Bootstrapping – In Depth Case Study and 6 Rules for Building a Successful Startup Without Funding

 
Blog Posts, Entrepreneurship

This posts outlines how you can start and grow a business without funding and the advantages and disadvantages this can bring. A real world case study and examples are used throughout. We also highlight 6 key rules to start a successful bootstrapped business.

Lets start with a sentence with a lot of jargon and buzzwords: Target Internet is a lean business that has been bootstrapped from the outset. What does this mean in practice? It means that we started the business with no funding, loans or investment, it has been grown through it’s own cashflow and we minimise overheads in order to keep down costs and allow investment into ongoing growth. There are many advantages, and some potential disadvantages of this approach. Lets work though each part of this process step by step and we’ll use Target Internet and my real world experience of building the business throughout.

We should be clear from the outset that Target Internet is still a relatively tiny business, but we work with some of the worlds biggest and most successful brands, we compete (and win) against companies that over fifty times our size (in terms of staff and turnover) and outrank our competitors in the search engine rankings for our key services and, probably most importantly, we are very profitable. So how have we achieved this, and how have we done it without getting any outside investment or selling any percentage of the business?

What Keeps Us Awake At Night

When somebody is considering starting a business, wether they are at the stage of just daydreaming because they are fed up with their job, or when they are seriously planning, what is it they are most worried about? I think this is a massively important question because it’s a barrier that most people don’t get past. My hunch, if you are anything like me, its the financial stability that is the main worry. The standard worries “What if I start a business and it fails?” or “I already have a good/crappy income and commitments (mortgage, rent, bills, kids,etc,etc). I can’t just start from scratch” will very naturally plague us all.

The Power of Social Insights

However, I wanted to be sure it wasn’t just me that was thinking like this so I decided to do a little research. I used al social media insight tools to analyse what people actually ask, discuss and talk about when thinking about starting a business and the results are pretty startling. I started by building a “query” in Brandwatch (my favourite social insight tool) to look at the kind of things people discuss around starting their own business. To go beyond the standard way I might normally do this, of just entering a few key phrases into a keyword research tool and seeing what showed up, I went a little deeper. The query that was built (with a lot of help from the amazing Roxy at Brandwatch) not only looked at the standard phrases, but looked at a whole load of phrases that could occur in a whole number of different combinations, particularly trying to look for things that may not even be on my radar in the first place. I did this by looking at content where phrases appear near each other, but not necesarily next to each other. For example when “how can I” and “start a business” where not only right next to each other, but when they where in a sentence separated by something else. The idea was this could highlight what people were discussing that we hadn’t even considered.

Screenshot Social Insights Query Brandwatch

The Query in Brandwatch that told us what people thinking of starting a business where talking about.

Forget Looking for Funding

The results from these insights were pretty startling, and most interestingly I think that most of the things people were discussing, worrying about and using as reasons not to pursue their own business, can actually be overcome very easily by taking the steps outlined below. So lets start by looking at the findings.

The word cloud below shows you what people were talking about at a high level. My first step was to clear out the irrelevant stuff. There was plenty of “Get Rich Quick” promises, courses and schemes, so I filtered these out. Next, there was a lot of people playing games that simulated running your own business in some way, again I filtered these out. What I was left with fell into two camps. Advice on the actual business idea and how to do it in practice and advice on how to fund things.

Startups social insights word cloud

The key topics that we discuss when talking about starting a business.

 

What was startling is that over 80% of the discussions around money where about where to get money from in the form of loans, grants and external investment.

This is startling because you really don’t need any money to start a business (I’ll qualify and explain that later so please read on!). I believe it is fairly easily to overcome this need for initial cash with minimal risk if you do things sensibly as I’ll outline below. That’s exactly what we did.

Starting Something Small

One of the keys to our success is the way in which the business has been gradually grown over time, even before we knew that it was going to be a business! I started the website TargetInternet.com as a blogging platform and place I could test different digital techniques out, way before I had any idea it would be a Digital Marketing Elearning and Training business. It then become the home of the Digital Marketing Podcast, another experiment I was trying out. The huge advantage of all this content being produced was the search engine benefits that this brought over time. We produced content that provided value to some people and therefore generate links from other websites and people taking about the content on social media. That meant that any commercial content we posted was already at an advantage as we weren’t starting from scratch in the search engines.

