How to emotionally and financially bootstrap a startup
– Finn Peacock, Founder of Solar Quotes
If you are starting a business, the truth is it will probably fail.
We all know the stats. Most new businesses fail. That’s why most successful entrepreneurs succeed on their 3rd , 4th or 5th business.
If they gave up because their first few businesses failed, they’d be back in the rat race by now.
A big secret of success is to not let the initial businesses that fail take so much from you emotionally and financially they you can’t get back on your feet and have another go (possibly after regrouping with a short stint back in the rat -race so you can recover your finances and energy).
How to have Emotional Robustness
Don’t take money from family or friends. If you lose their money this will amplify the stress because you’ve lost the money of people you care about. When this happens you’ll feel really guilty about trying again.
Don’t go into your initial businesses with friends. The success rate of continuing a friendship when a business goes bad is not good. And if you lose your friends you are going to be miserable. Friendships are more important than business. If you disagree with that statement, you need better friends.
Don’t go into business if you can’t handle other people thinking you are an idiot. Why? Because you are likely going to lose money trying out ideas that people close to you will think are crazy. At some point you will likely leave a well paid job, and jump off the property ladder. While your businesses are not generating income and everything looks like it is turning to crap, you are going to be the object of ridicule behind your back. You don’t live in Silicon Valley, you live in Australia. The highest levels of government are advising you to “Get a good job that pays well and is secure”. You are doing the opposite. Opting out of the rat race is a very unusual thing to do and you’ll be under enormous pressure to get back into it. If you worry too much about what other people think, you’ll be emotionally destroyed and will be unlikely to try it more than once.
How to have Financial Robustness.
The number one key to financial robustness when starting out is to not spend too much money too soon. That way if your business fails you don’t have to spend too long getting back on your financial feet. And this means bootstrapping.
Don’t spend thousands on legals before you have any revenue. There are lots of well meaning accountants and lawyers out there giving free advice to entrepreneurs. Unfortunately most of these guys have never bootstrapped a business, so their advice – at this stage of your business – needs to be taken with a large grain of salt.
Here’s the thing. Lawyers are fricking expensive. Like $200 per hour for a mediocre one. So you need to be really careful about hiring them early on.
You’ll get a lot of advice that you need legal advice on this and that. That you need rock solid terms and conditions on your website that take into account the most unlikely of circumstances.
You’ll get all sorts of advice about optimal company structures etc.
These professionals are paid to remove risk. You are an entrepreneur and you will succeed because you take risks that no one else will.
I’ve seen so many entrepreneurs simply not get started because they’ve had a quote for thousands of dollars to ‘do the legals’ and they stop there. To which I say: “What are you trying to protect? You have no business, no revenue, almost no net worth (if you have a big net worth, then you can afford to lawyer up – no need to read this – it is directed at people like me that started with nothing). If the tiny possibility of someone suing you – because you do something they don’t like and you don’t have legal terms that cover your ass – happens, what are they going to take? Your push bike?
Don’t spend lots of money on legals and accountants until you start getting revenue. Then use the revenue to pay these things, not your savings. Yes it is a risk, but it’s a small one.
And set up as a sole trader to start with. It’s free. If your business starts to take off then get an accountant and get a proper company structure. If you are doing really well look into tax efficient trusts etc.
Use a cheap WordPress template for your website? Get a logo on Fiverr. If your idea is good and well executed no one cares that your logo is shithouse!
You don’t even need to spend anything on a backend for your website. Do the “wizard of oz” trick. When your users use your service, get the data they need emailed to you at your desk and manually do the action that your software will eventually do. Send the user the results by email. As far as they are concerned the service got completed.
Need an example? Say your service is to match them with a local car mechanic with a special algorithm that takes into account their needs, location and mechanic reviews. Get them to fill in a form, which is sent to you as an email upon completion. When you get the email, look through your list of mechanics and recommend the one that fits best using the algorithm in your brain. If you start getting so many requests that you can’t do it manually, then invest in the software. Not before.
Don’t pay hundreds per month for co-working. Work out of your local library with its free wifi until you have the profit to pay for a proper space.
Don’t apply for a trademark if you’ve got no customers and no brand recognition. Do it when your customers start going crazy for your brand.
And the biggest one of all – don’t leave your day job until you’ve made your first dollar of profit. If you haven’t got a day job, your savings start to dwindle fast, increasing the financial pressure if your business does not work out.
The first dollar of real profit is the sign that your business has legs. Wait until this point to leave your day job and you remove 80% of the risk.
You’ve decided you want to leave the rat race eventually, so take your focus off your day job and direct it to your start up. I’m not saying work on your startup when you are at work. Do it at home in the evenings and on weekends. But forget about your next promotion and start leaving work on time. Parkinson’s law says you’ll still get the same amount of useful work done for your employer anyway.
Repeat this process 3-6 times and the chances are you’ll end up with a business that works. Yes it is brutal, but boy it’s worth it.
Finn Peacock is the founder of Solar Quotes