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Small Business bootstrapping

Thursday, October 8, 2009
Small Business bootstrapping. Image: Getty Images
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By Diana Clement
MSN NZ Money writer

Not everyone who dreams of owning a small business has thousands, tens of thousands or even hundreds of thousands of dollars to plough into the venture.

The Americans have a word for small business owners who start on the smell of an oily rag; "bootstrappers".

Bootstrappers do as much as they can to set up their business for "free". That is, if you don't count their time. Bootstrapping means doing your own production, sales, distribution and marketing. It can take longer to do core functions yourself. But if you don't have to pay out money, you don't have to borrow it.

Many bootstrappers even build their own websites using free templates. Although they may not be as good one that costs thousands of dollars, the bootstrappers' attitude is that they'll do for now.

If there's one thing for sure, starting with little money forces entrepreneurs to think outside the box.

The number-one rule is that bootstrappers need to focus single-mindedly on sales. The business can't grow unless they sell like mad. It becomes a real business — that is one that earns passive income — once you have sufficient cashflow to employ others to do the donkey work.

Believe it or not, some huge companies such as Microsoft and Dell, started as backyard bootstrappers. The Macintosh computer was reportedly bootstrapped by Steve Jobs.

Each business will be different. Some simply can't run without expensive machinery. But if you don't have the money, or can't borrow, you might need to choose something different as your first foray into business.

Many people start their businesses by selling goods on auction websites until they have sufficient cashflow to build their own sales site or even open a retail store.

Thousands of New Zealanders up and down the country import goods from China — and you can start with small shipments and build it up. You don't even need to visit China. There are dozens of websites aiming to link you with manufacturers in China, and other countries, such as Made-in-China.com, SourcingGate.com or Alibaba.com — although I can't recommend them from any personal experience.

Bootstrapping is far easier than it ever was thanks to the Internet. Customers have no idea whether the flash website you see is based in corporate offices or someone's back room. All you need is a computer and broadband for many bootstrapping businesses. Warehousing or production can be run from the garage.

It often works to start a bootstrapped businesses on the side while still in employment. Although it's hard work and will take up your evenings and weekends — at least you don't need a living wage from the business.

Small businesses can and do fail — but the advantage for a bootstrapper is that you won't have lost much money. If the first venture doesn't work, then the second or third one may and there's not much lost.

More information about bootstrapping