Many would-be entrepreneurs tell me that they are certain that if they could only raise a certain amount of money, everything would be perfect for their start-up. In fact, many say that money is the only thing holding them back. This is one of entrepreneurship’s most common myths. As the classic article in INC illustrates, many a good idea was started with very little money.
One issue often overlooked in start-ups is the art of bootstrapping. With prudent management, entrepreneurs can often get a business started with very little capital. And for good opportunities, the money that is needed will usually find its way to these start-ups.
The INC 500 list for 2003 will show that these high growth companies started with very little funding:
“It does not take much money to start an INC 500 firm. Sixty-one percent of CEOs started their business with less than $50,000 in start-up capital. Where does the money come from? The majority (53%) derives from personal assets. Overall, 80% of start up funds came from personal assets or assets of other firm founders, friends, and family. Bank loans accounted for 8% of start-up capital, while government-backed loans (2%) or formal venture capital (2%) accounted for tiny portions of these early stage funds. ” (Source: The National Dialogue on Entrepreneurship published by The Public Forum Institute, 10/13/03).
It is amazing that only 2% of the highest growth firms in the country are backed by VC’s, and 80% of the funding is from founders, friends and family!!
I enjoyed the articles on bootstrapping. Two class mates and I are doing our Entrepreneurial Venture Analysis on a company that started by bootstrapping. The company is a small community newspaper and both partners started the company by taking a couple of hundred dollars cash advance on their personal credit cards.
I’ve heard many a company found claim that the best way to get money was to beg.
The Logo Athletic story was especially interesting, considering the growth in the sportswear industry in the recent years. They had an idea that was ahead of it’s time. This is a good example of where a company’s innovation, connections and business sense are far more valuable than it’s financing prowess.
Note: It is currently 8:18 pm Tuesday. The preview of this post lists the time at 2:19 am Wednesday.
The stories in this article are interesting, but even though the entrepreneurs had success, I can’t help but think many made poor business decisions. In my opinion, this article confuses boot-strapping (creatively acquiring the use of resources) with hazardous risk. Examples of what I am talking about: signing a 5-year lease for 15-months “no payment due,” and the three people with 100 credit cards and $500,000 credit limits. Do these examples really fall under the boot-strapping category? They seem to be very different than “employee stretching, equity compensation, just-in-time inventory, etc,” and I think that if these entrepreneurs had not been successful, we would be reading an article blasting them on their overly risky decisions.
The stories in this article are interesting, but even though the entrepreneurs had success, I can’t help but think many made poor business decisions. In my opinion, this article confuses boot-strapping (creatively acquiring the use of resources) with hazardous risk. Examples of what I am talking about: signing a 5-year lease for 15-months “no payment due,” and the three people with 100 credit cards and $500,000 credit limits. Do these examples really fall under the boot-strapping category? They seem to be very different than “employee stretching, equity compensation, just-in-time inventory, etc,” and I think that if these entrepreneurs had not been successful, we would be reading an article blasting them on their overly risky decisions.
One of the articles contains what I believe to be the most important concept in all of the articles. “But when we took a $200 advance on our credit card, we knew we had a matching receivable or we would not have done it.”
Many entrepreneurs do not succeed and we typically hear only the rags to riches stories. Every company does not necessarily need a receivable on their books to support any debt they incur; however, there must truly be a calculated, expected return.
I think it would be equally as valuable for potential entrepreneurs to read articles about past entrepreneurs who did not succeed and could not feed their families and wound up in bankruptcy……….or worse.
Anyone interested in learning more about creative financing for start-ups should take a look at this amazing resource: http://www.antiventurecapital.com
John,
I completely agree with you. Maybe it’s just my personality, but it seems very risky to me to take on that kind of debt. I think many entrepreneurs do that with the mind-set that we talked about in class of, “Well if my business is not successful, then I’ll just file for bankruptcy.” I personally feel that is not an option. I have been raised that you pay your debts- No matter what! I think people should seriously consider if they would be able to repay their loans if the venture fails. It may cause them to make different choices.
“It does not take much money to start an INC 500 firm. Sixty-one percent of CEOs started their business with less than $50,000 in start-up capital.”
YEA, well no d$m kidding, problem is 50,000 is a whole heck of a lot of d$m money, even 10,000 is. The real problem is every entrepreneur in a bad state is more like me – 25,000 or so in debt and only 1000 in savings living in a 500/m bachelor getting parental help with no assistance or money to even pay for office space or their own car.
This “50,000 is not a lot of money” crap is a load of sh$t, NOBODY can get that kind of money, only VC people give out that much and without you having a degree or proven income for 2-3 years you won’t get ZILTCH, and what did you say only 2% of anyone gets VC money, that answers the story.
The rest of us slowly go into more debt, then 10 years later are able to start making anything in the business we started. Maybe its better in USA but here in Marxist Canada thats what this BS country is like.
Here is an idea for some of you entreprenurs WITH MONEY and who own an office. START AN OFFICE COOP.
You have a few suites and a permanent secretary who greets everyone at the door. Everyone has advertising posted but clients don’t know it is a shared facility.
Each CoOp person gets to rent out a room in one of the furnished offices whenever they need it part time for business/client meetings, then they don’t have to have a permanent office and don’t need a car or have to ride a bike to a clients home to do a presentation.
When you are not renting the office for the day, the secretary justs says you are not in today and takes messages for you and forwards the messages.
Rent for each coop member should be no more then 30/m with 15/day extra rental per office for meetings.
Every poor bike riding 25,000 in debt entrepreur I know including myself will join this kind of a group and we can start getting a name for ourselves instead of trying to do the bike riding to clients homes stuff.
Have a nice day,
Max
The Art of bootstrapping is all very well. But surely you need money to expand on any business.