The Bootstrapper’s Bible: How to Start and Build a Business With a Great Idea and (Almost) No Money – by Seth Godin
How strongly I recommend it: 10/10
See my lists of books for more.
Go to the Amazon page for details (or download for free here.)
It’s a book for freelancers and entrepreneurs on their early stage. Seth Godin has been generous enough to share this book where you’ll get precious advice that’ll save your butt more than once. Must read.
It’s easy to imagine that the only way to run a business is with secretaries and annual reports… Of course, this isn’t true.
If you try to steal the giant’s lunch, the giant is likely to eat you for lunch.
Whenever a market or a technology changes, there’s a huge opportunity for new businesses.
You can’t win if you’re not in the game.
A great idea can wipe you out
GET OFF ON THE RIGHT FOOT BY STARTING THE RIGHT BUSINESS
Understanding the mechanics of a business model is essential before you start your business. Business models should have the following five attributes:
1. THEY SHOULD BE PROFITABLE.
How long before profitability? Write down a target date. If you go way past it, figure out how to fix the problem or quit. Staying in a losing business because youʼve already lost a lot of money is a bad business strategy. Learn how to detect the factors that change a business from profitable to unprofitable.
2. THEY SHOULD BE PROTECTIBLE.
A profitable business, as mentioned earlier, is going to attract competitors. What are you going to do when they show up? Barriers can include patents (which donʼt work as well as most people think), brand names, exclusive distribution deals, trade secrets (like the recipe for Coke), and something called the first mover advantage.
3. THEY SHOULD BE SELF-PRIMING.
One of the giant traps bootstrappers fall into is inventing business models that donʼt prime themselves. If you want to sell razor blades, for example, youʼve got to get a whole bunch of people to buy them. Without a lot of razors out there that can use your blade, you lose. Is it possible to build a paradigm-shifting business with just a little money? Sure. Itʼs been done before. But nine times out of ten, youʼll fail. Why? Because youʼre gonna run out of money before you change the world.
4. THEY SHOULD BE ADJUSTABLE.
Remember how excited everyone got about the missiles the U.S. used during the Gulf War? Here was a weapon you could aim after you launched it. You could adjust the flight along the way. You need a business model like that if youʼre hoping to maximize your chances of success. If youʼve got to lock it, load it, and launch it, youʼre going to be doing more praying than you need to.
A business model that relies on a huge number of customers or partners is far less flexible than one you can adjust as you go.
5. THERE SHOULD BE AN EXIT STRATEGY (OPTIONAL).
Selling ice cream sandwiches offers no exit strategy at all until you reach a certain scale. When youʼre small, the business is just you. A competitor can buy trucks more cheaply than buying your business. But once you hire employees and build a brand and create trade secrets and systems, then youʼve built a business.
Without a business model, a company can get publicity, hire employees, and spend money—but it won’t make a profit.
Learn how to detect the factors that change a business from profitable to unprofitable.
Just because it’s cheap to start doesn’t make it a good business.
FOLLOW THE MONEY
When portable telephones got hot… it was easy for Stereo Advantage’s owner to talk to Sony and other suppliers and get some in the stores quickly.
When looking at a business model and the value chain it creates, I like to start from the last step:
- Whoʼs going to buy your product or service (called product for brevity from here on in)?
- How much are they going to pay for it?
- Where will they find it?
- Whatʼs the cost of making one sale?
Instead of starting the business that makes stuff for people just like you, do some real research. Go to the library. Donʼt invent something that requires you to have a handle on the purchasing habits, the psychographics, and the changing demographics of the whole country. Instead, find a thriving industry and emulate and improve on the market leader. Sheʼs already done your homework for you.
Belief in a dumb business model can force you down a road that will eat away your time and your money.
Understanding the value chain of your business is a great first step in getting to the core of how you’re going to succeed .
Successful bootstrappers know this: Your business is about the process. Itʼs not about the product. If you structure a business model that doesnʼt reward you as you proceed, it doesnʼt matter how much you love the product. Pretty soon there wonʼt be any product to love.
The bootstrapper is focused on finding a market that will sustain the process. A platform that responds to the work you do. With a business model that works, the deal is simple. You invest time, effort, and money. In return, your market responds with sales, cash flow, and profits.
You can pick any business in the universe to bootstrap. I recommend picking one thatʼs friendly to bootstrappers, that wants you to succeed, that will likely give back what you put in. Itʼs easier to tell you what to avoid than to point you in the right direction. Businesses that are also hobbies usually cause bootstrappers the most trouble: restaurants, toy design and invention, creating gourmet foods.
