Why Bootstrapping Won't Work for Your Business

Business.com / Finances / Last Modified: February 22, 2017

Most businesses are self funded, but it's not always enough to be self-sufficient. These are the signs bootstrapping won't work for you.

Everpix, the world's best photo startup allowed you to store every photo you'd ever taken in the cloud. You could sort by date, time and even content. A brilliant concept except for one problem. They shut down in 2013.

Because they ran out of money.

It's the same problem bootstrappers face on a daily basis.

Running out of cash is a common problem for business owners. Bootstrapping is pegged as an answer for cash starved entrepreneurs—often times it's the only answer. It works. And, for companies like Diigo it's standard operating procedure.

Related Article: Fast Cash: 12 Quick Ways to Raise Some Dough

Boostrapping won't work for companies that are:

  1. Obsessed with the product
  2. Without a sales or marketing system in place
  3. Targeting the wrong audience
  4. Unable make money

Obsessed With the Product

George Deeb at Red Rocket Ventures has mentored more than 500 startups, noting that nearly all of them suffer from the same problem. They focus exclusively on building the "perfect" product.

It's a common obsession. Founders fall in love with their product. They create something amazing. Businesses with a great product and no means to tell their customers about it lack a key element in their company. 

No Sales or Marketing System

It isn't just about sales and marketing. It's having a sales and marketing system. A good system introduces your business to new people consistently, develops a long term relationship and convinces people to buy.

But that's not the way many businesses approach sales and marketing. Most sales and marketing teams focus on only one thing—the low hanging fruit. The customers who are ready to buy right now.

Marketing turns these leads over to sales to meet their quotas, then sales contacts these prospects obsessively. Instead of building real, legitimate relationships with prospects, they push them away.

Which leads to their sales team complaining that the "leads are weak," that prospects aren't all that interested in buying.

Related Article: 5 Things Entrepreneurs Should Know About Sales and Marketing Today

Targeting the Wrong Audience

Most businesses believe they're targeting the right customers. People who have a problem (or need) they can solve, and are willing to pay for it.

Simple right?

On the surface this seems reasonable, until you factor in the "I could eat" customers.

For example, the freemium model is pretty common especially with tech startups. It's great because when done well, it can attract lots of attention. But is the attention coming from people who have the willingness and ability to pay? Or is it coming from freeloaders who want something for nothing?

Too many businesses find out after the fact when they're saddled with thousands of users on the "free plan" who are unable or unwilling to upgrade (pay). Freemium works if you know your ideal customer. Not knowing becomes a never ending nightmare.

Unable to Make Money

Let's say your business is filled with people that love using your product—but they either can't or won't pay for it. Or maybe it's incredibly tough for them to continue paying. At that point you've painted yourself into a corner. Every sale, upsell or cross sell opportunity becomes an exhausting battle.

With the freemium model, businesses struggle to turn freeloaders into paying customers. Companies like Mediafire or Spotify target people who are interested in the product but unwilling to pay for it. The expense created from these customers can be problematic, with cash flow continuing to be an everyday struggle.

Slowly but surely these companies are faced with a dilemma: make money or close.

Related Article: 6 Crowdfunding Tips to Attract Investors (And Their Money)

You Can't Make Bootstrapping Work

Unless you have all of the right ingredients, bootstrapping is not going to work for you.

Businesses take on loans and max out corporate credit. They take huge risks in an effort to expand and grow. Maybe you're bootstrapping to bring customers, or expand your business. Maybe you're doing whatever you need to do to keep the business afloat ..

Bootstrapping can work but only when it's backed up with the elements your business needs to grow. By altering the bootstrapping recipe, you negect the key components your business needs, causing it to starve.

Add the right ingredients, follow the recipe and what you create will be able to feed and support your business.

What are the right ingredients?

  • The right audience
  • Focusing on what they want (and need)
  • Sales and marketing systems
  • Good financial controls

Conlcusion

The elements above are the essentials. If you're missing one of these ingredients, bootstrapping won't work. Your business can thrive if you have the previously listed elements down.

Everpix started with money and they still ran out.

Businesses run out of money every day. But the reason has less to do with money and more to do with strategy. With the right planning and the right ingredients, bootstrapping can be the investor your business needs to grow.

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