Have you ever tried to pull yourself up by your bootstraps? Do your boots even have straps?
Being a Mainer for the last 20 years, I of course own a well worn pair of LL Bean boots, and they do have a loop on the back that is a strap to help pulling on the boots. But it’s pretty hard to get myself off the ground by pulling on them!
The term bootstrapping is thrown around a lot when talking about young companies starting without much financial support from others. Problem is, it’s a bit of a vague term. Here at Four Colors, it is Color #1 – “Bootstrapping Is Plan A” – and is honored with a precise definition and a rather expansive framework.
Bootstrapping is the use of founder financial resources, clever techniques and reinvested profits to supply a young or growing company with needed cash without turning to Other People’s Money.
Back when I was developing the curriculum for the Top Gun accelerator, I did a lot of research on bootstrapping because I didn’t find anyone thinking rigorously about it, the way people think rigorously about debt or equity financing. I think I read about a hundred articles that all mentioned bootstrapping, and a read a couple books with Bootstrapping in the title (they weren’t bad books, just more about general entrepreneurship than bootstrapping-as-financing).
First off, I disregarded people who include “friends and family” under the bootstrapping category. As I’m sure I’ll be writing about, “friends and family” money is Other People’s Money, and it definitely isn’t free or without consequences!
As I read the articles and started cataloging all of the techniques entrepreneurs have used to make things happen with tiny amounts of cash, some patterns started to form.
One way to sort through the approaches is based on company stage of development. Some techniques, like starting in your basement or spare bedroom (I did the latter for my a cappella music business) are more for pre-revenue, get the thing started without spending too much. Others, like asking vendors for longer payment terms instead of price discounts, are useful only when you are generating revenue. And yet others, like foregoing owner drawdowns and reinvesting in the business, are reserved for that magical time when your business is cash flow positive.
The analytical part of my brain really kicked in as I saw three themes across most of the techniques:
- Time Shifting cash – making cash come in sooner from customers and making cash go out slower for stuff you need
- Magnitude Shifting cash – make the incoming cash pile bigger and the outgoing cash pile smaller
- Substituting cash – use other stuff you have or can do to get stuff you need
I think these three themes cover every bootstrapping technique I’ve found. Let me know if you can think of something that’s not in these three. And, if you find anyone else who thinks about bootstrapping in an organized way, please let me know!