Many entrepreneurs constantly face the battle for cashflow and a lot of times, money (the lack of it) is the reason why start-ups fail even before they’ve started. I have read many books and blogs where the general consensus is to come up with a brilliant idea, write up a solid business plan and pitch it to investors with the hope of getting funded. In reality however, it’s often very difficult to get money from external sources, not to talk of all the strings that are attached to striking such deals.

The most notable sources of external funds these days are the Venture Capital firms, Angel Investors and bank loans. The trouble for new entrepreneurs is that these people are not keen to invest in “unproven people”. Investors will tell you that they invest in people and not ideas, so if you are a first time start-up builder, your chances of securing money from these people are very small. VCs invest several millions, sometimes billions in companies and they prefer to invest in accomplished companies looking to grow. Angels often always tend to do the same but there are Angels who do invest in newbies, you just have to search extensively to find the right one. As far as bank loans go, if you don’t have solid collateral, you can kiss that source goodbye as well.

I am a fan of bootstrapping and it’s my preferred route for raising funds although I know there will come a time when I will need external funds. For now however, my idea is that I am still in the early stages of business development so I will make the most of my limited funds. There are two obvious advantages of bootstrapping that immediately jump out:  (a.) I have more time to focus on business development when I cut the time I spend looking for and contacting investors (who would probably tell me I am too risky to invest in anyway). (b.) I can successfully keep out other people from owning part of my company and telling me what to do or asking me to re-direct my dream because they want to make quick money.

There are many ways to bootstrap. Now they might not be the easiest way to go about things and it will certainly affect you as an entrepreneur personally. Some notable means include borrowing from friends and family, using personal savings, emptying trust funds (if you have one), taking mortgages e.t.c.

Some additional tips to help you bootstrap.

Be prudent: Realize that you don’t have tones of investor money to spend, you are infact spending your own money. Make sure that you don’t spend if you don’t have to. You don’t need to get an office space when your bedroom is spacious enough to take an additional computer table and chair. Make ever dollar count.

Cut Employee and overhead costs. Many start-ups out there have only two employees and there’s a reason for that. They are trying to save money and cut down on unnecessary expenses. If you can do it yourself, then make sure to. There are several other means of getting help: part-time, unpaid internships, outsource e.t.c. These are more cost effective ways of getting someone else on board.

Be sure about your decisions. When bootstrapping, never use your own money to “test the waters”. If you are not sure about something, then do your research, connect with people and seek advice. Many people believe Adwords is the way to go when looking to advertise, but not everyone is adept to what it takes to make it work. If you don’t know how to make the most of it you will suffer big time and lose a lot of valuable funds.

Word of Mouth: Sell yourself in the most cost effective way, word of mouth. Tell people and build contacts.

Try to re-invest early profit: I know of a T-shirt company owner who bootstrapped his way to several thousands of dollars in early profit and if you ask him today what his best business move was, he will tell you how he re-invested every dime of it into the company. The more you re-invest, the longer you keep out external investors, which is never a bad thing. It’s not exactly smart to take out all your profit and use it for personal purposes if you are really looking to grow your brand.

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With the state of the economy at the moment, it’s no surprise that I am a honorable advocate for the art bootstrapping as a means of funding your start-up. It’s not that there’s no VC money to be spent or there isn’t alot of it being given away at the moment, it’s just that as a new entrepreneur, your chances of getting your claws on them are very close to zero. Many investors are now shying away from investing in ‘untested/untried manpower’ so they are all justling to throw more money the way of household ventures, even if they don’t need it as much.

Bootstrapping for those who are stuck is the process of getting funds for your business without the aid of outside forces. These outside or external forces if you like, are the VCs, bank loans, Angel investments e.t.c. By choosing to bootstrap, you ultimately avoid debt and financing any equity. Besides these perks, you also get about sole control of your business, you won’t need to listen to any ‘board of investors’ constantly blowing up your blackberry, telling you what to do and when  to do it. If you are not so sure about the chance of a business succeeding, perhaps it will warm your heart to know that Dell, Cisco, Oracle, ebay all started out by bootstrapping and not taking any early venture fund.

Ways to Bootstrap: There are many ways of go about bootstrapping that it would be unhealthy for this article if I list each an everyone I have heard of or come across, but the most popular ways are what I will share.

• Self-finance your Start-up: Pretty self explanatory this one. Many start-ups do not need hundreds of thousands of dollars to get off the ground. In fact most of the Start-ups I have worked with and know of started with less that 20k. I realize that it all depends on the industry and the market but usually, one can get a business off the ground locally.You can dig into your saving, put your credit card to use(think twice), take out a mortgage/loan, get family and friends to pitch in and you will have enough to start things off.
• Call on the ‘negotiator’ in you: Easier said than done, I know. But as a business owner, I will advice you to learn and sharpen your negotiating skills, if it isn’t already. There will be times when you are starting off when you might have to convince yourself and few employees to pass on the paychecks so you can spend the money on growing the business. You might have to negotiate a payment structure with your suppliers, such that you pay a bit later or when the business has started making profits. As an entrepreneur, you must be bright and innovative, or you will fail.
• Outsource, Outsource, Outsource. I fully support outsourcing, especially when you are just starting off. If you do this smartly, you will cost alot of cost. Salary cost, rent cost, gas, electricity and so forth. Isn’t this what you want? Infact using a freelancer for certain aspects of your operations isn’t such a bad idea and often times they are on for the short term and aren’t so expensive if you look in the right places.

When is it time to beg? I don’t exactly mean getting on your knees with tears rolling down your eyes, asking for a break from some investor (well except if it is what you have to do!). But usually as your business grows, there comes a point on that growth curve when you should call in the big guns.

• When demand is greater than supply: This is an obvious choice for numero uno on the list. As soon as you notice that more people are asking for your service/product more than you can offer, it’s best for you to look for ways of funding your venture. If you have successfully brought your business to this point, then kudos to you. You also can be rest assured that with a growing business that is showing promise, the likelihood of you securing VC funding dramatically increases.
• When the economy favors your market: When you realize that most people are now starting to patronize your niche industry, then you must do yourself and business a favor by expanding your capacity. If you are blackberry app developer and you suddenly notice that more people are starting to switch from iphone to blackberries, then you should read into that trend and take advantage. That trend means there will be more people using the blackberry and hence more people demanding the apps. This is when you must secure some funding and expand your practice.
• When profit/cost ratio keeps jumping: If you notice that your even as your selling price increases, the demand for your service/product is still unwavering or increases, then please, please, beg for money to expand. If you are not too keen on seeking funds, then atleast shoot me and email and I will gladly invest the little I have into your venture. (no, no kidding!)

Finally, be careful who you ‘beg’. A lot of people look online and find a list of VCs that have invested several millions into some start-ups and just immediately send them a plan. You can’t and shouldn’t do that. Do your research and make sure the VC or investor you choose knows alot about the industry you are in. Don’t email a VC whose primary sector in biotechnology asking for help with your new social media. It doesn’t work like that. Be sure they have your back, be sure they have experience with your niche…but most importantly, be sure they are trustworthy!