BBBT IV – The Startup Garden – Bootstrapping
This is the conclusion of our interview with Tom Ehrenfeld, author of the book ‘The Startup Garden’. Just to let you know the BBBT will continue on Monday on with Anita Campbell at Small Business Trends so please visit Anita and see what questions she has for Tom. Thanks Tom for coming by and hey everyone out there, Buy Tom’s Book! You won’t regret it!
Q. It’s been great to have you here today Tom! I want to talk to you about one final topic and that is the one covered in your chapter ‘Bootstrapping’. For those of you who don’t know bootstrapping is pulling yourself up by your own bootstraps, or making it all happen yourself without outside financing. If you, as a business owner, were offered financial assistance while following the strategy of bootstrapping would it ever make sense not to take that financing, barring any unusual requirements placed on obtaining the financing? Also, do you know of any situation where bootstrapping has actually hurt a business or is it overall just a good thing to do?
A. Bootstrapping speaks to the issue of individual and operational resourcefulness and productivity. Companies that tap into finance efficiently generally tend to be well-run, focused on profitable transactions, free of waste, and focused on the customer. Being frugal in and of itself is not the ultimate goal. Being mindful of that fact that the vast majority of startups have limited resources to leverage, and that the odds of success are greatly slanted towards those that use these resources effectively, is in my mind a better way of thinking about bootstrapping.
The hazard of having too much capital is that it can create both glaring and hidden costs that cause a company to lose focus and to develop bad habits. Virtually every loan comes with terms?there is no such thing as free money, period. The question is: what are you giving up in return for fueling your venture? An equity stake? Promise of regular repayments regardless of your company’s current performance? Control of your startup? The right for someone to kvetch and intrude in a manner that wouldn’t be possible if the money didn’t create new yet tacit agreements?
I’m also not arguing that companies strive for less working capital than they actually need, for that can be debilitating and distracting too. Conduct a realistic analysis of the finances your venture will need, under best and worst case scenarios. Test this hypothesis by vetting it with
people who really know the industry. Husband your resources wisely but keep the broader goal in mind.
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