That means starting a website as soon as possible. It doesn’t matter if the topic shifts and changes to some extent, but you must start investing in producing valuable content as soon as possible. You’ll find lots of advice on how to do this in our blog and podcast, but if you really want to get maximum impact in a short time you need to think about high impact blog posts.

Rule 1: Start building a website, social presence and content now. Even if your idea isn’t fully formed, get on with it.

Transition from Work to Self-Employment

This was one that really scared me and seemed impossible to get beyond. I had the best paid job I’d ever had, my wife was pregnant, my job was very impressive on paper and the biggest recession we’d ever seen had just begun. This absolutely did not seem like a time to be starting up on my own. However I continued to blog and podcast in my free time and I used my holiday time to pursue some of my own interests.

If I carried on in work I’d have a steady income, and on paper it was an impressive role. In reality, I was miserable. So it was time for a change, and thanks to the fact I’d been putting in my own time in the evenings, weekends and holidays, I had a decent base to start from. We’d be broke, but we could just about struggle through.

If you are trying to find the best time to leave a job, it’s already passed in my opinion. We all try and rationalise our misery when we are in a job we dislike, and I totally accept that huge sacrifices are necessary to get where we want to go. But as soon as a role is not progressing you anywhere, it’s time to move on in my opinion. I also realise this is easy to say but incredibly hard to do in practice.

Rule 2: Sacrifice your own time to develop your ideas and prove that a concept could work. Having a job isn’t an excuse.

Business in Personal

I started training and consulting full time gradually building my clients and client base. It grew slowly and organically but became very successful. I was a full time trainer and consultant selling my time for a great day rate (and I continue to do this with some of my time, just at a much higher rate now!). However, I had had an idea for a business in my head for about 5 years. It involved some sort of subscription based service for access to premium digital content. The problem is that a million people have had this idea and an awful lot of them have done it with varying levels of success. The idea progressed, changed, warped and started taking shape in a number of directions for a couple of years. We even built an ecommerce platform that sold directly to consumers and it had middling success, but nothing earth shattering.

Finally, a client asked for a solution to a problem, and the idea in my head, a development of what we’d already done, was the perfect fit. The only problem was that we hadn’t built it and it would take around 6 months at normal pace. Thankfully, I’d built a lot of goodwill with the client over the years by doing a great job, charging reasonably, going the extra mile and investing in the relationship. It also massively helped that the client was insightful enough to understand what we were proposing and was willing to take some risk in order to make some long-term commercial gain. The client agreed they would start a trial with us if we could deliver in a reasonable time frame but we would charge them a fraction of what it would cost them otherwise. We did six months work in 8 weeks and got the deal.

I still believe that the reason we win and retain the majority of our business is because of the personal relationships we build with our clients and the customer service we deliver. We make mistakes just like everyone else, but how we react to the mistakes and the equity we have built through our relationships means we don’t loose clients very often. For this reason Business to Business selling suits us very well. B2B is not in most people’s minds when they think about the world of “startups”, but it offers phenomenal opportunities and is massively under-valued as a potential area of business. We also have a direct to consumer offering, of course!

Rule 3: Invest in your network and relationships

Lean Approach

We build our website on WordPress (a free blogging platform which is essentially an incredible Content Management System). We started by using off-the-shelf design templates, video templates and I designed our first logo in PowerPoint (yes, maybe it looked like it too, but we still won a lot of business!). At first I ran everything myself with the help of freelancers. We used platforms like Elance to find the right people and did a lot of offshore outsourcing (if you’re interested in some great insights in how to select and use freelancers efficiently have a listen to this great interview with Rob Rawson on global outsourcing). Using freelancers is great when it works, but it can also go wrong when they disappear or decide to go on holiday at the most critical point of your project and Rob has some great insights (and horror stories!).

At some point you are going to need more people. We still use lots of freelancers that we have built great relationship with, but we do need some key roles to be full-time to deliver the level of support for our customers we are proud of, and so that I don’t work 120 hour weeks every week! At this point it is absolutely essential you recruit people you trust and are perfect for the role. Poor recruitment is the single biggest cause of business growth headaches in my opinion, and what any bootstrapped, fast growth business needs is T shaped people! I first came across the T shaped concept in one of my favourite business books, The Year Without Pants, by Scott Berkun. The book talks about the growth of WordPress and what Scott learnt along the way and its a brilliant read if you are interested in the world of startups, building teams and real business growth insights. What struck me is that we had adopted the T-shaped principle by accident, but it was absolutely essential to our success.

