The art of bootstrapping

Filed in archive Venture Capital on January 26, 2006

Guy Kawasaki has a nice guide to bootstrap (I guess its from one of his books - just don't know which one?):

"Focus on cash flow, not profitabilityThe theory is that profits are the key to survival. If you could pay the bills with theories, this would be fine. The reality is that you pay bills with cash, so focus on cash flow. If you know you are going to bootstrap, you should start a business with a small up-front capital requirement, short sales cycles, short payment terms, and recurring revenue. It means passing up the big sale that take twelve months to close, deliver, and collect. Cash is not only king, it's queen and prince too for a bootstrapper.

Forecast from the bottom upMost entrepreneurs do a top-down forecast: "There are 150 million cars in America. It sure seems reasonable that we can get a mere 1% of car owners to use install our satellite radio systems. That's 1.5 million systems in the first year." The bottom-up forecast goes like this: "We can open up ten installation facilities in the first year. On an average day, they can install ten systems. So our first year sales will be 10 facilities x 10 systems x 240 days = 24,000 satellite radio systems. 24,000 is a long way from the conservative 1.5 million systems in the top-down approach. Guess which number is more likely to happen."