HOW TO BOOTSTRAP A BUSINESS THE SMART WAY
Spend an extra month to figure out what your business model feels like and save yourself some headaches later.
She succeeded because she understood what her market wanted and because she persevered for years and years to build her reputation. She was careful with expenses, didnʼt waste her equity, and set herself up for success while protecting against failure.
Back in 1986, when I was first starting out, I sent a direct mail letter (by Federal Express) to forty different companies. Each firm was offered the chance to buy advertising in a book I was doing—for $1,000 a page, two pages minimum. I had figured in a huge profit margin, so all I needed were a few positive responses to make it worth the effort.
Within 48 hours, the phone started ringing. Within thirty days, I had sold more than $60,000 in advertising. Itʼs the thrill that comes from this kind of success that keeps you going. Iʼm not sure that the idea behind the advertising book was the most insightful or profitable Iʼd ever had. But by persevering, by putting concepts in front of people in a solid, benefits-oriented way, I had succeeded.
Another time, I had the idea to create SAT prep books. The proposal went to about a dozen publishers. Most of them were a bit interested, some called for face-to-face meetings, and one or two seemed on the verge of making an offer.
We proposed to the publishers that we would auction off the right to publish these books, a common practice in the publishing world. The publisher who paid the most money at the auction would get the right to be our partner in bringing the books to market. Then an editor from Doubleday called. “Cancel the auction,” she said. “What will it take to buy it right now?”
She made us an offer of about $150,000. I said it wasnʼt nearly enough. I was bluffing. She doubled her offer. “Nope,” I said, sweating now. After two long days of her bidding and my saying no, we ended up at just over $600,000.
Youʼll have days like this. Youʼll fail and be rejected and struggle, and then youʼll have days like this. Because youʼre a determined, focused, cheap bootstrapper intent on creating first-rate products. When they come, savor them!
Hereʼs my best advice to you: Stop planning and start doing.
You donʼt have to quit your day job. But you do have to get out there and do it. The more you do, the more you do. Doors will open. Opportunities will appear. Your model will change, your reputation will increase, you will become a magnet for smart people, good customers, and investors. But none of this will happen if you stay inside and keep planning.
Build your business. One day at a time, one customer at a time. Lower your downsides, focus on the upsides, and start building. But start.
Doing the Math
If you donʼt run out of money, you get to keep playing. If you end up with more money than you started with, you win. If you plan for the money, and expect it, then you can avoid dwelling on it and get back to business.
On at least three occasions, Iʼve come within a few dollars of going bust. And I can tell you that itʼs stressful, itʼs distracting, and itʼs no fun. I also know that in each case, if I had planned for the money, it wouldnʼt have happened.
Planning for the money doesnʼt have to be complicated. But you do have to be consistent and, most of all, honest with yourself.
Revenue is revenue when you see the money. Expenses are expenses when you pay the money. Cash is king and thatʼs what you keep track of.
Once you realize that changing the amount of money you need to live on can dramatically increase your chances of success, you have an important choice to make: How much are you willing to sacrifice for the business?
Are you willing to move? To sell your car and buy a junker? To cut major personal expenses so you have more to invest in your business? These are critical decisions, and you need to make them with your family before you run out of money. Because adjusting your expense cycle then is way too late.
Once youʼve come up with your personal expense number, you have what you need to do some smart planning. Youʼve got a nine-month look at your worst-case expenses, your guaranteed income, and your upside on both counts.
Do you have enough money in the bank to make it if everything goes wrong?
If you do, congratulations. Go run your business with focus and with confidence. Stick with the high road and do the things you need to realize your business plan.
If not, donʼt despair. You need an alternate plan. A plan that allows you to spend a percentage of your time each week on low-risk revenue sources. A way to bring in freelance income while you build your core business.
Letʼs say, for example, you want to develop a career as a stand-up comic. You know it will take many months of hard work before you can expect serious income. Along the way, why not make money doing publicity for some of the clubs? Doing that can generate some money, teach you to deal with the media, and give you access to club owners. No need to charge a lot for your services—even an extra $100 or $200 a week supplementing your budget can make a big difference.
Again, the time to develop a multiple income source strategy is not when you run out of money. Then it will be too late. Right now, plan for the money.
While Iʼm a huge fan of the multiple income source strategy, thereʼs an important caveat: Donʼt let the sideline take over (unless you want it to). Itʼs so easy to get focused on the short term, on the “now,” that you ignore the reason you started the business in the first place. Suddenly, itʼs five years later and you havenʼt done a stand-up gig for years. Your comedy career died the day you focused all your energy on the sideline instead of the dream.
