ACHARYA BANGALORE B SCHOOL

SUBJECT:ENTREPRENEURSHIPTOPIC :BOOTSRAP

PRESENTED BY

MANIKANTA.M

BOOTSTRAP

DEFINITION OF BOOTSTRAP

(OFTEN THROUGH IMPROVISED MEANS)

ENTREPRENEUR STARTS A COMPANY WITH A LITTLE CAPITAL.AN INDIVIDUAL IS SAID TO BE BOOT STRAPPING WHEN HE OR SHE ATTEMPTS TO FOUND AND BUILD A COMPANY FROM PESONAL FINANCES OR FROM THE OPERATING REVENUES OF THE NEW COMPANY

7 TIPS FOR BOOTSRAPPING YOUR STARTUP

Test the Market

Efficiency

Keep the Team Small

Interns

Marketing

Outsourcing

Social Networks

LIVE EXAMPLE OF BOOTSTRAPPING

In fact, as Gammalink’s founders learned, an entrepreneur’s time is rarely well spent courting investors. Despite a well-written business plan and excellent contacts, Lutz and his partner failed to attract venture capital in a year of trying. Eventually, they contributed $12,500 each to launch Gammalink. Years later, after their company was a proven success, it attracted $800,000 in unsolicited venture capital

TYPES OF BOOTSTRAP FINANCING

Factoring

Trade credit

Customers

Real estate

Leasing

Factoring

Using accounts receivable to generate cash flow by selling them to a ‘factor’ at a discount,in exchange for cash.

Trade credit

If your business can find a vedor or supplier to extend trade credit and allow you to order goods on net 30, 60, or 90 day terms, that is another form of bootstrap financing you could use. If your business is able to sell the goods before the payment is due, then you just generated cashflow without using any of your companies own cash.

Customers

Your business can use a letter of credit from your customer to purchase materials without using any company resources. Just like when a contractor has their customer pay up front and then uses that money to buy the materials they need to complete the job.

Real estate

Leasing, refinancing, and borrowing against equity is a great way for a company to generate capital by using its own assets.

Leasing

Free up cash by leasing equipment rather than purchasing outright.

Bootsrapping options

Product development

Business development

Minimization of capital needed

Meeting the need for capital.

Product development

Prepaid licenses, royalties, or advances from customers

Special deals on access to product hardware

Development of product at night and on weekends while working elsewhere

Customer-funded research and development

Free or subsidized access to general hardware

Turning a consultant project into a commercial product.

Business development

Foregone or delayed compensation

Reduced compensation

Personal savings

Working from home

Deals with professional service providers at below-competitive rates

Space at below-market or very low rent

Personal credit cards and home equity loans.

Minimize the need for capital

Buy used equipment instead of new

Borrow equipment from other businesses for short-term projects

Use interest on overdue payments from customers

Hire personnel for shorter periods instead of employing permanently

Coordinate purchases with other businesses (mutual purchasing of goods)

Lease equipment instead of buying

Meeting the need for capital

Withhold entrepreneur's salary payment for short or long period of time

Seek out best purchasing conditions with suppliers Deliberately delay payment to suppliers Use the entrepreneur's private credit card for business

expenses Obtain capital via the entrepreneur's assignments in

other businesses Obtain loans from relatives and friends Barter underused products or services with other firms Franchise or license the product or business idea to

others for a royalty fee.

Benefits

Total control

A bootstrapping business has total control over its destiny – the business owners answer to no VC, bank or outside imposed board of directors.

Customer focus

The business that is focused on funding itself pays close attention to the needs of its customers. The distraction of raising, and then managing, investors or lenders can distract from building the business.

Validating the business model

A successful business that has grown through funding itself is has, by definition, a valid and profitable business model. This is not necessarily true of VC or debt funded enterprises.

Overcapitalisition

“raise as much money as you can.”

DISADVNTAGES

Undercapitalisation

One of the main reasons for business failures is under capitalisation; simply not enough money to grow the enterprise or to put it on a sustainable footing. This is a constant risk for bootstrapped businesses.

Inability to focus

Many owners or managers of bootstrapped businessesefocused on making sales so they can pay the rent and make payroll; this distracts management from executing the longer term aims of the business.

Expertise

In taking an equity partner – either in private equity, venture capital or angel investor – the founders get the benefit of the investors’ expertise.

A good investor who has similar objectives to the founders can add real value and complement the original team’s strengths and weaknesses.

No one size fits all businesses

Overall there’s no black and white to bootstrapping versus borrowing money or finding an equity partner; all of them have their risks and benefits.

Flying on Empty

1. Get operational quickly.

2. Look for quick break-even, cash-generating projects.

3. Offer high-value products or services that can sustain direct personal selling.

4. Keep growth in check. Start-ups that failed because they could not fund their growth are legion

5. Focus on cash, not on profits, market share, or anything else

6. Cultivate banks before the business becomes creditworthy

Swot analysis

Strengths&Weaknesses

It's one thing to be able to sniff out opportunities, having the competencies to take advantage of them is just as important. You don't have to correct all of your business's weaknesses (that's usually impossible). The big question is whether or not you should stick to opportunities where your company has the necessary strengths, or whether your company should acquire or develop new strengths.

Opportunities &Threats

Opportunities are areas of buyer need where your company can perform profitably. The best opportunities are the ones that are relatively easy for the company to pursue and that have a high probability of success.

Threats are the challenges posed by unfavourabledevelopments or trends that could lead to reduced profits. Examples of threats could include the development of a superior product by a competitor, a high chance of a prolonged economic depression or unfavourable government legislation. Of course, there could be many more.