Some great articles (or references to them) this morning about bootstrapping. Bootstrapping is the art of building a business from its own revenues or resources that you have to repay implicitly. This is opposed to a funded business, which grows based on other people’s financial resources.
Infinity Softworks has been both bootstrapped and funded. When we started in 1997 we received a small angel investment ($10,000) and then in 2001-2002 I raised a round of financing ($550,000). In 1999 I borrowed $10,000 to buy out my business partner. That was repaid in a year and a half. And then in 2009 we borrowed $120,000, which is still being repaid. Except for the funding round in 2001-2 and the few years after that in which it was used, I would argue that Infinity Softworks was bootstrapped the other 15 years.
First, I will point you to a great post by Justin Williams. Justin recently bought an iOS, Android and web service called Glassboard. In Getting Good At Making Money, Justin writes:
If there is one thing I don’t think I excel at as a business man, it is making money. That’s probably not a good thing to admit publicly, but it’s reality. In fact, I’d argue that I’ve gotten worse at making money in the past several years as the third-party software market has bottomed out. Making money was hard enough selling $25-$40 products. Try doing it when your most expensive app is $4.99.
I can relate. Making money the past few years seems like an afterthought. The only thing keeping most of us going is a love for the craftsmanship and product. I feel that way a little, too. After spending more than a decade charging sustainable prices for our products, I’ve forgotten how to value price and feel like the business side of my brain has turned to mush. I’m working on that now.
Given that, Justin (and I) are making money and do remember how to do it. Both of us have been doing contract development jobs to pay the bills. So it isn’t exactly a lost art, it just hasn’t been as focused on product as either of us would prefer.
Next, Theresa Shafer over at SKMurphy, a consulting firm, points to Five Serious Financial Mistakes Bootstrappers Can Avoid. It’s an excellent starting list. More on this later.
Finally, an article in Inc. Magazine from Jason Fried of Basecamp (formerly 37signals) fame (via Manton Reese). In this three year old article, Jason writes about how to get good at making money. In it Jason discusses how he learned to make money and how, like learning any other skill, it takes practice:
One thing I do know is that making money is not the same as starting a business. For entrepreneurs, this is an important thing to understand. Most of us identify with the products we create or services we provide. I make software. He is a headhunter. She builds computer networks. But the fact is, all of us must master one skill that supersedes the others: making money. You can be the most creative software designer in the world. But if you don’t know how to make money, you’re never going to have much of a business or a whole lot of autonomy.
If I have quibbles with any of these articles it is that none of them pound us in the head with the only thing a bootstrapper needs to know: CASH IS KING. Nothing else matters and every decision needs to be made to maximize cash. Yes, all of these articles refer to revenues. But revenue is not cash. Here’s an example: I do a contract development job today for $10,000. When done I submit an invoice and the company takes 60 days to pay. Yes, I have $10,000 in revenues today but I don’t get the cash for 60 days. How do I pay my bills in the meantime?
I am relentless when it comes to managing cash. I have a spreadsheet that gets duplicated and updated with actuals and projections every month. This allows me to make cash flow decisions months before the negative shortfall actually happens, allowing me at various times in the history of the company to ratchet up spending, lay people off, cut payroll or minimize other expenses. Because of this work, I see the company very very clearly on a month to month basis and can make appropriate choices.
It isn’t easy, but I’d never put running a business and easy in the same sentence anyway.
I think it’s a fair criticism that understanding how to do cash flow planning, budgeting, and management is critical for bootstrappers. Accrual accounting will kill you because of the parallax and lags between the accrual and where the cash really is.
Absolutely. Most early entrepreneurs I know don’t fully understand the difference, even without knowing terms like accrual, solvent and liquid. To them a sale is revenue and revenue is cash. It’s important to know they are not the same.
On Thu, Feb 27, 2014 at 9:49 AM, Elia Insider wrote:
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Cashflow is really the only thing I monitor. Bills are always paid on time, tho it can get a bit dicey if projections don’t come in as expected.