Before you execute your million (or billion) dollar idea, be aware that the nature of one’s business affects the process of bootstrapping.
Bootstrapping is taking the risk of starting a business on your own money. The truth is that most entrepreneurs aren’t using their own money – it is borrowed from family, friends and the children’s college funds. On top of that, when receiving funding from investors, it isn’t a cakewalk either.
Expectations have to be managed so that everyone involved (the entrepreneurs, angels and venture capitalists) knows the risk and the timeline of payouts.
Your Type of Business and its Growth Pattern
In general, services businesses are easier to start and a product business will grow for longer periods. Many entrepreneurs dive right in and get a good product out the door, but grow disillusioned on the lifecycle and cash flow. The money may come too early and run out or that the business cannot survive long enough to see the success.
The key to all startups is to create a minimum viable product – a prototype that will demonstrate the value of the business. Conventional wisdom states that the standard safe ground of $1 million. However, in fact, this is relative to the type of business conducted.
A services business will be easier to start as it doesn’t usually require much more than code and a website to get going.
This is where raising a million dollars could be sufficient: overheads are low enough to run on bare-bones operations. There will be an inflow of revenues early in the game. When business development is done right, a good services startup can come charging out of the block and scale rapidly… but plateau just as quickly.
On the other hand, a product business requires significantly more resources, as the concept must be taken from the drawing board to fabrication. A million dollars can be spent relatively quickly and the initial funds will be gone.
In production, there are at least a few rounds of revision and market tests. After that, there are more revisions before coming to the final stage of mass production. Likely that will not be the end of the multiple spanners that will be thrown into the works.
After spending all this money, there is still the worry of taking the product to market. If the product sees traction, in due time, the growth of the business will take off and never look back.
Planning Ahead is Imperative
In understanding the type and requirement of one’s startup, be it a services or product business, it is imperative to know how much money is required to survive until eventual success.
It is also important to be realistic on the growth pattern so to be realistic to the “pre-early-stage angel investors” and oneself. Services business can start with less money, turn averagely profitable quickly and pay off investors early. Product business, on the other hand, need more money to start, take longer to turn wildly profitable, but pay off investors much more.
Starting a business from scratch to success is one of the toughest things to do in life. Before taking the plunge and risking everything for the dream, go into it with both eyes open. Know how much money you need and when you will be able to make your own.