T-shaped staff have deep expertise in one area but have a broad range of skills they are willing to apply in any challenges they come across and are constantly adding to these skills. This means your team can get things done quickly, test out ideas and experiment with minimum fuss and external resources. We know that in order for us to get things done with such a small team we all need to muck in with tasks that are well beyond out job titles (we don’t have traditional job descriptions for this very reason). I could fill a book on different ways to manage teams effectively and what has and hasn’t worked for us, but to simplify, recruiting is the most important thing you will do and you’ll only recruit well if people are truly invested in your business.

Rule 4: Stay lean, only recruit when you have to, and then recruit incredibly well

Business Development and Partnerships All of our business growth came through two key places for the first two years of our business. Word of mouth and directly through our website. The word of mouth element should never be underplayed. I spend all day talking about the opportunities of digital marketing but most of our business doesn’t come directly from digital. It comes from people recommending us and as such I refer you to Rule 3: Invest in your network and relationships. More importantly you need to over deliver to your first clients in my opinion. Give them way more than they expect and if you make a mistake over compensate massively. See your first clients as a huge marketing opportunity and treat them like the most important people in the world. Have a plan of how you will delight them and always give them more than they expect. Nine times out of ten they will recommend you, and it’s a very easy way of winning business.

I said the second way was directly through our website, and this really demonstrates for me how Business to Business marketing has changed. I would have been unheard of a few years ago that a global brand would Google what they were looking for, contact you via a contact form and you’d win the business worth thousand of pounds of months without a single meeting. That happens to us all the time, so never underestimate the absolute importance of Search Engine Optimisation. We may engage with many of our potential clients via meetings, email and calls for months before we win the business, but the fact we out-rank our competitors (that are 50 times our size) in Google gives out a clear signal.

Thanks to our focus on building our product and development content, we had very little resource to invest in sales. We had a successful proof of concept and in fact a very profitable business. At this stage in the world of startups it’s generally great time to get external investment. You’ve proved your concept works, you may even be making a profit (it’s unusual!) and you can see the opportunity could scale. However, for us this didn’t feel like the right thing to do. We knew the business could be improved massively and continue to grow happily without anyone else having a share or control yet (or ever, maybe). There are lots of arguments about wether this is a good idea or not, and one of the best summaries of how the startup world tends to work can be found in this great Startup Infographic. We needed another solution.

Our solution was to find resellers that would sell for us, take a commission but leave us to focus on what we though were the most important aspects of the business. However, we wouldn’t take on resellers that didn’t add some value to our own brand. We partnered with the Chartered Institute of Marketing to be their only accredited Digital Marketing Elearning, again thanks to developing and holding on to key relationships and offering them a deal we’d never offer anyone else. This continues to be a very profitable partnership and gives us brand association that can’t be gained from your average business service seller.

Rule 5: Find partners that do what you don’t/can’t do well and don’t give up a steak in your business too easily

Refine, Innovate and Scale

This is now the stage when it is incredibly important you don’t take your foot of the pedal and slow down. It can be very tempting, after a number of months/years of hard slog to think you’ve pretty much cracked it and slow down. This is the time to start improving every aspect of your business and offering. You should now have enough time and resources to start testing and trying at least some of the ideas for improvements you’ve had along the way. You can also start to scale up your business (if that’s what you want) and it puts you in a much more powerful position to negotiate favourable terms if you do want to seek external investment of any kind.
Generally, you’ll have a lot of ideas at stage of where you could now invest your efforts, but you’ll have one key thing that should inform you that you didn’t have at the beginning; Customers. It’s essential to deeply involve them at this stage in understanding where you should be going next, and involving them will again help you develop Rule 3: Invest in your network and relationships.

Rule 6: Don’t stand still: Refine, iterate and improve

Conclusions

You don’t need investment to start a business. You may need it for some types of businesses, but it’s not something that you have to have in order to control your own destiny. Bootstrapping isn’t for everyone, it can be a slog, it can take time and just like any type of business it can fail. However, it can also be massively rewarding and it allows you to remove an awful lot of the of the risk form starting a business. On a personal note, it has brought me a great deal happiness and a huge sense of meaning and satisfaction working this way. I wish you the every success in your ventures and welcome your questions, comments and feedback as ever. Daniel.

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