alex black's blog

Bootstrapping: Advice you can use

Bootstrapping is the art of starting and running a business with little or no money.  Here are some practical tips from my experience for bootstrapping a technology startup.  I have some specific links and examples for the Waterloo region and Canada, but a lot of the ideas should be applicable anywhere!

1. Do stuff yourself

When you have no money to spend, don't hire people to do things, do them yourself.  Design your own website and business cards.  Wire your own network.  Do your own accounting.

2. Find free or cheap services and tools

• Pay $3.50/mo for phone lines, and $0.01/min for calls across North America with an Asterisk VOIP server and a provider like Unlimitel
• Use free business software, such as Ubuntu, Open Office etc
• Use free development tools, such as MySQL, PostgreSQL, Eclipse etc
• Embrace software as a service, avoid any in-house servers, use tools like Zoho Office, Gliffy for diagrams, host your custom domain email for up to 50 users free with Google Apps standard edition
• Use residential internet such as DSL or Cable, as soon as you say business the cost at least doubles
• We used to host our website ourselves, don't do that, get a cheap online account, such as GoDaddy for $4.99/mo

3. Be cheap

Don't spend any money you don't have to.  We used to buy computers from TechnoTrade for less than $300.  The power supplies would die every few months, we'd replace them, the computers worked fine apart from that.  An early mistake I made was thinking we needed good quality computers, with good network cards and good graphics cards.  That stuff has all been commoditized for years.  Get computers with everything integrated on the motherboard, spend some money on RAM if its important for you.

Being cheap is a bit like saving power.  There's no point spending time turning of individual lights if you're leaving the fridge door open.  So likewise, don't make your life difficult trying to save money where its not going to make a difference.  Start with your biggest costs first, usually salary, office space, then equipment.

4. Leverage government funding

• Here in Canada there are many government programs available, for all types of business.  Go through them all, don't listen to people who tell you your business won't qualify, understand what the programs are for and find one that is relevant to you.  In the past we've been helped on a number of projects by two great programs: IRAP and SR&ED.  IRAP gives grants (that you don't have to pay back) towards salary and equipment used on approved projects involving commercializing new technology.  SR&ED are tax credits the government will give back to you at the end of the fiscal year against salary you've paid out, with similar prequisities as IRAP. 
• These programs take work, be prepared to write proposals, improve them, track time on your projects, file reports.  But its free money!
• Get to know someone who works for these programs, say your assigned rep, their job is to give out money to eligible companies, so help them do their job, if you're the type of company they are looking for they'd love to find out about you and help you succeed.
• Talk to Communitech, they have someone responsible for keeping up with all of the funding programs.
• One key with these programs is that they typically contribute money to companies towards salaries they have already paid out.  So setup a corporation, you can do it online for less that $1,000, open a bank account, and start paying yourself.  You're working, aren't you?

5. Free or cheap office space

• Setup office in your basement
• Even better, setup office in your parents basement, Chris and I did this for 4 months, we lived (and worked!) at his parent's place for 2 months, and then at my parent's place for 2 months.  I wouldn't do it again, but you can't argue with free everything (room, board, internet, furniture, phones, office space, moral support :)
• Sublease (or squat) someone else's office space, often comes with the benefit of shared internet, phone system and other facilities, people to hang out with, etc.  We got free space for a few weeks from one friend, and later subleased space for 4 desks from our first consulting client.

6. Consult on the side

Perhaps your business is a services business in which case this doesn't apply.  But if you're developing your own product, just work two jobs, write code (or perform other services) for other companies half the time, and spend the rest of the time building your product.  This isn't easy, or fun, but it can be done.

7. Start your company on the side

Keep your day job, work evenings and weekends for "yourself.com".  This usually works best before you're married or have kids etc. 

7. Hire smart

If you're just starting out you're probably not going to hire anyone, but as soon as you do need to hire some, its possible to keep your costs down and your success rate up.

• Hire coop students from the University of Waterloo.  Number one reason: they're easy to hire.  Unlike full time employees, you can get say 50 coop student resumes at a time, then interview the 10 you like in one day, and usually hire someone very smart and hardworking, often with experience from other coop jobs, or their own projects.  Our philosophy was: hire geeks who write code outside of class and work.  This demonstrates passion, independence, and talent. (Check out the coop tax credit)
• Hire recent grads and young inexperienced people in general.  Again, look for geeks.  You can pay these people less since they have less experience, they'll work hard because they are trying to make something of themselves, and they'll fit into your business because they don't know any other yet.
• Bring people in for 2-3 day hands on tests, pay them for their time, this helps you figure out if they're any good, and if you can work with them, and if they like you.  Saves you both time and money.  We did this many times, saved us huge.  We avoided hiring duds, and people knew exactly what to expect when they joined our company, not like most jobs where you basically get married to the company after a couple interviews with a couple people.

8. Get a cofounder or two

Find one or two other people who you trust and have the same passion and ethics you do, split the company between you, all of sudden there is more than just you working with no cash outlay.  See Chris Dixon's post on dividing equity between founders.

Choosing a cofounder is a very important decision, a bit like getting married, so take it seriously.  I gather many partnerships fail.

9. Focus on whats important

Spend your time and money on real things that drive your business forward.  Someone much more successful than me once told me that the first thing most people do when starting a business is to choose a logo, buy business cards, setup a website, buy a phone line, buy office furniture etc.  Don't do that.  Call potential customers,  Build a prototype.  Find a cofounder,   Being all setup is not worth anything. 

