Bootstrapping is the process of building a business from an idea without investor funding.
The name derives from the saying 'to pull oneself up by the bootstraps', which refers to someone becoming successful exclusively through their talent and ability. It's also known as the minimalist approach to starting a company. Early-stage and serial entrepreneur companies generally opt for this practice.
According to Bijoy Goswami, bootstrapping boils down to taking the right action at the right time. This means you need to be able to assess when it's meaningful to spend the money you have.
1. The Advantages of Bootstrapping
Despite the high risk of failure, many startups still choose bootstrapping as their launchpad to success. With giants such as GitLab, Survey Monkey, and Atlassian having famously risen from humble beginnings, it's no wonder that the practice of bootstrapping is still at the height of its popularity.
From a more objective point of view, the immediate benefits are:
- Low operating costs. Starting a company with the money that's already in your pocket will force you to wear many hats and exercise prudence when spending.
- The freedom to make decisions that are attuned to the founders' personal values. Without investors, partners call the shots unhindered.
- Building the business is the number one priority.
2. An MVP Is not just the Most Valuable Player
In the startup world, the acronym MVP is used to refer to the Minimum Viable Product.
A minimum viable product is a version of the product that's good enough for others to see and use, but remains a work in progress nonetheless.
Many founders find it hard to establish the appropriate time to launch, as the product does not feel done - and it shouldn't.
Note: A common misconception among founders is that the MVP should be developed cheaply and in record time. Actually, as it is the company's first contact with their customer base, the MVP is simply meant to cost less and be launched faster than the completed product.
Focusing on creating a strong MVP helps new companies survive in the long run.
3. How to Build an MVP. 5 Thoughts
The most challenging part of building a digital product is figuring out which problem it should solve and how. The entire process becomes simple and predictable once these two aspects have been clarified.
Understanding when to spend money is an essential part of successful bootstrapping. On the one hand, the product's quality will drop if you try to cut financial corners while it's in development. On the other hand, clarifying the concept before presenting it to designers and developers can be a financial life-saver.
Leaving your conceptual ambiguity at the doorstep of a third-party service provider means dealing with large service fees. A process this uncertain requires a lot of intense effort and provides high value, but will burn through a significant amount of your budget.
In the remainder of the article, we'll touch upon what you can do to sustainably launch your first MVP.
3.1. No Cent Spent on a Whim
Great financial discipline is one of the most important prerequisites for bootstrapping.
According to CB Insights, 29% of startups fail because they run out of cash. As the founders can only rely on their own money, maintaining a regular income stream is one of the biggest challenges. That's why, for instance, many people keep their day jobs through the early stages.
Chris Wanstrath, former CEO and co-founder of GitHub, advised startup founders to "worry about every dollar" spent even after they're profitable. Being mindful of monetary resources teaches entrepreneurs to choose carefully what to allocate funds towards and when.
While operating without investor backing gives the company more freedom, a limited budget is a big constraint to work around. It's best to err on the side of caution when calculating the burn rate, as this helps maintain the budget for when the business becomes less profitable and can result in savings for unforeseen expenses.
If you're at the helm of a new business applying bootstrapping practices, know that even the financial decisions you make outside of work can impact the company.
Be frugal and organized in order to avoid the mismanagement of funds. Avoid accruing debt. Don't sign a long-term lease for a giant office space right off the bat. Rent equipment instead of buying it.
3.2. Solve one Problem really Well
The co-founder and CEO of Dropbox, Drew Houston, once said:
"Don't worry about failure. You only have to be right once."
The startup world is extremely dynamic, and while not all ideas prove to be viable, it's hard to assess whether something will work without going through the prototyping process.
In order to flesh out the digital product, you have to move past abstractions (your idea alone) and begin gathering the data that can help you build a prototype. This process is called systemization. It consists of defining features, checking out what the competition is doing, and dividing key aspects into modules.
In order to be able to pitch your idea, you have to shift from textual thinking models to visual ones, by:
- Making sketches of the potential features.
- Looking at the details of your work and repeat the competitor benchmarking process.
- Defining the product's capabilities and limitations.
- Striving to eliminate unnecessary functionalities instead of piling features on.
At this stage, the MVP should have basic structural components and a clear interface with elements that lead to the core functionality.
Use your favorite prototyping tool to level up from sketches to wireframes.
Remember, the core functionality is the most important.
Note: One of the most widespread misconceptions about digital products is that they should be able to do as many things as possible in order to succeed. In reality, the opposite has been proven to work best.
3.3. Identify your Customer Base
After looking at what works best for your competition, you'll have a good idea of what the market is like, so the next step is defining the client base for your MVP. Most people tend to think big, focusing on vague categories such as mothers or pet owners. That's much too vast!
Directing your energy towards a smaller market segment helps the company focus on capturing an initial market. Determine how many clients the current market leader has and try to calculate a realistic percentage that your own product should work towards.
Be as specific as possible. Think of age groups, professions, and the social media apps they use. Knowing your target market helps you elaborate a sound marketing and sales strategy.
3.4. Ask for Feedback to Stay Relevant
At the beginning of their entrepreneurial journeys, product owners generally deal with impostor syndrome and anxiety in regards to their product concept. Understandably so, since 42% of startups fail because there is no market need for their product (via CB Insights). The design and development teams you work with will challenge your ideas and provide professional feedback.
Approaching a design agency and a software development company with all your homework done will save you a lot of money and set you on course for a successful launch.
Trust them to uncover potential weaknesses and propose improvements that bring added value to the product.
Also, make sure you have advisors from all the relevant fields: technical, business, and customer. Then identify target groups of potential users and ask them for feedback. Organize multiple feedback sessions in order to be able to optimize the product and refine its details. Remember that the most valuable data comes from what people do, not what they say.
3.5. It Pays to Be Social
Bootstrapping is difficult and stressful, but luckily most fellow entrepreneurs are happy to share their experience free of charge. You can also use your skills and knowledge to barter with other business people, as this can reduce costs significantly.
Make an effort to grow your LinkedIn network. Ask for advice on Reddit. There are also plenty of free maker communities you could join, such as Indie Hackers, Future Founders, Product Hunt, and No Code Founders. You can also try pitching your idea to the Y Combinator's Startup School, as their program is 100% free if your project gets admitted. Consider applying to the Saas Founders Club as well.
In addition, you should begin reaching out to potential clients once the MVP is complete. Pitch the idea to people and discover who finds it interesting. Moreover, a soft launch on social media can attract crowdfunding or a following, which will help you understand whether the product will catch on.
To ensure that your MVP inspires clarity and brings added value to the lives of users, ideate in-house and build with professionals. Moving through the chaos and uncertainty of the initial stages will help you obtain an in-depth understanding of what you want to create.
With limited funds at your disposal, you can't afford poor services. Having a professional team of developers and designers to carry out the execution phase ensures that the MVP will work well and is easy to use. Great UX design and development go hand in hand for product success.
Do you have a project in mind but don't know where and how to start designing it? Get in touch with Creative Navy to start building your business the smart way.