BOOTSTRAPPING – How to create a profitable startup without the help of an investor?

Each day we see new startups crop up around the world. Most of them fail in the first dozen or so months. Only a handful achieve market success. Creating a profitable company is an arduous process that requires a lot of time and money. In the beginning every startup needs funds for development, but without clients your chances of getting an investor are close to zero. How are you to fund the development of your startup? The answer is simple… from your clients!

Bootstrapping is a way of conducting and developing business based on your own funds and income. This means you will not be enjoying financial support from outside sources that might otherwise help you establish and develop your operation. If you are bootstrapping your company, you need to base your actions on your income. The only way to get additional funding is to convince your clients to pay for your services. To achieve this you need to provide them with value and make them satisfied.

There is a lot of startups that achieved success by bootstrapping, GitHub, Mailchimp and Envato to name a few. One of the biggest success stories is that of Jason Fried and David Heinemeier Hansson, the creators of the Basecamp app, used by millions of people from around the world.

The main problem of bootstrapping company is limited resources, so you should avoid squandering time and focus on actions that move your operation forward. Before committing to a product it is good to know that you are providing a solution to an existing problem and that users are willing to pay for it. This way you will avoid creating a high-tech startup that will solve a non-existent problem. Making a product that deals with a user’s problem does not guarantee a profitable business though.

There a handful of situations you might be dealing with:
1. You’ve solved your clients problems, but the total capacity of the market is too small to make the business profitable,
2. You’ve solved your clients problems, but acquiring clients is too costly,
3. You’ve solved your clients problems, but the competition is too high and acquiring clients is too difficult.

How to avoid those situations? The quickest way is to validate your assumptions. Creating the final product is not advised. First you only need to create your startup’s  landing page that will explain the problem and your solution. Other useful information you should put on the page include the price of your product or service and, most important of all, a button that will lead to a registration form.
The next step after creating the webpage of your startup is ensuring it is visited by your first users. You can generate traffic in a lot of different ways – free ones (through Hacker News, Product Hunt, Reddit, Facebook groups and LinkedIn) and premium ones (paid advertisements on Facebook and Google or through an advertising network like  BuySellAds or Carbon).

This way you can get contact information from at least 1000 people interested in your product. You can conduct interviews and gather feedback from those connections. It is important to define a demographic profile of your potential clients. Based on those interviews, you should identify the minimal functionality set that your product needs to offer to be of value to your clients. The next step is to create a bare-minimum version of your product, that you can then pass on to your users for testing. At this stage you should start charging your potential customers. You should acquire at least 20-30 clients this way. If you fail, you should considered a different value proposition of your product, a different target audience or cease further operations altogether.

Remember, your product does not need to be ideal from the start. Leave some space for mistakes and provide only the minimal functionality needed to solve the problem of your users. Targeting only the bare minimum of functionality will save you a lot of time and money and also let you evolve with each added function. Further development of your startup should be conducted in close cooperation with your users. It is good to create only those functionalities that are anticipated by your paying customers. Feedback and requests from free account users are of a much lower priority, because there is no guarantee that fulfilling them will net you new customers. Reliable support of your product is also of utmost importance. If your clients encounter problems, they need to have an easy way of contacting you to troubleshoot them. If you maintain a high level of satisfaction among your clients, you will lower the customer drop-off rate considerably.

Bootstrapping has its disadvantage, as well as advantages. A company using this method needs to keep its costs in check at all times, and that can hamper its development early on. On the other hand, it forces a company to focus on the main thing important for profitability growth, that is customer acquisition. Bootstrapping also allows for development of a company and the multiplication of its value, which, in the event of acquiring funds from outside sources, will result in a higher final appraisal of your company. ■