So you have a new online business and want to get it up and running. As we all know, money is scarce and both VC’s and Angels have tightened their belts. Angel investors are trying to stay a bit more liquid and really looking hard for the right investment. Often times they are looking for proprietary technology rather than service based businesses. The problem with that as an entrepreneur with a new company is that its take time and money to develop proprietary technology. So how does someone with a new start-up tackle the challenges and stresses of bootstrapping?
These economic times are going to forge smart, savvy, and tough minded business people because we will all be forced to make hard decisions and in the long wrong might be better off for it. Not getting those much needed investments can often turn out to be a blessing in disguise. You will be forced to work hard, keep your company lean and mean, and focus on your core initiatives.
Step 1: At first, focus on cash flow rather than profitability (this will quickly change of course and profitability will be your life line). The reason for this is that you will have expenses and your own bills to pay (need cash to pay them). Keep your overhead as low as possible and pay your bills on time.
Step 2: Forecast from the bottom up not the top down. In so many business plans you see people making projections based on the percentage of the market they plan to capture…usually it is the standard 1% to 5% depending on the industry. Rather than make these estimates, keep it more simple. By focusing from the bottom up you can project the productivity of your team, the ability to sell a certain amount of your product or service each month, and the growth plan for each component.
Step 3: Hire people you can actually afford. It may not be the time to go out and build your dream team. This can lead to a massive payroll expense and overstaffing issues. You will end up having a bunch of high paid people sitting around doing nothing. Make your team building strategy gradual and understaff if you can. This will lead to each team member having to work a little harder but so what…thats part of the start-up experience right? Once you hit a threshold where you think quality might start to suffer, go hire another person.
Step 4: Make good hiring decisions. You can’t afford to waste money on people that will not produce for you. Have a formal hiring process even for your lowest level positions and call references given. At the end of the day though you have to go with your gut feeling. I have hired people who I knew would be great even though one of the references was not that great. It turned out to be one of the best decisions we have made.
Step 5: As mentioned above, even if you plan to develop proprietary technology, you may not have the resources to start with this at the beginning. This will take time and significant resources. Have a service you can sell that will build a client base and get your name out there. This can include providing consulting services related your industry and future proprietary offerings.
Step 6: Don’t spread yourself thin. Focus on your core competencies and internal processes. The more formal your internal process is, the more scalability your model will have.
Step 7: Keep your eye on the competition and have a value proposition that differentiates you from the existing competition. Be ready to answer the question, “Well ABC Company has been around ten years and has a similar pricing model…why should we use you”. The answer can of course include more customer attention, better quality, a unique approach, a niche focus, etc.
Step 8: Accurately project your cash flow. Now how much cash you have; and if you are running negative, by how much? What is your burn rate and how can you decrease/slow the bleed?
Step 9: Have a cost effective Internet marketing strategy in place that will help bring you new business. If you can invest in SEO then my suggestion is to never wait. Creative social media marketing can also be a great way to drive some awareness to your new online business.
Follow some of these basic steps and you will be able to focus on growing your business rather than constantly worrying about investors that aren’t calling you back. In the long run, you will make better decisions and still have controlling ownership of your company!