When I started my first consulting company, my business partner and I wanted to get a small loan to have some operating capital to invest in our company to grow.
After our third trip to meet with our proposed lender who kept making us go back to edit our plan, we decided that we didn’t want to waste our time in the process. Fearless and in our early 20’s, we felt we didn’t really need financing that we couldn’t take care of ourselves to get moving. The time we were spending finding a loan could be better spent finding paying clients—and in the end we were right.
For less than $5,000 we set up our corporation, bought a website, paid first and last month up front for some cheap office space—then we were off to the races cold calling, going to events, tapping into our networks, volunteering in the community and working part time jobs to build our cash flow from the ground up for our company.
Admittedly, we had to get creative to make things work, like getting a shareholders’ agreement done over breakfast with an ex-date lawyer, working out of a small matchbox to legitimize ourselves, and doing things like volunteering for the mayor’s campaign to get invited to all the organizing events to meet people.
It wasn’t the easiest way but it was a good experience in what you can achieve when you go all out with limited resources. Personally we made some sacrifices with our own income as all entrepreneurs do. But after our first year, our baby business had a profit that we were actually a bit sheepish about—until our accountants told us what we achieved does not typically happen in the first year for most businesses.
REVENUE MAKES A BUSINESS
Getting acquired by Yahoo or Google would be great, but maybe that isn’t a good strategy to rely on. I was at an event last week talking to an accountant and he recently made the switch from going to tech events to fashion. His reasoning was that a lot of fashion companies have bootstrapped and are making revenues so he can work with them.
At every venture capital presentation I have gone to, the speaker says that they should be the last resort and encouraged the audiences to find other sources of revenue and to finance by bootstrapping if they can.
YOU CAN CHARGE YOUR FIRST USERS
It is reasonable to start charging and demonstrating your value as early as you can. Investors like cash flow as much as your bank account does.
I have charged for beta testing for two software companies that were ideas but not live in action. Pricing is hard but at least you know you have one. If you offer a smoking deal when you are first starting out, the visionary first users will sign up and you can lock them in cheap long term and get good insights from them (though they can sometimes be harsh).
My experience has been that they are forgiving and will stay on as long as you continue to modify and listen. Sure these people are tricky to find but they are out there. Find them and start collecting, you will likely ending up customizing to their needs (value to them) while legitimizing you have a product people will pay for. When testing two markets we were unable to retain the free beta’s and renewed over half the paid ones.
HOW TO FIND NEW CUSTOMERS
In the most recent company I set up, it was very challenging to reach people over the phone as it was in the hospitality industry where people are always moving around and rarely in front of a computer. Hundreds of dials later and frustrated, I figured there had to be a better way.
All of the people I was trying to reach over the phone were on Twitter and LinkedIn so I started tapping into that. It totally warmed up the leads and allowed me to grow a network and legitimize myself within the space. A combination of everything works best: cold calling, using social media, attending networking events, volunteering in the community, and finding ways to capture leads to your site through blogging and advertising your site in places your audience will see it.
Ultimately you need to make sure you are keeping busy and prospecting regularly to avoid the dips that happened when things slow down. Keep finding new leads of businesses you want to work with.
I have launched five companies in total now and they have all come with their own unique surprises with their own necessarily tactics to be unraveled in order to close deals and get in front of the right people. When there is a will there is a way.
Rather than waiting for investors to come and make things happen, try for yourself—you will have a more valuable proposition to them later once you are already operating and making money when it comes time to grow and scale.