Venture capital is drying up! Bank lending is down! Angel investors are ditching start-ups faster than you can say “No ROI”! It’s enough to make an entrepreneur think seriously about whether they actually need funding at all. So says reader Jeff, who wrote in this week:
“With the news that bank lending has dried up, I’m seriously starting to question whether I should push forward with my business plan without outside capital. I have some money to get things going, but probably not enough to sustain the operation for more than six months. Is this a bad idea to go forward without any outside investment?”
Not necessarily. It’s a myth that every entrepreneur scores a large wad of cash with their business plan before launching their start-up. Truth is, most small businesses never receive a huge chunk of venture capital investment or angel capital. It’s not glamorous, but many entrepreneurs get their start-ups going by bootstrapping – launching with nothing more than a business plan and their own bank account. It’s something worth considering these days, particularly with a dearth of start-up capital becoming a real problem. The trick is figuring out how you can sustain a business with your own pocketbook until you get profitable.
The first step is to develop realistic sales projections—including a worse-case scenario. Next, figure out exactly how long your business could stay afloat provided the worse-case scenario happened. Is your answer six weeks or six months? If it’s the former, you need to go back to the drawing board. You’ll either have to cut costs and expenses (not raise sales) until you’re at a point where you can survive a longer then the corner lemonade stand or find other sources of capital. Translation: hit up friends and family. On the flip side, if you’re able to keep your business afloat on your own cash for an appreciable amount of time even if the absolute worst shakes down, then you’re not doing too badly. Bootstrapping is a viable, and potentially advisable, option in this case.
While bootstrapping your business is unquestionably difficult, it’s actually not a bad exercise for a fledgling entrepreneur. It not only forces you to keep costs down, but it keeps you hungry for sales and reliant on yourself—not someone else’s checkbook—for success. Those are the businesses that tend to come out of the bad times strongest. That is, provided you don’t lose it all and end up back in your parents’ basement…
Hey, no one ever said entrepreneurship was easy.