How do you create a company out of thin air? What’s the magic that let’s you grow a business with no money in the bank? Bootstrapping means doing exactly that: Starting and growing a company on a shoestring budget.
My own journey to becoming a tech entrepreneur started with having literally not a single cent to my name. I picked up a job at a local hardware store as a customer service guy on inline skates. I didn’t even own a pair inline skates. That wasn’t terribly surprising, considering I didn’t know how to inline skate either. But when the store called me with a job offer, lack of any other options made me accept on the spot. I was able to convince the store that a starting date after the holidays made more sense. I borrowed a pair of inline skates and two weeks of practice and an equal number of bruised knees later I was ready to roll out. My first month paid for a new hard drive. All following would serve no other purpose but to pay for my internet connection. In Germany at the time, internet was a dial up connection that you paid for by the minute. Every minute I spent on skates bought me 5 minutes of precious online time. Without being consciously aware of it, I had put to practice one of the first strategies for a bootstrapping entrepreneur: Increase your budget.
Launching a company without money is like trying to cross a sea in a leaking boat. You gotta fix the leak before you can attempt the crossing. Sure, you could try to go fast enough that you reach the other shore before your boat sinks (and a lot of high risk startups attempt exactly that). However, for most people taking care of the immediate, life-threatening danger is a saner choice. If you just start out, your immediate problem is that you’re leaking cash. If you don’t yet have the revenue to fix that leak, you might want to try some ways to at least make it smaller: Keep your day job, take on boring side-gigs in your field like repairs and maintenance – or, in a worst case scenario, learn how to inline skate. It might not get you noticed (though that might depend on the outfit), but it’ll keep your head above water.
[Tweet “Beware of little expenses. A small leak will sink a great ship. – Benjamin Franklin”]
The following years, while I went to school and skated during the day, I spent my nights doing market research. At least that’s what I get to call it on my own blog. My parents probably referred to it instead as ‘playing online games all night long’. In total, I logged more than 3600 hours of playing a single game before I created my first ever website for it. Gaming day in and out not only made me really popular with the girls (right…), but was actually an important step towards creating my own company in the field: Understand the market. Starting a company in a market you know this well, means you waste far less resources on market research further down the line. It means you have an inherent understanding of its customers. In short, it means you know what you’re talking about.
High school and an unhealthy amount of online gaming was followed by university and an unhealthy amount of online gaming. A business administration degree and an amazing airline management trainee program later (thanks, Lufthansa!) I felt ready to take the leap. Though ready might be a euphemism. Being afraid of asking myself ‘What would have happened if I had done it?’ otherwise – and doing so for the rest of my life – might have been more accurate. I recruited fellow airline management trainee Till, (sorry, Lufthansa!) to leave and start our own full-time business creating websites about online games.
Surprising to some of you (not to us at the time – because how could things ever go any other way in the mind of a 22 year old?) we made money from the get go. We were profitable. Not hugely so, but enough to cover all bills and then some. The only problem was that we didn’t know why. We literally had no idea where 50% of our sales came from. We just assumed it was a mix of visitors from ad campaigns and recurring visitors from previous campaigns. We had another lesson to learn: Know your company. While we wasted countless hours on figuring out what the cheapest internet connection was and which bank charged the lowest account management fees, we missed out analysing the really important part: What are the biggest factors determining our revenue?
It was only when my brother Mark sent me a link to Google Analytics that I actually saw how much revenue was the result of showing up well in Google searches. That’s hardly a surprising finding in 2015, but in 2005 that was far from obvious to us. Analysing traffic patterns allowed us to triple our revenue over the course of 6 months. It was growth that lay within our own company, we just had to get to know our own business and actually unlock it. Using analytics software was the first of many optimisation efforts that continuously lead to higher returns in following years. To this day I believe that understanding your own business better is one of the most profitable strategies out there for a lot of internet entrepreneurs.
Increasing my budget got me the point where I could launch my business full-time. Knowing the market meant I was able to be profitable from day one. Getting to know our own company allowed us to take full advantage of the potential we brought along. But to really expand, I had to learn another, more painful lesson: Spend your budget. I’ve always seen myself as financially conservative and as such, bootstrapping was maybe more of a reflex than a conscious choice. But what I really needed to understand, was that I actually need to spend my budget. Some experiments with outside consultants hadn’t gone well, leading to me avoiding them wherever possible and doing my own research instead. However, in 2008 I seemed to have hit a glass ceiling with that strategy – our websites were starting to fall out of Google’s favour and I ran out of ideas on how to fix this. At that time I came across SEOBook – a closed community of Google search experts that charges USD 3,600 / year in membership fees. Sweet Jesus, that’s a lot. However, the company had hit a growth ceiling and conversations, reading and other research didn’t unearth any ways of getting the company back on track. It was time to throw some money at the problem and learn from people smarter and more experienced than me. The following months the company went from ‘not screwing up Google rankings’ to receiving significant exposure on the most visited website on the planet.
You have to spend money to make money isn’t exactly an earth-shattering revelation. But having to invest without a guaranteed return, trusting it’ll eventually work out, was quite the attitude shift for a frugal soul as me. Without that insight I would have never made it to Thailand: Setting up a business in Thailand saved me a lot of money in the long-term, but the short term costs and risk were substantial. There was no guarantee that the business would be around long enough to reap the benefits of all that work. However, this risk-affinity is absolutely essential if you really want to grow a business.
You might have noticed that these insights were gained over a number of years. We didn’t hit it out of the park on day one. Nor have we ever stopped learning. It’s an ongoing process. What starts as ‘bootstrapping’ becomes ‘running a tight ship’ and is just as important in ensuring the longevity of a company as bootstrapping was in getting it off the ground.
Bootstrapping is all about efficient management of your resources – your money, your time and your attention. It means you have to be constantly aware of the bottlenecks in your business and have to actively work to resolve them. For each entrepreneur and each business those bottlenecks lie elsewhere – but the strategies to address and fix them are often similar. It’s these continuous, small improvements in managing your resources that will eventually take you to your goal. And looking back, it’ll seem like you created a company out of thin air.
Wow, another excellent article. This one I’ve actually read twice!