How doth though bootstrap?

I’ve been impressed by my clients lately. Especially by the way they’ve managed to get new ventures off the ground despite the crappy economy. I thought I’d share some of the ways they’ve done it…  On the left side of this chart is the task at hand (e.g. build a company website). In the middle, the approach Richy Ritch the entrepreneur might take (and his dog Dollar, too). And on the right, the way of the bootstrap warrior.

When the economy gives you lemons, open a lemonade stand

Just read an article in Forbes about the state of early stage venture capital investing, and it’s not pretty. Shocker. Among other things, 60% of early stage VC funds aren’t making any new investments. I haven’t seen any recent data on the state of angel (amateur) investment activity, but it’s probably not looking rosy either. Still, keep in mind that the vast majority of early stage companies are financed by investors themselves, and their friends and family. 

Call me crazy, but I think there’s a silver lining in all this. 

• Survival of the fittest. Fair-weather entrepreneurs are sprinting for the exits, but those choosing to stick it out are more likely to have the kind of tenacity and resourcefulness that drives success.
• Bootstrapping rules. If you don’t have a lot of investment capital, you are forced to do more with less…. to make smarter decisions, and focus on cash flow. Need to raise outside capital? Prove you’ve can get traction first (e.g. build your prototype, grow your user base, close distribution deals, land some paying customers…). That’s the way it should be. See my post on boostrapping for more.

Starting a business in a recession

In some ways, starting a company in a recession is different. If you’ve built and sold a string of startups and made money for your investors every time, there’s always capital out there for you. But that’s a small group of people. Less than 4,000 US companies raised venture capital in 2008, for instance.

For the vast majority of entrepreneurs, this is a time to “bootstrap”. That term may date back to the 1800s, but the concept couldn’t be more timely. It means pulling yourself up by your own bootstraps. For an entrepreneur, bootstrapping is about starting a business on the cheap, and growing it profitably, with minimal investments from outsiders. That’s the way most companies will get started in a recession, and it’s probably the way most companies should get started anytime.

Entrepreneurs to the rescue

As I write this, the world is facing its worst recession since the Great Depression. While the media and government focus on bailing out America’s largest companies, entrepreneurs are likely to be the real drivers of a turnaround. According to a 2009 U.S. Census Bureau study, startups remain robust even in the most severe downturns, and are a major contributor to job creation. Despite economic turmoil, entrepreneurs are likely to start over 6 million companies this year.