Every month, you need to tally up the numbers you care about. Write them down. Share them with your spouse and board of advisers. Here they are:
Cash in this month:
Cash out this month:
Money in the bank right now:
At the current rate, how many months until no cash left:
My rule of thumb is that debt is bad. Available credit, on the other hand, is good. If youʼve got a great opportunity and need access to debt, you want to be able to know itʼs available. But living with debt regularly will enrich everyone at the banks long before it will enrich you.
Borrowing to build is the only borrowing you should do!
When I started, I promised myself I wouldnʼt personally guarantee anything, including debt. This makes it much harder to get going, but in the long run gives you a level of insulation that makes your business easier to live with. Once again, itʼs up to you. But once you choose a policy, stick with it.
If you personally guarantee your business, all the money you earn, from this business or any other, belongs to the bank. That means the stakes have gotten dramatically higher. You canʼt just watch this business fail and walk away. If it fails, you lose it all. And that means it will take much, much longer for you to bootstrap again.
Is your business such a sure thing that youʼre willing to bet everything you own on it?
Family debt is something else entirely. When I say family, I mean friends, college roommates, parents, anybody crazy enough to put some money up.
Right from the start, youʼve got to be clear about why these people are putting up money. Is it a chance for them to make some great money by investing in your business? Or is it just a vote of confidence in you, with no real expectation of repayment if you fail?
You must get all the expectations down in writing. Figure out in advance what the interest rate is, whatʼs the term. Decide what the collateral is if you canʼt pay it back on time.
IF YOU HAVE SALES, YOU HAVE (ALMOST) EVERYTHING
Be sales-focused. A well-financed company can afford to build a product and hope customers will come buy it. You canʼt. Sales before investment!
Sooner or later, your business comes down to extracting cash from other people or businesses and keeping as much of it as you can. Itʼs tempting to focus on your product, your systems, your policies, the writing on page 7 of your brochure. But none of those matter if you donʼt have sales.
The first question to ask yourself: “Whoʼs going to pay for this?” Whatever you create has to be so compelling that people will switch from their current solution to whatever it is that youʼre selling.
Please, please donʼt underestimate how important this is. Once you have sales, youʼre in the driverʼs seat. You can dictate whom you buy from, whom you hire, just about everything about your business.
Here are the two most important sales rules youʼll need:
1. SELL SOMETHING THAT PEOPLE WANT TO BUY (AND KNOW HOW TO BUY!).
Figuring out what people want to buy is a two-step process. The first step is figuring out what theyʼre already buying. The second step is getting people to switch.
Do you have Post-it notes on your desk? If so, itʼs only because 3M was persistent enough to spend years marketing them before they caught on. The problem was simple: they were selling something no one knew they needed. Office supplies are sold almost entirely on a reorder basis: when you run out of something, you buy more. But no one had any Post-it notes, so they never ran out.
While a Post-it note is a great product, the company had a serious problem. There was no one in each prospect company assigned to purchase such an item, and the cost of the sale was very, very high compared to the anticipated profit.
The solution was elegant. The chairman of 3M had his secretary send a case of Post-it notes to the secretaries of the other Fortune 500 chairmen. And they started using them. Suddenly, people from the other companies were running around saying, “Hey, where can I get some of these?” And when they ran out, they had to reorder.
This was a risky bootstrap solution from a big company. If it hadnʼt worked, 3M would have folded the product. Itʼs so much easier to sell something that people are already buying. Which leads to the second question: “What will it take to get people to switch from what they already use to what I sell?”
Believe it or not, the answer is almost always not money. Why? Because a trusted supplier will lower her rates enough to make your offer less interesting. Why? Because switching to a low cost supplier who does a bad job can cost the purchaser his or her job. Why? Because most products are purchased because of what they do, not what they cost.
Usually, you need to make a product that is significantly easier or more effective. Easier to buy. Easier to use. Easier to teach other people how to use. More effective at solving the problem.
Does this principle work on a local level? If youʼre opening a dry-cleaner or becoming a freelance writer or offering accounting services, does this work for you?
You bet. A combination of more convenience, better service, aggressive pricing, and better results will make you irresistible to some people.
It wonʼt work for everyone. Some folks may never switch. But thatʼs okay. You donʼt need everyone. Just enough to keep you busy and the cash flowing!
2. OWN THE SALES PROCESS
Pick an industry—any industry. What youʼll discover is that the people with power are those who either do the buying or make lots of sales.
