Bootstrap your business

Emma Haslett finds out how to perfect the ultra-light start-up.

"The feeblest excuse ever given by a would-be entrepreneur is that they can't raise the start-up capital to get going." So wrote former Pizza Express chief executive and self-professed business 'maverick' Luke Johnson back in 2006.

A friend of mine had gone out a year earlier to raise money and had an easier time of it

Fast forward three years and start-up capital is far more difficult to get hold of. Instead, businesses are choosing to bootstrap: financing their businesses with little more than credit cards, overdrafts, and a large dollop of creativity.

Why go through the heartache? Nikhil Shah, who launched his business, internet radio site Mixcloud, in September, puts it simply: at the moment, finance is hard to come by.

"A friend of mine had gone out a year earlier to raise money and had an easier time of it," he explains. "We could see the climate was changing and it was going to be a lot harder for us. We didn't want to waste time trying to raise money, so we chose to bootstrap instead."

And with a 22% drop in VC investment and a £15bn drop in bank lending since 2008, who could argue with that?

For others, bootstrapping is about proving their business model without having to worry about financial commitments. Successful bootstrapping is about planning the business in stages, testing out your business model, making alterations and being clear about what the measures of success are. David Molian is a lecturer in entrepreneurship at Cranfield School of Management - and he says being able to prove and perfect your concept is one of the biggest advantages to bootstrapping.

"It's about prototyping the idea, trying it out and learning from it before you decide to put more money into it or give up your job - it's about not betting the farm on day one," he explains.

The ultra-light start-up

Starting small is one of the advantages. Bootstrapped businesses don't have all the trappings of investment: founders exercise ultimate control - which means you can learn from your mistakes early on - and because your overheads are so low, you can be more flexible. While a shiny office in a central location may be the dream; in reality, taking measures such as working from home - or even a coffee shop with free wifi - for as long as possible will help you keep your overheads low.

Shah and his co-founders knew they'd need a extra space, so they applied to housing group Camelot, which places 'live-in guardians' into empty properties at risk of attracting squatters in return for bargain-basement rent prices. They ended up with paying the same amount for a warehouse space in north-west London as they would for an ordinary flat. "We were very fortunate," acknowledges Shah. "It keeps the overheads down."

Wages are one of a business' largest overheads, but there are ways to avoid those, too. In the US, bootstrapping has spawned a whole cottage industry. Networking event 'Cash Conscious Startups', run by jobseekers' site Jobnob,  asks: 'Are you willing to buy a smart, talented, unemployed person a drink? Come with one or two specific projects that you need accomplished and we'll help you find the perfect person to get the job done. And if you get funded, you can always hire them!'

Back in the UK, nothing of that ilk has yet been created - although with unemployment likely to peak in the next two years, it may prove lucrative. Instead, use your network and ask friends, family or acquaintances with the skills you need to help out. Reward them with 'food equity' - a slap-up meal at the end of the day - or even real the promise of real equity.

The Mixcloud team swapped their skills with friends, and ended up with an extra founder as a result. "One of us did some design work for him and he came in and did development work for us. We just kept on building up the relationship and got to know him, and in the end we asked him to come on board as a co-founder."

If there are jobs none of your contacts have the skills for, there's always outsourcing. Everything from accountancy to design can be outsourced, and it's a great way to bring someone on temporarily without needing to pay a wage.

Paying yourself

No matter how clever your cost-cutting measures, if you're bootstrapping, there's a good chance you'll have to find another way of supporting yourself and your business. For florist Laura Hall, that meant working part-time.

"I have to find my living costs somewhere, so I work in marketing three days a week," she explains.

If you're planning to go part-time, make sure your employer understands what you're doing. "When I applied for the job, they knew I had floristry as a hobby - and because they knew about it right from the outset, when I asked by chief executive if I could go part-time, he was incredibly supportive."

Shah and his co-founders have also had to find other ways to raise money - but they did this by working on the business full-time and doing odd jobs for friends and family. Shah says in the long-term, doing the work proved valuable.

"We tried to find things which were complimentary to the business as much as possible. I'd do DJ gigs and a bit of promoting, and other members of the team did design or photography - but we tried to find opportunities which helped us build our network and skills."