1 – Bootstrapping

1 – Bootstrapping

Bootstrapping builds your business

When entrepreneurs are successfully bootstrapping the business, they are making it run with very little resources. Pulling through each day, week and month with very little cash to spare. While bootstrapping can be difficult, in this podcast we’ll here from successful entrepreneurs that it’s a crucial phase of the early business.

Having to be resourceful in the beginning helps prevent later disasters by teaching the companies leaders to be better decision makers. Find out from our guest what can happen when you hit rock bottom and how bootstrapping can be your only way out.

Transcript

Blackwell: I could have never written a business plan to get here say if I’ve had funding from day one…

Russo: When I look at all these entrepreneurs, the ones that really are passionate about what they do, it didn’t come easy…

Szaky: And so we turned down $1 million with $500 in our bank account…

Kristen: Welcome to “Sound Advice” – the brief audio download that brings the best of eClips to you. I’m Kirsten Barker

Today’s topic is “Bootstrapping Builds a Better Business”. When entrepreneurs are successfully bootstrapping the business, they are making it run with very few resources, pulling through each day, week and month with very little cash to spare. While boostrapping can be difficult, in this podcast we’ll hear from successful entrepreneurs that it is a crucial phase of the early business. In fact, they will tell us that long term success may even depend on NOT having too much funding at the beginning of the business.

First, we’ll hear from Scott Blackwell, social entrepreneur and founder of Immaculate Baking Company. According to him, too much capital in the beginning can become an obstacle and actually prevent you from finding the true passion and direction of the company.

Blackwell: I could have never written a business plan to get here say if I’ve had funding from day one, if somebody had given me 3 million dollars and said, start your company and I would have blown the 3 million dollars off on a completely different direction and probably not gotten to the real soul of it. So I think you know, pain and anguish and working hard and figuring out and really digging deep to find your … that resourcefulness really has been a good lesson for everyone here.

Kristen: In fact, Blackwell thinks that having to be resourceful in the beginning actually helps prevent later disasters by teaching the company’s leaders to be better decision makers.

Blackwell: Not having the resources at first is also a good thing because I don’t think you find that place you know, as a personal satisfaction for me, to say, okay, I don’t have all the tools. If we can’t figure out how to get around these obstacles early on then we hit bigger … the company gets bigger, the obstacles possibly get bigger, when we make mistakes they get more expensive. If we don’t learn this now then we’re going to really feel it later. These hurt and it hurts not to have the money. It hurts not to have the people in the company early on but at the end of the day it’s better.

Kristen: So what happens when you bootstrap and hit rock bottom? Do you take a handout and get help? Matt Russo, currently a Managing Partner in the Northwestern Mutual Financial Network argues “no” by sharing a personal story from his rocky start…

Russo: I remember my mom came to the house one day and she had a check for $25,000 and she said, I don’t want to talk to your dad about this, she said, but I can’t stand seeing how stressed out you are anymore. I want you to take this money and I said to my mom… it was like being on a diet and wanting to eat something or like a junkie that needs a fix. I was looking at that $25,000 check and saying, I want that so bad and I remember saying to my mom, one, I love you, thanks for offering me this but one, that’s not going to begin to solve my problems and number two, if you do this for me, when I get good at this, I’m never gonna appreciate it like I will if I just muscle through this thing and so she couldn’t believe it but she walked away with the check still in her hand. Slowly but surely as the business took off and I had started to form relationships and had had clients for one year, two years and now three years, as they grew I got to grow with them. When I look at all these entrepreneurs, the ones that really are passionate about what they do, it didn’t come easy, everybody has these horror stories, like if they don’t buy this we may have to shut the doors.

Kristen: Of course, it is easy for successful entrepreneurs to look back on their lack of initial capital as a reason for success and take pride in surviving the times when it didn’t come easily. But what happens when an entrepreneur is presented with a war chest early on in the startup? Does it ever make sense to walk away? Well in the case of TerraCycle, the answer was yes. Here, Tom Szaky, TerraCycle founder and CEO shares a decision that he made early on…

Szaky: We had won $1 million from a major business plan competition. An offer of funding to be clear, for $1 million. And we did have $500 bucks in our bank account at the time. But what they wanted – classic venture capital. I mean this was not unusual. They wanted me to change my entire management team who had struggled real hard to get us to where we were. And more importantly than that, they wanted me to move away from the core of the idea, which was making a product out of waste. They just liked the idea of an organic fertilizer. But they didn’t like the idea of garbage. And that was the core. I could have potentially settled for an you know, a management change because that’s – I mean it’s not okay but it’s okay. But the core of the idea, that’s the essence. And I felt – and the reason that we refused it was because without the core we felt like it wouldn’t work. And so we turned down $1 million with $500 in our bank account and came back to Princeton and kept doing the company.

Kristen: And finally, what about the rare times when a new entrepreneur gets the big check from the right person early on in the process and decides to take the money? Daniel Simpkins, founder of Hillcrest Communications, argues that the company’s foundation still needs to be the primary focus and that an entrepreneur really has to fight being corrupted by the available cash.

Simpkins: Building the best foundation is more important than dressing the prettiest window. So after you’ve got this whole idea and it is great, and you actually convince somebody to give you some money, what’s the worst thing you could possibly do? Well this is a real example. There was a company in the Washington Metropolitan area. They went out and they actually had carpet designed, custom carpet designed with their logo as the pattern of the carpet. Really bad idea. This is not a good way to spend money. Don’t let money corrupt is really one of the things that happens most often with entrepreneurs. You’ve been working your tail off. You have been an accomplished engineer. And suddenly you have been given a check for $10 million by your venture capitalist. And suddenly you go crazy. You spend on everything, including custom carpet. It’s really important to be very frugal and very thoughtful and very precise about how you apportion the dollars you have. Because you will always have less money than you need. And that is actually a good thing. You don’t want to buy what you want. You always want to buy what you need.

Kristen: The saying goes “Necessity Is The Mother Of Invention”…but after listening to these entrepreneurs and experts, perhaps necessity is also the foundation of a successful company.

Thanks for listening to this segment. If you are interested in hearing more from any of our featured speakers, please check our website at eclips.cornell.edu.

That’s E-C-L-I-P-S. cornell.edu.

And remember, if it is a business topic of interest, eClips will bring you “Sound Advice”…


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