Bootstrapping, Startups, Funding, Finance, VC, Venture Capital, Tech, Technology.
CEO & Co-Founder, Sureagent.
Not every start-up that begins will raise funding within the first six months. If they work towards it, it may happen, but if it doesn't it is not the end of the world. Many successful start-ups such as Canvas, Calendly, Apple, Facebook and Lynda were all bootstrapped. The fact that so many great startups who were once bootstrapped succeeded suggests that you too can succeed if you bootstrap and keep building, until you are able to raise the funding you need to scale.
And beyond the potential of success, why does bootstrapping matter? Because according to CB Research Insights, running out of cash was the top reason for start-ups that fail.
In today's edition of Building Digital Products I am going to create a comprehensive guide to early stage founders to bootstrap from zero to one leveraging on lean principles and available start-up principles all over the world.
If you are yet to read our last edition, now is a good time to catch up. I wrote on Building the Right Team : An Early Stage Start-up's guide to Hiring The last edition included tips on hiring co-founders and the founding team of an early stage start-up.
If you do decide to bootstrap this is for you. And even if you don't want to bootstrap, this is still for you. Anyone can run out of runway, and when this happens, between the period between speaking to investors and closing the round you have to continue operations, and the way to do this is by boot-strapping.
I have written out the steps you can take to bootstrap effectively as an early stage founder anywhere in the world.
Step 1
Situation Appraisal
This is the single most critical thing every start-up founder has to do to determine just exactly what they need to do. No start-up is the same. Start-ups can have similar number of users and even similar pricing and have different burn rates. This is influenced by start-up priorities. One start-up might prioritize social media marketing and invest in it, while the other may prefer cold-calling and meeting customers one-on-one which can ultimately create different spend outcomes.
To carry out an effective situation appraisal of your start-up answer the following questions in detail with your team;
How much runway do we have left?
What is our current cash burn rate?
What is our monthly reoccurring revenue if any?
What is the most cost-intensive non-revenue generating activity we undertake?
What is our current customer retention strategy?
What are the methods we currently use to track growth?
What is our biggest learning about our customers by quarter?
What do we do differently that our competitors cannot easily replicate?
How do we keep our team members motivated day by day?
What is our most effective customer acquisition channel?
Step 2
Implement Lean principles across all start-up operations units
Lean start-up principles were introduced by Eric Ries in his popular book "The Lean Start-up" Where he described start-ups as;
"Human institutions designed to deliver a new product or service under conditions of extreme uncertainty."
Following the lean principle a founder has to have core assumptions about the value his start-up offers and validate those assumptions through iterations. These iterations are usually in form of Minimum Viable Products (MVP). The MVP is the most basic form of the solution that you want to use to solve the customers product. This can be as simple as a landing page linking to an email or WhatsApp account to a google form for booking a service. To learn how to leverage no-code tools like Google form to build an MVP you can read my previous edition on building an MVP with Google forms here.
The lean principles posited by Eric Ries has its root in iterations. a concept described as build, measure and learn. The founder has to build out a process to validate his assumptions about a thing, measure the impact of the process and then record the learnings. As a boot-strapped start-up, this concept can also be applicable to all aspects of your start-up.
I will discuss the lean application to the various aspects of your start-up in the heading below;
1, Lean Operations
Every start-up has some operations that enable the start-up run. According to Mass Challenge, a top start-up eco-system player;
"The operations role is all about boosting team productivity to ensure a product idea becomes a reality as quickly as possible. Basically, an operations manager makes sure everyone is doing what they should be doing, and holds the start-up together."
Operations can include the onboarding of customer process, the product iteration process, the record keeping process and customer account tracking process. As a founder, I am well aware of a lot of start-up operations that are unproductive. A productive operation leads to a positive outcome or metric. Filling a reflection form can seem productive but only if there is a process of review where such reflection forms are actually read by the team members. If there is none, it would become an unproductive operation by necessary implication. If customer details are collected and there is no plan of action to engage them towards turning them into prospects, leads and then paying customers, the act of collecting the details itself becomes an unproductive process.
In order for operations to be lean, founders have to be brutally honest with each other about all aspects of their operations. You can use the Build, Measure and Learn approach to retain, disregard or improve operations in your start-up.
