What types of ideas are best suited to bootstrapping? (We’ll get to “how to bootstrap” in a separate post). Here are a few things to look for:
1. Low startup costs. Look for ideas you can launch without writing big checks. For example, it tends to cost less to start a company that sells services than one that sells products. Want to sell a line of baby food? You’ll need to create product formulations that meet FDA standards, and design packaging that stands out on store shelves. Also, you may have to produce more than you want at first, to meet supplier minimums and be prepared for customer reorders. Want to start a consulting firm? You can probably get started with a simple website and business cards.
2. Low marketing costs. If possible, find companies that reach customers without the need for large marketing budgets. For example, one of my clients has a $3 million revenue business and has never spent a penny on marketing. She sells hospitality services that cost over $100,000 per year. The universe of potential clients is fairly small, so she networks her way in the door, gives a sales pitch in person, and (sometimes) walks away with a big fat contract.
3. Proven demand. Forget “if we build it, they will come”. Instead, make sure you can sell it before you build it. There are a few ways to do that. The best way is to get customers to commit to making purchases in advance. Alternatively, you can work closely with one large customer when developing your product or service, so you can build their needs into your design. Can’t do that? Copy something that’s already selling.
4. Simple operations. Pursue ideas that don’t require large teams, wide varieties of products, or other factors that make operations difficult. Instead, find businesses where you sell one type of product or service to one type of customer, at least at the start.
5. Quick break-even. Seek opportunities that will let you get a product or service to market quickly, get cash flowing in the door, and reach profitability within a few months. Beware of ideas that require critical mass, before you can start generating revenue, like advertising supported websites or marketplaces. Also, watch out for startup ideas that entail long, unpredictable development cycles, or high levels of overhead.