10. Join local organizations, network and get advice.

See my post about resources and links in the Waterloo region.

Does Your Startup Have a Napoleon Complex?

At our previous ventures, we suffered from a Napoleon complex:

Napoleon complex is a colliquial term describing an alleged type of inferiority complex which is said to affect some people, especially men, who are short in stature. The term is also used more generally to describe people who are driven by a perceived handicap to overcompensate in other aspects of their lives.

We were a small company who wanted to be successful.  I wanted us to be successful.  One of the things that I thought would prevent us from being successful was people thinking or realizing we were a small company.  Here are some examples of things we faced right away as we got started:

• We cold called schools to find customers for our multimedia yearbook software.  We didn't have an office, or land line, so we called from our cell phone. One of the first people we called (who was actually interested), noticed our number on his caller ID, and somehow knew it was an odd area code or exchange.  He asked a couple questions about that and quickly realized we were calling from a cell phone and not a landline, which in his mind somewhat discredited us. Remember this was 1998, cell phones were often called geek-a-phones back then!  He wanted to know why didn't have a landline, and worried that we weren't an established company. I immediately felt guilty and as if I'd be caught in a lie.  All sorts of negative thoughts entered my brain: he knows we're not a real company, this will never work, our software's no good, he won't like it.  
• Meanwhile, we needed to earn money to fund our product development, so we went in search of consulting revenue as BrightBlocks.  Since we were just starting out, we were doing anything we could to get business, and doing anything (software related) that people needed.  In fact we thought of ourselves as "software sluts", but that's another story.  So we'd find ourselves submitting an RFP to some company (a real company, not like our pretend company run out of our basement), and then we'd get requests like: can you please send us work you've done before, can you send us resumes of the staff who'd work on the project, can we meet you at your office, do you have a fast Internet connection to work remotely with us.  All of which sent us scrambling to appear like we were a real company :)

So, we took it upon ourselves to not look like a small company.  We did everything we could to look big.  If big companies did it, we wanted to do it too.

• We bought business cards and put fancy titles on them
• We used stock photography of offices and professional looking staff on our websites to give the appearance of bigger company
• We wore suits and ties when meeting people
• Our website looked more like a big 3 consulting firm than a plucky startup, with sections for our solutions, our products and technologies, impressive bios of the founders etc
• We wrote press releases on our website, announcing we'd moved into a new headquarters (e.g. we moved out of the basement into sub-leased space), or that we'd launched a new division (e.g. we'd hire a tech-writer part time)
• We bought an 800 number, if we had an 800 number we must be successful!

And it worked.  At least it appeared to work.  People were surprised to learn we were a small company after seeing our site, friends seemed impressed and surprised.  One friend commented that he thought he was at the wrong website because it looked like a big company.  Another asked if those people in the pictures actually worked for us!

One company we submitted an RFP to was FlowNetworks in Toronto (bought up by DoubleClick I think, and then Google).  Now remember, the great thing about using the Internet is that on the internet nobody knows you're a dog.  So for us this meant that if our website looked like we were a big company, and we had real email addresses, and they weren't suspicious that our phone was a cell phone, and we wrote a professional RFP then a potential client like FlowNetworks might have no idea we were a tiny company.  Even after meeting them (at their office), they would have no idea that our entire company (Chris and I) was at the meeting.

But, it didn't work.

Companies who really wanted to work with a big company would find out we couldn't deliver on something they needed.  Companies looking to engage a young energetic company got turned off by our website.  Other companies figured out we were small, and called us on it.  At that point, many would hire someone else.  But, some, were OK with that, and then proceeded to find out the real deal.  One company thought it was really important for us to have a high speed Internet connection to them so we could work remotely, so we ended up convincing them that our residential cable modem was actually fast, and they were OK with that it turns out, after some convincing.

• Us: yes we have a high speed Internet connection. 
• Them: What type of connection is it, a T1 or T3, I guess a T1 would do 
• Us: umm, its a cable modem. 
• Them: Its a business cable modem, right? You're not running this business out of your house are you? 

You get the picture :)

But more than that, it took a toll on me.  Trying to be something you're not is difficult.  It takes effort to be something other than yourself.  It takes effort to keep up the facade.  It would kill my confidence when I suspected or noticed our facade slipping.  On top of that, any company who hired us, or anyone we hired, anyone you work with, eventually gets to know you and figures out what you're really about.  I guess the plan was that by the time they figured out we were a small company they'd already be happy with our work and not mind.

So my advice to you is to embrace your small-ness.  As Jason Cohen says: you're a little company, now act like one.

• First of all, be honest, to yourself, and to everyone else.  If you achieve success through deceit, is it worth it?
• Turn your weaknesses into strengths.  Don't be a big stodgy company, be a small nimble company. Be personable, respond quickly, work harder than the competition. 
• Express your company's personality through your website, express your personality through your company.  This way you'll attract clients who value who and what you are.
• If a potential client or customer questions your experience, be creative.  Tell them that yes you're a new grad, and no you don't have years of experience, but if they hire your company they're getting your dedication and passion as founder (and if they hire a big consulting firm, they might end up paying high end wages for a new grad anyways!)

What am I going to do differently this time? I'm going to be myself:

• Build trust through honesty and openness
• Talk actively about our challenges and successes
• Play up the fact that we're small, that we're the underdog
• Engage people in the community, add a human touch to our business
• Use titles that reflect what we do, not that try to make us look larger than we are.  We're 3 people right now, does it make sense for our titles to be CEO, CTO, and Director of Development? 
• We'll put real photos of us and our office on our site, taken by us