Bootstraping

Without finance, no idea, even the best, cannot be materialized. Not many entrepreneurs are lucky enough to get the required finance at the right time. Finance is the second most important element in any entrepreneurial adventure after the “Be Your Own Boss” attitude. The famous quote “Finance lets you run your business without intimidation” is worth considering early on. Finance must occupy a greater space in an entrepreneur’s mind, the moment he/she starts thinking about running his/her own show. That needs thorough financial planning like a feasibility study, which shows the feasibility of the project along with finance requirements and thinking about fulfilling the financial requirement. The very first thing that comes to mind when one is short of finance is taking a loan, which should be the last resort after exhausting all the avenues of financing. Prophet Muhammad (PBUH) used to seek refuge in Allah from debt because it erodes reputation, which is one of the requirements for success. Narrated By 'Aisha : (The wife of the Prophet) Allah's Apostle used to invoke Allah in the prayer saying (O Allah, I seek refuge with You from the punishment of the grave and from the afflictions of Massiah Ad-Dajjal and from the afflictions of life and death. O Allah, I seek refuge with You from the sins and from being in debt)." Somebody said to him, "Why do you so frequently seek refuge with Allah from being in debt?" The Prophet replied, "A person in debt tells lies whenever he speaks, and breaks promises whenever he makes (them)." Sahih Al-Bukhari Vol. 1, Book 10, Hadith 833 When a start-up takes a loan early in its journey, it reduces its flexibility because of attached strings. Many start-up ventures don’t get it right the first time. Bootstrapping is one such way of doing business with personal savings. In startups, bootstrapping is like zero inventory in a Just-In-Time System: it reveals hidden problems and forces the company to solve them. Too much money also has its problems as one entrepreneur remarked that “if we had more money, we would have made more mistakes.” Amar Bhide has excellent advice on Bootstrapping.

■ Get operational quickly - Use copycat ideas targeted to a small market. Imitation saves market research costs and faces less stiff competition from big names. Once you are in the flow of business then many opportunities will come your way. You can capitalize on these.

■ Look for quick break-even, cash-generating projects - A business that makes money brings confidence to entrepreneurs and their teams.

■ Offer high-value products or services that can sustain direct personal selling - The biggest challenge for an entrepreneur is to get the customer to abandon his familiar product for a product from a new start-up. Here entrepreneur's personal passion, salesmanship, and willingness to go the extra mile can substitute for a big marketing budget.

■ Forget about the crack team - With a limited budget, an entrepreneur can’t hire well-established players. He needs to find youthful exuberance by offering them to upgrade skills and build résumés, rather than by offering cash or other incentives. The challenge is to find and motivate diamonds in the rough.

■ Keep growth in check - The success of a start-up also hinges on its expansion. But successful entrepreneurs take special care to expand only when they can afford and control.

■ Focus on cash, not on profits, market share, or anything else - Positive cash flow is essential for a start-up, and for this one must have suitable terms from suppliers and timely payments from customers. Equally important is knowing when to spend and when to economize. Successful bootstrappers are generally cheap, except in one or two crucial areas.

■ Cultivate banks before the business becomes creditworthy - Bank finance sometimes is cheaper than market credit but usually, a start-up doesn't get it unless it has some creditworthiness. Along the way an entrepreneur has to take a U-Turn and abandon some of the policies that allowed him to get up and running with limited capital. Here is his advice:

■ Emerge from its niche and compete with a large company

■ Offer more standard, less customized products

■ Bring critical services in-house

■ Change management’s focus from cash flow to strategic goals

■ Recruit higher-priced talent