Ten years ago, when I was 24, I made a mistake. I had just sold my first business to a UK company for $4.5million.
Still reeling with the excitement of having pulled off the sale of the web hosting business I had started from my teenage bedroom, I thought I knew everything.
First, I bought a Ferrari, which I was too scared to drive. It barely left the garage. Then I ploughed $355,000 of that money into funding my second business.
By using my own cash and not taking any external investment I was, by definition, bootstrapping, but I certainly wasn't spending cleverly. I jumped in with a ‘go big or go home’ mentality.
The money was quickly hemorrhaged on staff that weren't needed and expensive office space that I couldn't yet fill. I got carried away.
The irony was I was building a tech platform that would provide small business owners and professionals with virtual employees to help them save time and money. I certainly wasn't practising what I was preaching.
The rest of this hefty cash injection went towards advertising, which was the only spend that gave any return.
With that beautiful thing called hindsight, I now believe I could have built the business with $90k seed capital, allocated to marketing, developing the platform, and sales, in that order.
For me, the mistake came good, but not without a struggle. It was a six-year uphill battle to grow - it seemed that we had emerged a few years too early. Before launching in the US we started in Britain, where business owners weren't easily persuaded by the concept of virtual assistants.
It took four years before the debt was repaid in full and we were into profit. The business now turns over $5million a year and I can sleep at night.
If you're bootstrapping like me, you'll feel every mistake much more keenly than if you were spending investor money. Every bad decision hurts. My advice is: be brutally ruthless and fastidiously frugal in the first year.
First, delay avoidable fixed ongoing costs like people and office space for as long as possible. Outsource where you don't possess the skills and use virtual employees for administrative jobs that are taking precious hours away from you, and therefore the growth of your business.
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Secondly, if you don't have any technical know-how, think hard about partnering with someone you trust who does. Every business relies on technology to some degree, and it can be very expensive to outsource the build of a platform or app, for example.
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Thirdly, marketing works, but different channels yield different degrees of success. Know your target market, work out how best to reach them, and once you find a method that works, throw money at it. At Time Etc, for example, we found that giving away our service for free on a trial basis helped to build our customer base.
Take comfort in the knowledge there are many bootstrapping success stories that were founded on shoestring budgets. Undergarment maker Spanx founder Sarah Blakely launched her business from her apartment with $5,000 of personal savings, trademarking and filing the product patent herself, and – 17 years later – she still retains 100% of the business. In 2016, the business saw an estimated $400m in sales.
And endurance event Tough Mudder, which generated $100m in revenue in 2015, was founded on all the savings in co-founder Will Dean's bank account ($8,000), spent on Facebook ads, plus $300 for a website. The founders, who have somehow convinced millions of people that facing their phobias and getting covered in mud is worth paying for, have never taken external investment.