For example, a hypothetical start-up X creates personalized memes for a vengeful segment of the population that want all virtual communication to their haters top-notch. They onboard their customers through Facebook ads and charge them a monthly subscription of $5 to generate an unlimited amount of memes featuring people throwing poo on others, people chasing others with machete and so on. They have a feedback loop where they ask customers questions around their features leveraging their robust email list of 30,000 users and offer a free 3 months subscription coupons to two or three winners who fill the feedback form. They however do not read the feedbacks given because they end up getting over 400 - 500 responses.
Using the Build, Measure and Learn approach, what they can do is focus on a hypothesis around that operation. In this case it could be; That product feature can be improved through user feedback. If that is the case, the email marketing approach can be the built mechanism to achieve this. However, they must then measure the impact of the process. If the result was so much that they fell daunted about reading the responses, then the process must be declared - without emotions - ineffective. And then a new process would be started to test the hypothesis again. The new process could be asking interested users to schedule a 5 min call with the same incentives offered in the former. The odds are that it takes more steps to schedule a call, and therefore less users would sign up. It would reduce the number of people willing to give the feedback but also increase the odds of effectively testing the hypothesis.
2, Lean Marketing
In the same manner as operations, founders often do very unproductive things in the name of marketing. Stop paying for ads that don't convert just because it gives you a false sense of progress. There is a concept called the False start in start-up parlance. This was coined by Prof Tomm Eisenmann in his Harvard Business Review article "Why Start-ups Fail" where he described False starts as;
"A situation where by neglecting to research customer needs before commencing their engineering efforts, entrepreneurs end up wasting valuable time and capital on MVPs that are likely to miss their mark."
Marketing efforts are part of the MVP validation process. Without getting the product into the hands of customers, there is no way to actually measure the impact of the product on customer needs. Founder must therefore treat marketing as part of the lean process.
As an early stage founder either boot-strapping or nearing the end of your runway, consider low-cost but high quality marketing options for your product. You can leverage podcasts. There are a lot of product oriented podcasts out there. You can either start one as a company or reach out to someone in your network to get featured in one for free. You can also list your product on free platforms such as;
You can also leverage story telling as a powerful tool to drive unique engagements with your customers and audience. You can do this by recording behind the scene videos of how your start-up provides services to the customers.
You can also host live events on Instagram and Facebook where you interact with your audience and introduce them with the team members behind the important work you do at your start-up.
While doing all this, remember to apply the Build, Measure and Learn approach. Write down each of the strategies and align with the most effective, least costly one. Then you measure its impact on your revenue each month. Once you cannot see the correlation, stop doing it and try something else. As an early stage start-up your most key resources are time and flexibility. Don't waste it doing anything that doesn't actually help you move the needle on your progress metrics. Likes on Facebook and Instagram do not count as key metrics unless you are a media company. Even if all your followers love it, if it doesn't help you attract, convert and retain customers, scrap it.
3, Lean Customer Support
Even customer support can be lean. Yes, you heard that right. You don't need to hire two customer support team members when you have less than 500 active users. To be fair, it depends on the type of start-up you operate. If you operate a start-up that offers technical SaaS to businesses, you will definitely need a lot more hand son deck. But then, you would also probably make more revenue too since it is a B2B and such deals are typically a sizable subscription or an annual contract. For context, Google workspace is mostly accessible by the the technical team that work in a company who use the services to set up an account for the organization and run the services. If an organization however desires hands on support from a team member at Google, the fees are much higher.
If you are not building a technical SaaS that requires a lot of technical support, hire one customer support team member at that start after you have more than 200 users and create a lean process around the support process.
If you have 30 customers making enquiries on a daily basis, start by identifying the similarities between what they are asking and creating a response to those things. You can put the response to those queries in the FAQ segment of you site or as a hyperlink attached at the bottom of all your email marketing communications. This of course may not be the most effective approach for your start-up, so therefore you can use the Build, Measure and Learn approach to continue to modify it until you get what the most cost-effective approach to customer support for your start-up.
