I’ve been writing a lot about bootstrapping lately – my favourite entrepreneurial word. Partly this has been in the context of the funding required for a start-up business, which is far less than many people assume. Much of the propaganda states that start-up companies must be well-funded. Yet this is not my experience. Most of the successful start-ups I know started small and stayed within their means for the first few years of operation. Meanwhile, many of the swanky companies that strutted around showing off their venture capital (VC) “round” of funding were in reality driving at break-neck speed towards a brick wall.
In his book Start Small, Finish Big (2000) Subway sandwich-chain founder Fred DeLuca (written with John P. Hayes) describes how he started with less than $1,000 worth of investment and bootstrapped his way to a fortune, citing Kinko’s founder Paul Orfalea as another example.
“Start small,” he implores, “it is better than never starting at all.”
By starting small, he states, we learn what to do and what not to do.
“Just because it is small doesn’t mean the business can’t grow,” he writes. “And while it is small you will have the time to learn the lessons that are essential to your future success.”
This is reinforced by two U.S. entrepreneurs Anthony Iaquinto and Stephen Spinelli Jr in Never Bet the Farm (2006). Indeed, starting with a shoestring operation is their ninth principle (of 15) for entrepreneurs.
Modest beginnings cushion your business against financial losses, they state, while the need to be efficient with money can spark creativity. And, if costs are kept low start-up companies can charge less for their products, meaning they can undercut the competition.
“Never reach for a gallon when you only need a quart,” is their pithy way of describing bootstrapping, although I would add some more practical measures:
Offices – the quickest way for any company to go bankrupt is to take high-spec office space that suits the inflated ego of the CEO rather than the cashflow of the company. If the office is a showroom for clients, this may – perhaps – be acceptable (although why not be clever and renovate a quirky space in the wrong area?). If not, a short-lease in a tired building in the secondary business district is an imperative, especially since there are no longer any IT barriers. Of all the business failings I’ve seen, the most common cause has been the inability to pay the landlord. If a flash office is a must (for meeting clients perhaps), you could always find the company with the office you most covet and approach them for a sublet on a desk-rate basis. My guess is at least one in four will agree.
Furniture – one rule of any central business district is that there is more office furniture in circulation than there are offices to put it in. If a bit of mixing and matching is acceptable, I reckon an office can be furnished virtually for free – something we managed at Moorgate because the landlord had a storeroom full of furniture from a previously bankrupted tenant (nice stuff it was too – no doubt from a company that had burnt through its VC money).
Computers and other equipment – again, don’t buy the best. Our printers are from eBay and our computers collected from a variety of unlikely places (though swept for bugs and backed-up nightly). They do the job and are unseen under the desk, so – unless you absolutely need high-spec computers – just buy the minimum needed only when needed.
Transport and travel – take the tube or the bus. Never take taxis – they were for when the old company footed the bill. As for air travel – I used to envy the guys at the front of the plane. Now I see it as their compensation for having to work for some soulless organisation that’ll make them redundant in a heartbeat.
Entertainment – don’t throw big parties. They are impersonal and wasteful and you’ll never compete with the big boys. Targeted one-on-ones are far more effective, or maybe some (very) judicious mixing. And instead of a headline-grabbing restaurant why not source an intimate family-run bistro (maybe outside the central business district) and make it your own. If you go often enough the owner will greet you like an old friend, which will act as an informal business reference to boot. Bonding events for staff can be treated in the same vein – even the end-of-year gig. Again, fantastic Christmas parties are for the corporates offering compensation for a yearlong endurance of a soulless organisation, although young employees may value them nonetheless. Instead, I buy the team individual gifts, usually a nice book tailored to the preferences they have shown throughout the year. And the family-run pub host our very atmospheric and festive gig.
Recruitment agencies – use only as a last resort. With both Metrocube and Moorgate I have been almost constantly recruiting with about a 50 percent success rate over all (i.e. keeping an employee to the point they are promoted). Yet I have noticed that staff sourced from recruitment agencies are no better – though sometimes better qualified – than those I have sourced from free or cheaper options such as the gumtree.com or Craigslist. We have also learnt to be clever – online university careers boards are a great option, and we offer incentive schemes for staff introductions. Anything is better than the dreaded 20 percent of annual salary agency fee for a candidate that had, usually, done no more than put their CV on monster.co.uk, or had simply answered the agency’s advert on gumtree.com.
Club memberships – avoid. Especially in London (though I suspect other cities are no different), the noughties saw a proliferation of private members clubs for PLUs and wannabe PLUs. Yet unless our potential clientele consists of Shoreditch Twats (or their equivalent in other cities) or trainee or junior architects and graphic designers you are simply wasting your money. If you need such clubs to impress clients they are nearly all desperate enough to rent rooms by the hour (and those that are not are probably too trendy to make a good impression on a client).
Otherwise, such clubs will suggest to a client that you are either trying too hard or are perhaps too keen on your social life. Many even have a no suits rule, which is hardly the way to make your clients feel comfortable. Instead, why not be imaginative and meet contacts at an art gallery or museum café – some, such as the Tate Modern in London, even have membership areas for a fraction of the price of those up-themselves hangouts?
I would also extend this rule to those overly-flash gyms. Certainly, my gym membership is a vital part of my existence – my bolt-hole when the stress is getting to me, as well as my daily sanctuary allowing me to think and reflect and produce enough endorphins to get me through the day. Yet it’s in the same building as our office and, given the tired building, is also a somewhat tired gym, which I love. The monthly fee is less than half that of the flash gyms in the same area and has all the equipment I need. It also has friendlier staff – not least because they leave me alone.
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