[youtube http://www.youtube.com/watch?v=ylEIY8_f4FY&w=560&h=349]“You can build any company you want to without having to raise any kind of money,” said Jason Nazar, CEO of document provider .docstoc, in a presentation at Future Insights Live in Las Vegas. Nazar bootstrapped his own business before taking a $4 million investment four years ago. His advice combines his own experience with lessons that the most successful entrepreneurs he ever met used to build their businesses. Here’s his advice:
Principles of Bootstrapping
- Entrepreneurs sell ether: How do you get somebody to do something for you before you have the money and capital to pay them? You must sell a dream. Paint a picture of a future event that they want. For example, don’t you want to set your own hours, say you’re a co-founder, and have millions of people see your work? “Infuse that picture with the most important quality of all, your own certainty,” said Nazar.
- Everything can be negotiated: Don’t ever accept the first offer. Be prepared to walk away if you have to. Negotiating doesn’t mean you won’t pay the market rate, it’s just you’ll just exchange it for something else of value. For example, you could offer more business with more referrals to clients.
- You don’t have to have a product to sell a product: Docstoc sells products that don’t exist. All documents are contributed by users. Often Nazar will do some online ad testing to see if a certain topic is popular enough to warrant an actual product to sell. When he gets real results he’ll go ahead and build the product out. He says you can even pre-sell a product that doesn’t exist. It’s risky, but you could get the cash flow from the orders, and then go ahead and hustle to create the product -- and therefore get more customers.
Running a Bootstrapped Business
- Design, develop, market: These are the three tenets that will keep your Web business alive. Sometimes that can all come in one person. If you or all three of you could work for a year without taking a salary, or maybe a meager salary, you have everything you need to launch a consumer Web application.
- Services Before Products: Many successful product companies started as service-based companies. If you’re looking for a way to sell your product, you’ll need cash flow. So begin by selling your service so you have the cash to build your products.
- The 6 week cycle: Every minimal viable product (MVP) you create must be possible in a six week cycle. Nazar does that today with his business. He’ll launch whole new products, not just features, in six weeks. When you don’t have tons of money in the bank you have to be obsessively focused on getting your product out. Your product doesn’t need to be perfect. It’s a living work; users will tell you how it’s going to be used.
- Leverage deferred comp and equity: You don’t have the money right now to pay for people’s market rate. One technique Nazar suggests is to pay half rate now, then the second half plus a bonus when people achieve a certain goal. You can also leverage the promise that the person will not just be an employee, but an owner in the company. To pull off that leverage, you must be certain. “The most powerful currency in the world is certainty,” said Nazar. “People will exchange cash for certainty.”
- Get online traffic for free: Use tactics such as SEO, press, social media, new content, and a viral loop to build interest in your product.
- Start charging ASAP and test, test, test: Until you start charging for your product you won’t know how valuable it is.
- Manage fixed expenses and use variable expenses to drive revenue: Keep your fixed costs, such as rent, low. Use your variable expenses, such as advertising, to drive money in.
- The best time to raise money is when you don’t need it: Like when you're trying to get a job, network and form relationships when you don’t need the money. Biggest mistake entrepreneurs can make is to go after money when they need it. You’ll have no leverage at that point.
Nazar’s Personal Rules for Bootstrapping
- The $50K rule: You should be able to get all beta products off the ground for no more than $50K. If you need to, take out three credit cards. If you’re in grad school, take out student loans.
- Give yourself one year of no or shameful salary: You have to commit to it. You can’t have the pressure of driving a certain salary. Give yourself 12 months where you can work on the product.
- Protect your downside; don’t take unnecessary risks: Don’t take a mortgage on your home to cover your business. Don’t take a risk that doesn’t have a meaningful upside. And it has to be set up so you can live to fight another day. You’ll have to try three or four times before you’re successful.
- DEAL WITH IT! You’re now a promoter: You -- the geeky, shy person -- need to promote how wonderful your product is. You need to live it.