This is a guest post by Nat of WhoIsHostingThis
As an entrepreneur or aspiring entrepreneur, you’ve undoubtedly heard the name Seth Godin. Even if you’ve been living under a rock, there’s a good chance that you’ve been touched by his work. You may have heard an idea referenced from his influential marketing books, seen a video clip of his famous speeches, used a term he coined, you may have even used the Web 2.0 platform he founded in 2006 – now one of the top 200 most visited websites in the world – Squidoo.com.
Beyond his accomplishments and credentials, perhaps what makes Seth Godin such a popular, beloved figure in the business and marketing world are his paradigm shifting ideas. Seth has a way of taking a great new idea and expressing it in a way that resonates with the masses. He’s a master at creating what he might call an “idea virus” – ideas that spread organically based on their exceptional merit. Furthermore, Seth’s philosophies reflect a vision and purpose that we can all aspire to, even if we often fall short of the mark.
As a successful bootstrapper himself, Seth has some great wisdom for those entrepreneurs trying to build their own businesses from the ground up. Here are 5 bootstrapping tips and lessons drawn from the man himself. These tips are drawn from the highly underrated Bootstrapper’s Bible – which Seth published in the early 2000s – where he fleshes out rules that every bootstrapper should follow. Many of these concepts have been iterated on in some shape or form in Seth’s later books and blog posts, and are every bit as relevant today as they were at the end of the .com boom.
1. You Are Not A Big Company So Don’t Act Like One
Large companies have advantages that a bootstrapper simply cannot compete with. Not only do they have more money, but they have better distribution networks, an established customer base, a trusted brand, and thousands of skilled employees.
Any bootstrapper trying to compete with a large company in any of these aspects is doomed to fail. Seth gives the example of trying to put a new computer game directly into national retail outlets (putting you in competition with giants like Electronic Arts), or trying to get a new line of sneakers into nationwide stores (Nike, Reebok, Addidas). The lesson is that boostrappers should stay out of markets that require established distribution networks/large capital and compete in areas where small, nimble companies have the advantages.
Where are the bootstrapper’s advantages? Bootstrappers don’t have an established territory to protect like a big corporation does – bootstrappers have nothing to lose. That means you can attack new markets and ideas with no regard for angering shareholders or losing market share. Bootstrappers are also able to tap into small, uncompetitive niches that large companies simply can’t settle for, given their enormous overhead and shareholder demands. Seth gives the example of Disney – while a Disney movie with its team of animators, writers, executives, marketing departments, legal departments, nationwide distribution etc. would need to earn 40 million on a movie just to break even – a low-budget indie film maker who markets and sells directly to the consumer might be thrilled with earning $100,000.
As a bootstrapper, you can also leverage human connections in a way large companies cannot. Fueled by the excitement and passion of a great idea, you might be able to get a lawyer acquaintance to help you out for free, or perhaps acquire distribution rights with no money down. You could employ smart, intelligent, passionate people for significantly less than their market value, simply because they believe in your idea and your vision. These are things that a large company – with their legal departments, middle management, and corporate policies – could never accomplish. And with just 1 or 2 executive decision makers, a small staff, and all the flexibility in the world – changing the direction of your company or developing new ideas can be accomplished quickly.
Finally, as a bootstrapper, you (should) have the advantage of operating with virtually no overhead. While a large company has multiple layers of management, human resources departments, legal departments, accounting departments, IT teams, insurance, corporate expense accounts – you have yourself, an internet connection, a phone line, perhaps a few trusted employees, and your business. In theory, this means you should be able to create a superior product or offer a service more cheaply than the larger corporations. As Seth says, “if you can’t make it much more cheaply than the big guys, you’ve either picked the wrong product or you’re going about it the wrong way.”
2. Choosing The Right Business Model Is Critical
According to Seth, a successful business model needs the following attributes: It needs to be profitable, protectable, self-priming, adjustable, and usually it should have an exit strategy as well. Seth has pointed out that just because a business may be cheap to start, it doesn’t necessarily make it a good business.
This is a common trap for bootstrapping entrepreneurs looking for businesses that they can start with their limited resources. Without a profitable, protectable business, a cheap business isn’t worth the enormous time investment required to start. Seth gives the example of an acquaintance who started a business around the same time that Staples opened their revolutionary low-cost office supply stores. At the time, companies were used to paying much higher premiums from office supply companies, so Seth’s acquaintance would buy products from Staples at their low cost and sell them to companies at a slightly marked up price – but still at a lower price than their usual suppliers charged.
Since companies were used to paying higher prices, they were happy to purchase from Seth’s acquaintance – at first. Of course once they discovered Staples, they quickly switched over and Seth’s acquaintance was out of business. Seth’s acquaintance had discovered a cheap, profitable business – but a business that was absolutely unprotectable. He had no competitive advantage other than price, but even there he was foolishly competing in the same marketplace as his supplier.
3. Money Is the Key To A Bootstrapper’s Survival
As a bootstrapper, it’s easy to get caught up in your dreams and forget that the failure of your business is tied directly to the 1s and 0s in your bank account As Seth points out – without cash your employees won’t stick around, your creditors will cut you off and your spouse will be concerned.
While it may be glorious to think of yourself as a bootstrapper risking it all for the dream, planning your finances and managing your spending is even more important than your product development or marketing. Every month, your primary goal should be to earn more cash than you spend. You should always have a realistic (even pessimistic) projection of how many days or months you have until you run out of cash.
If need be, you should be prepared to move, sell off possessions, downgrade your lifestyle and cut personal expenses. To quote Seth:
“One surefire way to determine if a bootstrapper is going to succeed or not is to check out how she changes her lifestyle when she starts the business.”
The earlier these sacrifices are made, the greater chance your business has to survive. Make these tough financial decisions early before it’s too late.
4. Every Bootstrapper Is a Salesperson
No business can survive without sales and this applies doubly to a bootstrapped venture. With limited cash, it’s essential that a bootstrapper start acquiring paying customers as early and as frequently as possible. A bootstrapper doesn’t have the benefit of a large sales team or an endless advertising budget fueled by venture capital. Yet for what a bootstrapper lacks in size and volume, he/she can make up for it through passion and hustle. A bootstrapper can and needs to make sales by doing everything in their power to provide their customers with what they desperately need.
5. Remember That The Journey Is The Reward
The entrepreneurial journey is a tough, lonely path – especially as a bootstrapper. It takes years to build a successful, long-term business – years that can be filled with struggle, long hours, and an endless stream of obstacles. As a bootstrapper trying to make your way in the dog eat dog world of business and startups, you need to enjoy the process of building your company. Relish every late night brainstorming session, every customer email, every hard-earned sale – it’s what makes the entrepreneur’s journey worth taking.
Nat is a blogger and marketing consultant for WhoIsHostingThis – an Alexa top 10k web property. Nat is fascinated with every aspect of entrepreneurship and the stories of those individuals who have chosen to venture off the beaten path.