wanted to create urban-rural linkages to help provide income for rural families and support rural livelihoods. Because I grew up in Lusikisiki in the Eastern Cape, I am passionate about supporting the development of rural communities.
I learnt that it’s OK to start with what you have and where you are, but every business needs funding to grow and access the next level of growth. You need to learn to manage what you have well and make it grow i.e. manage your personal and business finances wisely.
You must keep good financial records and get help to draw up annual financial statements. This is key in terms of checking your progress and growth as well as accessing funding in the future. No bank or funding institution will fund you without a record of how you’ve managed previous and current funds. When you invest your own funds in the business, it challenges you to put in the effort to make it work.”
SENZO SHOZI is the owner of Gabhisa Concepts, a landscaping company that offers the full spectrum of services from conceptualising to garden installing, consulting and maintenance
“I started my business without funding, because I simply didn’t have the money. I couldn’t even apply for funding because I did not have 3 months of business account bank statements, so, I had to make something out of nothing. I tried many funding institutions, but I could not meet the minimum requirements.
The first, most important lesson I learnt by starting my business without funding, is that I had to humble myself to take every job that came my way. I could not afford to miss any opportunity. I looked for ways to stand out from the crowd and keep my clients coming back.
I was reliable to my customers who in turn became loyal to my business. I paid attention to details on every job and this quality service set me apart from my competitors. My customers had faith that I would deliver good service consistently. My pricing was also competitive, and this is crucial to the long-term survival of any business.
My advice to entrepreneurs looking to bootstrap:
- Always strive for exceptional customer service.
- Know how to manage time: for operations and strategy.
- Create targets and set achievable goals.
- Employment and recruiting key professionals will help you grow faster.
- Record keeping and knowing your financials is key.”
More bootstrapping tips:
- Create a Minimum Viable Product (MVP). It all starts with a minimum viable product – a product or service with enough features to attract early-adopter customers. With very little money, you’ll need to ensure that your business idea is something the market wants.
- Upskill yourself: Go online and sign up for free or cheap courses to learn basic skills, such as financial and cash flow management, marketing, etc. There are also many coaches, free mentorship and business development support programmes in South Africa. Don’t outsource jobs you can learn to do yourself.
- Swap and barter: You may not realise it, but you have skills, products or even contacts that other entrepreneurs may want and vice versa. Find out what they need and what you may be able to provide in exchange. Even small things like swapping social media posts can make a difference and keep costs down.
- Stay disciplined: Your business is more important than eating out or wearing the latest fashion. The more you can deny yourself immediate material pleasure, the better chance you’ll have of getting your business off the ground.
- Avoid debt: Bootstrapping is not about accumulating credit card debt or a line of credit. All debt does is add monthly payments and interest, which means cash flowing out of the business. Plus, it may encourage you to buy things you don’t actually need. Instead, stick to the idea that you can only use the cash you have on hand. It may mean that you need to maintain a regular income stream while you are building your startup or keeping your regular job in the meantime.
- Keep the business separate, and do the admin! Try to separate personal expenses from business costs. If you don’t, you will mismanage money and spend it at a faster rate than anticipated. Instead, keeping separate accounts and records can help you identify where you can cut unnecessary spending. Starting a new business involves bureaucracy. It’s important to comply with all regulations and file the necessary paperwork to avoid feeling overwhelmed months down the line.
- Maintain a budget, and watch your cash like a hawk: It’s easy to get excited when sales start and spend accordingly to the new bottom line. However, you are still in startup mode and bootstrapping continues – keep that mentality for as long as possible. Keeping track of expenses and profit is equally important. Avoid unnecessary overhead costs.
- Don’t be cheap: Your product or service needs to do the talking. The proof really is in the pudding. If you’re offering a quality product or service, you’re halfway there. Although bootstrapping means being conservative, there are places that you will need spend more to ensure you get the best quality materials or that top talent. Invest in things that will help you grow.
- Get social: Few early-stage startups can afford PR and marketing services. Social media, however, offers a powerful channel to reach potential clients and create buzz.
- Pick a co-founder wisely: Should you wish to have a partner, remember that co-founders need to complement each other’s skill sets. When bootstrapping, the majority of work is done internally. Having two perspectives heading the company can be critical.
- Pick your opportunities carefully: Opportunities may come your way, but remember that some will come at the expense of having to modify your operational model or product offering. Evaluate these opportunities before jumping on them: Seize them if they’re aligned with your long-term goals, and decline if they’ll just become a huge distraction.
- Don’t take “no” for an answer: When you’re so small, some vendors and suppliers won’t want to work with you; it will take a personal touch to get what you need. Work to build personal connections, and don’t be afraid to share your story and appeal to people’s human side. To succeed as a bootstrapped startup, you have to persevere for the answer you need.
