Most of us solopreneurs and small business owners don’t pitch our companies to big venture capitalists to raise funds, and as a result we tend not to grow as quickly. But we also retain full ownership over our businesses, and that means we get to call the shots.
So what are the 3 biggest mistakes I’ve noticed and experienced myself while bootstrapping my business?
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Transcript: Three Mistakes to Avoid When You’re Bootstrapping Your Business
The definition of bootstrapping your business is when you use existing resources to go from start-up to successful business. Most of us as solopreneurs and small business owners don’t pitch our businesses to big venture capitalists to raise capital, and as a result we tend not to grow as quickly. But on the other side, we also retain full ownership, and because of that we get to call the shots.
So what are the three biggest mistakes that I’ve noticed and experienced myself in my own business while I was bootstrapping? Here they are.
Number 1: Not having enough start-up capital.
Now, this is a pretty obvious one, but if you don’t have enough money in the bank to pay the rent or to put food on the table, your business is just not going to last very long. In this situation, I’ve seen people give up their businesses entirely.
Another option would be to get a bridge job, where you work in somebody else’s business or you get a part time gig that can help you make ends meet while your business is growing. The definition of a bridge job is that it’s not a full-time job that will zap your energy. It’s also important that it not be another business where you have to go out, prospect, and get clients for. There’s absolutely nothing wrong with taking on another outside contract or taking on other types of work while your business is growing.
In your bridge job days, you’ll want to focus on your business activities that will help you bring in the most money as quickly as possible so you can phase out of those outside contracts.
Number 2: Having too much start-up capital.
What?! You might be wondering why too much start-up capital could be a mistake. It’s not actually a mistake unless it keeps you in that complacent, safe place instead of in action.
This is actually my experience when I first started my business out of college. I was lucky enough to have had some paid internships, so I had enough money to be safe and comfortable for a couple of months when I was starting my business. Because I had this nest egg or this cushion, I didn’t end up doing all the daring things in my business that would have really helped me grow, get experience, and get myself out there faster. Instead I ended up spending a lot of the venture capital buying information products and not implementing what I was learning. Now obviously I’m a huge believer in the power for information and training and courses, but it’s more important to be taking action on the stuff that you already have, instead of just buying new ones all the time if you have too much capital.
For me, it wasn’t until my stash was really dwindling and I was down to my last couple thousand dollars when I invested in a high-end mastermind program that really got my butt into gear and got me taking action and making really serious money.
Number 3: Paying yourself or not paying yourself, and when’s the right time?
Investing into your business is really necessary. Investing time and money is something that you’re going to be doing throughout the lifespan of your business. How do you know how much and whether you should be taking money out of your business to pay yourself?
As a bootstrapper, you’re probably hard-wired to keep re-investing in your business. And as you start making money, you’re just going to want to funnel it back in to help it grow faster and get even more amazing. I certainly had this inclination for the first few years as well.
But it wasn’t until I realized I had to pay myself as if I was an employee of my own company that things started to change and my mindset around hiring other people changed as well. If you’re not paying yourself a salary, you might get a rude awakening when a couple of years down the line in your business you either have to hire someone to replace yourself or you need to maybe wind down your business because you don’t have any personal funds in your bank account.
Paying yourself a fair market wage is really important because it shows respect both to you and to your company, and there are strong boundaries between the two. It also helps when you’re making hiring or outsourcing decisions because then you know the value of your time in your company and also what you can afford.
And by the way, this can also save you money at tax time. Definitely talk to your accountant and your lawyers about the best way to structure this because I’m not an accountant or a lawyer, but definitely check it out.
So these were my big three realizations around bootstrapping your company, from the ground up without getting outside capital.
#065: Mistakes To Avoid When You’re Bootstrapping Your Business