Follow the money! The money leads to power—the power to make decisions, the power to build the business you want to build, the power to hire and fire and shape and dream and succeed.
For too many bootstrappers, sales is an afterthought. Itʼs the thing you do that allows you to do what you really want to do. Big mistake. In fact, sales is the reason for your business to exist. If you canʼt sell what you make, you canʼt help anyone, influence anyone, or make anyoneʼs life easier, better, or more convenient. If you canʼt sell what you make, you canʼt pay yourself. Youʼre finished.
Many bootstrappers are tempted to delegate the sales process to a representative, an agent, or an employee. Big mistake. The sales process—regardless of your business—is the heart of your business. As long as you control it, you control your company. Without it, you are at the mercy of whomever you delegate it to.
Once you have a cash flow from sales, youʼll be amazed at how easy it is to buy everything else you need. As a buyer, you have all the power. You can pit suppliers against each other in bidding wars to get you the lowest price. You can find spectacular freelancers who will build, assemble, design, draw—whatever you need done, you can buy.
What should you do if you hate to sell? What if the idea of getting in front of a customer fills you with dread? Basically, you have two choices: You can find another line of work. Or you can focus all of your energy on hiring someone who can sell better than you can.
Faking your way through isnʼt going to work. Hoping that the sales process will go away wonʼt help either. As a bootstrapper you must sell yourself and your business. Otherwise, no business.
Ringo was the Luckiest Beatle
There are no guarantees in life, but the odds are that if you can take care of these nine things in your business, the rest will take care of itself.
RULE 1: FIND PEOPLE WHO CARE ABOUT CASH LESS THAN YOU DO
Borrowing from other businesses to fund your business is much smarter than borrowing personal money. Your suppliers and your customers almost certainly have different objectives than you. If you can collect early and pay late, you can grow with their money.
Instead of trying to cajole a skeptical banker into lending you money on faith, borrow money from the people who have the greatest interest in your success: your suppliers and your customers.
For a minute, picture yourself as one-person publisher whoʼs dealing with a printing salesman under pressure to make sales. All of his old accounts are buying the most printing they possibly can. If he makes any bonus money this year, itʼs going to be by creating new accounts.
Thatʼs you. A new account. Sure, you donʼt have much of a credit history and youʼre working out of your attic, but your publication just might become the next Time magazine.
The salesman is now on your side. He wants your business. He wants to figure out how to get the company to give you credit. After all, if you succeed, he succeeds.
Courting your big suppliers is a big part of being a successful bootstrapper. It gives you leverage. It lets you get inventory without using precious cash, saving it for those expenses you canʼt get on credit.
Best of all, when a supplier gives you extra time to pay your bills, it usually doesnʼt cost anything at all. Thatʼs right: zero interest.
One bootstrapper persuaded her printer to do $2 million worth of printing with no money down and 200 days to pay. In that time, she was able to build the reputation and get the advertisers she needed to make the cash flow positive. Lesson: You have to ask.
In a competitive marketplace, credit is often the tool that suppliers use to differentiate themselves. Take typesetting, for example. Lots and lots of folks have typesetting equipment. Itʼs all pretty much the same. The profit margins are pretty high, but getting new customers is challenging and expensive.
My company offered a typesetter the opportunity to get $40,000 worth of new business, but he first had to agree to give us 90 days to pay his bills. My company saved tens of thousands of dollars in interest expenses, and the typesetter gained a new customer. We were both happy.
Lots of landlords will give you several months of free rent when you take space that doesnʼt require much interior decoration work and isnʼt in hot demand. Consultants, lawyers, designers–none of them have much in the way of out-of-pocket expenses, so floating you some credit doesnʼt cost them very much.
Another very important step in establishing credit: Be up-front with your customers and learn how to deal with them in a professional way. One thing the credit department of your target company will want is a credit history. So build one as quickly as you can. Do small amounts of business with a number of suppliers and pay cash up front.
Once youʼve laid the groundwork, youʼll be ready to start working with the essential suppliers.It helps to start with a salesperson who will take the time to teach you what you need to know.
In 1985, I cold-called Beth Emme, a printing salesperson for R. R. Donnelly, the largest printer in the world. (I figured I ought to start at the top.) I persuaded her to buy me lunch (always let the salespeople pay!) and then quizzed her for two hours. What she taught me about printing would have taken years to learn without her help.
Guess what? Over the next few years, Donnelly got lots of business from my company. They always gave me 90 days to pay my bills. I paid all their bills within a few months. And even better, Beth is now one of my best friends.