4, Lean Legal
The lean start-up model can also be applied to your legal processes. In reality there are some things you cannot do without. But there are definitely some things you can do without; expensive legal services. Search for start-up oriented law firms in your location that are headed by previous founders and compare their pricing to give yourself options. Also speak to other founders in your circle to share legal templates of founders agreement, partnership agreements and regulatory filing templates with you. Before you sign the documents though ensure you consult an actual lawyer because signing a legal document can have consequences that are difficult to reverse.
You can check out the following start-up focused law firms to support your bootstrapping goals as a start-up.
Africa
Europe
North America
5, Lean Fundraising
Even if you are boot-strapped, you are probably thinking of getting to a stage where you have enough revenue to justify equity funding from either Angels or VCs. If this is you, pay attention. You have to make the process lean so you can focus on the core operations of your start-up.
Fundraising operations is not a valid metric for growth.
For clarity according to Andreessen Horowitz, a top VC in Silicon Valley, the 16 start-up metrics are;
Revenue
Gross profit
Total Contract Value
Life Time Value
Gross Merchandise Value
Unearned of Deferred Revenue
Customer Acquisition Cost
Active users
Month on Month Growth
Churn
Burn rate
Downloads
Cumulative charts
Chart tricks and
order of operations.
They did not mention the amount raised anywhere, as a key metric. Andreessen Horowitz that compiled this list currently has over $35 billion in funds under their management and have invested in over 1,000 start-ups since 2009. I hope it is clear to all the founders reading this why fundraising as a whole is not a relevant metric for measuring growth.
To make the process lean, leverage sheets. Something as simple as sheets to track who you have sent a cold email or been introduced to, who has replied, what they replied and who is interested. You can also include a column to measure who has replied positively, who has sent the check and who has been onboarded completely had has access to quarterly updates and the start-up data room.
Again, the sheet can be your first iteration of the process of conducting a lean fundraising. You can always use the Build, Measure and Learn approach to continue to modify it until you get what the most cost-effective approach that works.
Step 3
Measure progress
The third step is to measure progress. In the previous step I have already listed the key start-up growth metrics posted by one of the top VCs in the world, this section is about how to measure that using a lean approach. I will focus on the churn rate, the customer acquisition cost and the customer life time value.
You can measure the progress of your start-up using the following tools;
Google sheets
Calendly
Google meet or Zoom
Power BI
The google sheets is my personal favourite because it is super easy to use. I don't have to switch between applications to use Google sheets but of course i have a personal love bias for Google so feel free to use whichever sheet rocks your boat.
You can use the sheet to record the churn rate on a weekly basis. A lean way of doing this is to make it as basis as possible. If you have a marketing campaign and 100 people indicate interest, if 20 eventually purchase you can record it as marketing churn rate. If you have 5 people that got the payment stage that didn't pay also record that. Your goal of recording however should always be targeted at improvement. You don't spend time building a better way to measure instead of a better way to improve the results of your key metrics.
The customer acquisition cost should have a basic excel formula which automatically divides the total cost of getting the customers by the total number of customers acquired. As long as you have a column on the sheet that collects the total number of customers acquired, it will automatically calculate the customer acquisition cost. Your goal as a bootstrapped start-up would then be to reduce this through iterations using the Build, Measure and Learn approach lean approach.
Step 4
Repeat
It is worth restating that the Build, Measure and Learn approach is a cycle of iteration. You cannot improve without constantly measuring, building and learning from your efforts. It may not work the first 10 times you try it. Heck, it may not even work the first 50 times. But every single time you try again, you get better. Every process, I repeat, every process can be improved. As a start-up founder cash-strapped and burning with a desire to build an innovation that will change the world. You have no other option than to do this.
Build and iterate until you have the most effective system that is sustainable. This will ensure your start-up stays resilient while providing value to the world.
Keep building,
Yours,
Osita.
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About The Author
Osita James is a technology entrepreneur building an innovative product called Sureagent enabling safe online shopping in Africa, through physical online order verification. He is also a partner in BlackcrestLP, a start-up advisory law firm that has successfully advised start-ups across Africa in investment deals worth over $ 4 million. He is studying for an MSc in Innovation Management and Entrepreneurship at the Nottingham Trent Business School and writes love poetry in his free time.
I support African founders with legal and start-up operations advice. You can reach me here for enquiries.
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Originally published by Osita James Uche on Linkedin
Oyemaja Executives.