RTC #23: How to be successful when bootstrapping your startup?

Before we dig into today’s issue, I have a quick favor to ask you.

Each week I spend several hours crafting this email entirely for free. It’d mean the world to me if you could share Road-To-Capital with just 1 person who you think would also enjoy it.

Here’s your unique referral code you can copy and paste:
https://www.roadtocapital.co/subscribe?ref=PLACEHOLDER

Or if you’re feeling lazy, you can just forward this email and tell them to click on that link and subscribe. 🙏 🙏

📢 Top 7 links of the week

• What is the most used startup database and which one comes out best? (Link) - My favorite this week

• When a startup attracts great talents and micromanages them (Link)

• Companies with the most optimistic valuation outlooks are talking about ESG a lot less than they used to (Link)

• Whenever a (pre-seed/seed) CEO is sending someone else to a meeting with a VC instead of going themselves, this is what VCs think (Link)

• Where did all the unicorns go? (Link)

• This has been Elon Musk’s master plan since 1999 (Link)

• 10 things nobody tells you about working for a startup (Link)

📖 Report of the week

Scaling from $1 to $10 million ARR: Bessemer Growth’s early-stage playbook on how to make effective scaling decisions to become a strong Series B+ company.

Example “Team”: Bessemer recommends hiring functional experts at the following levels:

• Sales expert by $1 million ARR

• Product expert by $2 million ARR

• Marketing expert by $4 million ARR

• Finance expert by $8 million ARR

Get the full playbook here.

🤿 How to be successful when bootstrapping your startup?

The question of whether to take VC money or bootstrap your startup is one of the oldest ones in the history of startups.

I also had an issue discussing this topic a couple of months ago 👇

• VC money or bootstrapping?

In today’s issue, we will look at the situation when you decided to bootstrap your startup and I have defined 5 principles you should consider to do it right.

Definition and different methods to “bootstrap” your startup

Let’s start with a definition of what “bootstrapping” actually means:

Secondly, let’s define different bootstrapping methods to (self)-finance your business:

• Owner Financing: The use of personal income and savings

• Personal Debt: Usually incurring personal credit card debt

• Sweat Equity: A party's contribution to the company in the form of effort

• Operating Costs: Keep costs as low as possible

• Inventory Minimization: Requires a fast turnaround of inventory

• Subsidy Finance: Government cash payments or tax reductions

• Selling: Cash to run the business comes from sales

Five principles to bootstrap successfully

I think the way the Cambridge Dictionary defined the term “bootstrapping” above, particularly by emphasizing ambition as an example, tells us a lot already.

There is quite a different strategy and approach needed when you start your business with limited funds than launching a well-capitalized venture.

Let us have a look at what this means in practice 💡

✅ Get operational quickly (“Execution”)

This is the fundamental principle: execution is the only thing that counts.

You need to get started from the day (minute) one. There is no time for planning or strategizing the “Big Idea”. Yes, it is good to have the vision and the ambition of this “Big Idea” but break it into a series of ideas: Start with the first portion and follow up on the other sections later, step-by-step.

Remember: In most instances, a company will be successful in its execution of a business idea, rather than the idea itself.

✅ Focus on quick break-even (“Cash is king”)

This is what funds the business. Simple as that.

But there is another, second aspect to it: a business that is making money, elegantly or not, builds credibility in the eyes of suppliers, customers, and employees, as well as (and not to forget) it is good for your self-confidence as an entrepreneur.

Who doesn’t feel good generating cash? 🤑

✅ Scrutinize costs and cut down wherever possible (“Maximum cost control”)

There's no room for inessential spending and expenses. Limit your overheads as much as possible and take special care to expand only at the rate you can afford and control.

Keep a close eye on costs from the day of launching, but also review every few months to keep maximum cost control.

✅ Start building a relationship with banks before your business becomes creditworthy (“Bank relations take time”)

Bank loans can become a very attractive and cheap alternative for financing your future growth. But winning bankers over requires preparation and careful timing.

Maybe not something you think of as a priority at the beginning but start cultivating a relationship early on. You will benefit from it later when you need it.

✅ Don’t get distracted by future strategies and goals (“Focus on the present”)

At VC-backed startups, future market shares, profit targets, etc are part of the strategy, and it is assumed to pursue several strategic goals and sell at a loss in anticipation of scale economies or learning curve advantages.

But as a bootstrapper you must earn healthy margins, practically from day one, not only to cover the company’s costs but also to finance growth.

Concluding remarks

These five principles provide you with a framework for your bootstrapping journey. Here comes the short version so you can memorize them even better 🧠

1. “Execution, execution, execution”

2. “Cash is king”

3. “Maximum cost control”

4. “Bank relations take time”

5. “Focus on the present”

How I can help you

Explore today’s topic further with these useful reads

📅 Calendar of main VC events in the upcoming weeks

“Networking is a lot like nutrition and fitness: we know what to do, the hard part is making it a top priority.”

May
• Finovate Spring | San Francisco, US | May 21-23
• Infoshare | Gdańsk, Poland | May 22-23
• Viva Technology | Paris, France | May 22-25

June
• NOAH Conference | London, UK | Jun 3-4
• SaaStr Europe | London, UK | Jun 4-5
• SuperVenture | Berlin, Germany | Jun 4-6
• Money20/20 Europe | Amsterdam, The Netherlands | Jun 4-6
• SuperReturn International | Berlin, Germany | Jun 4-7
• Bits & Pretzels HealthTech | Munich, Germany | Jun 5-6
• South Summit | Madrid, Spain | Jun 5-7
• London Tech Week | London, UK | Jun 10-14
• TNW Conference | Amsterdam, The Netherlands | Jun 20-21

👉 Get the full list of events in 2024 here

This was it for today!

If you share Road To-Capital with one person who might also enjoy it - you would make my day!

Thank you so much.

Yours,
Stephan 👋

Issue #23 | 21 May 2024