The Art of Starting from Scratch

Original Author: Guy Kawasaki

Translator: Zhuo Chen

Original Link: The Art of Bootstrapping

Someone once told me that the odds of a startup getting venture capital are about the same as standing in a swimming pool on a sunny day and getting struck by lightning. That analogy is still too optimistic.

You may not be able to raise any money for certain reasons: you're not a "convincing" team, you don't have "convincing" technology, you're not in a "convincing" market; or your company simply doesn't have "venture capital potential"—meaning there's no chance of going public or being acquired for a large sum; or perhaps due to government or environmental factors, your organization cannot deliver products. So, should you give up? Of course not!

I can provide examples showing that for most companies, having too much money is worse than having too little—this is not to say I wouldn't want to run a Super Bowl-level business one day. But until then, the key to success lies in bootstrapping. This term comes from the German story "The Adventures of Baron Munchausen," where the protagonist pulls himself out of the sea by his own bootstraps. Here are some tips on the art of bootstrapping:

1. Focus on cash flow, not profitability. In theory, profit is the key to survival. The problem is, theory doesn't pay the bills. In reality, you use cash to pay the bills, so focus on cash flow. If you're bootstrapping, your business should have these characteristics: low capital requirements, short sales cycles, short payment terms, and recurring revenue. This means passing on big deals that take 12 months to order, ship, and collect. Cash is everything for bootstrappers.

2. Forecast from the bottom up. Many entrepreneurs do top-down forecasting: "There are 150 million cars in the U.S. If only 1% of those cars install our satellite radio system in the first year, that's 1.5 million systems." Bottom-up forecasting looks like this: "In the first year, we can open 10 installation points. If each point installs an average of 10 systems per day, the first-year sales will be 10 points × 10 systems/day/point × 240 days = 24,000 systems." Even the conservative estimate of 24,000 is far from the 1.5 million in the top-down forecast. Which one do you think is more achievable?

3. Ship, then test. I've already heard the criticism: "How can you suggest sending out imperfect goods?" Wait, wait. "Perfect" is the enemy of "good enough." When your product or service is good enough, get it to customers as soon as possible to generate cash inflow. Moreover, spending more time doesn't guarantee perfection—it just creates more unnecessary features. After shipping, you'll learn what real problems customers need you to solve. Of course, this requires balancing your reputation with cash flow: you obviously can't send out junk, but you also can't wait for your product to be perfect. Note: Companies related to life sciences should ignore this advice.

4. Forget the "proven" team. A proven team is too expensive—especially since most people define this as a group of individuals who worked for super-large companies over the past decade. These people are accustomed to a specific lifestyle, but it's certainly not the bootstrapping lifestyle. Hire young, cheap, eager workers—people who pick things up quickly but don’t necessarily have comprehensive experience (people with fast chips, but not necessarily a fully functional instruction set). Once you achieve significant cash flow, hire experienced managers. Until then, use people you can afford and train them into great employees.

5. Start as a service business. If your idea is to eventually start a software company and sell your software to people, that's a clear business with a solid model. However, before your software is ready, you can offer consulting services based on your intermediate product. There are two benefits: immediate income and real customer testing. Once your software has been tested and proven through various trials, you can transition the company into a product-focused entity.

6. Focus on function, not form. I love good "form." MacBooks; Audis; Graf skates; Bauer sticks; Breitling watches. You could list many more. But bootstrappers buy for function, not form. The corresponding functions of the above forms are: computing; moving from point A to point B; skating; skiing; telling time. These functions don't require the expensive forms that I admire. A chair is meant to let your butt sit on it; it doesn't need to look like it belongs in a modern art museum. Design classy things, but buy cheap ones.

7. Pick your battles. Bootstrappers choose their battles wisely. They don't fight on all fronts because they can't afford to. If you're opening a new church, do you really need a $100,000 multimedia audio-visual system? Or would the gospel delivered from a pulpit suffice? If you're building an ad-supported website (a content [...])