When you establish credit with your suppliers, itʼs important that you not go too long without paying anything. A client who makes regular payments every month is pretty hard to cut off—even if your balance is higher than theyʼd like.
The second great source of capital is customers. Thatʼs right. The people youʼre trying so hard to sell to are also a great source for money.
Remember, the product youʼre selling solves a problem for them. If it didnʼt, they wouldnʼt buy it. If you canʼt solve the problem for them, then theyʼll still have the problem.
Of course, sometimes itʼs not that easy. Sometimes you need to give the customer an incentive to pay early. A discount, or a free gift. But you wonʼt get the money unless you ask. Always ask.
RULE 2: SURVIVAL IS SUCCESS
At the beginning, when youʼre armed with a plan and a cash-flow statement, you might be tempted to be very choosy about which projects and which customers you take. Donʼt do that! (At least not too much). Watch the money. Take the money.
Allocate a percentage of your week to making money. Any way you can that doesnʼt distract from the core business. If a project makes money, itʼs a good project. If a product makes money, itʼs a good product.
The market has something in mind for you and your company. As you follow the market, as you build your reputation and your skills and your assets, new opportunities will arise.
The vast majority of start-ups go under within five years. So if youʼre still around, youʼre a winner. And itʼs probably because you were focused on survival.
Donʼt take this survival advice too far. But take it. Money now is better than money later.
RULE 3: SUCCESS LEADS TO MORE SUCCESS
The more you do, the more you do. Being in front of people will lead to new opportunities, new products, new engagements. Be in motion, because customers like motion.
Being busy creates its own successes. How?
- Gives you positive cash flow
- Teaches you things you didnʼt know
- Builds your reputation
- Builds your credit rating
- Puts you in contact with smart people and potential customers
But being busy has significant downsides. The biggest one: You can really muddy your positioning. If you want to be the real estate agent who sells only expensive mansions, selling too many condos isnʼt going to help.
Where do you draw the line? How do you balance the desire to be busy with the focus youneed to succeed?
My suggestion is that you watch your cash flow. Try to keep a reserve of 6 monthsʼ worth ofoperating expenses in the bank. When the number drops below six months, thatʼs a message that your focus is in trouble.
Listen to your bank account!
RULE 4: REDO THE MISSION STATEMENT AND THE BUSINESS PLAN EVERY THREE MONTHS
Learn as you go. Change as you go. Building a business from scratch is like walking through a maze with many, many doors. Once you open one, 100 new doors present themselves. As you move your way through the maze, you need to stop and check your location. Look at a map. If youʼre in the wrong place, move. But if youʼve discovered a new place, thereʼs nothing wrong with exploiting it.
You need a formal business reinvention process. Put it in your calendar. Every three months, take your most trusted advisers, employees, backers, and even customers and get away from the phones for a little while.
Start from scratch. “If we were starting over—no office, no employees, no customers—would we choose to be where we are today?” If the answer isnʼt, yes, then itʼs time to take a hard look at the path you took and the impact it has had on your business.
Your path to business success is a maze, not a straight line. As the market develops, as you develop, as your employees develop, youʼll discover you made some great decisions. But you also probably made some short-term decisions that became habits, and missed some opportunities because you were busy chasing something else.
Obviously, you have to walk a very fine line between succumbing to all the latest fads and digging in while the world changes completely around you.
Thatʼs why business-objective discussions need only happen once every 90 days or so. It makes it easy to focus on your work all of the rest of the time.
RULE 5: ASSOCIATE WITH WINNERS
Four groups of people will dramatically influence how your business evolves:
Employees do more than just complete the tasks you give them. They establish a pace, a culture, a tone for your company. And when they deal with the outside world, they are your company.
The two most important things you can do when hiring people are:
- Make sure you have a precise, written description of both what the person is to accomplish and the attitudes and behaviors you want to see.
- Hire people quickly, but hire everyone with a 60-day trial period. If a person isnʼt adding enough value to your company, swallow the pain and ask him to leave. By doing that, youʼll feel far less pain than you would in the long run by keeping that person.
PEERS. These are the folks you work with or compete with or just orbit around. Even though they seem less important than the folks you buy from, sell to, or work with, they have a huge impact on how you make decisions.
Finding peers is difficult. Most bootstrappers and senior-level executives believe that they are too busy to take the time to interact when there isnʼt a specific business reason.
Big mistake. Networking can dramatically increase the quality of your sales efforts and your products and, best of all, increase the wisdom you gain from your work.
The best way to find peers is to devote several hours a week to doing favors for people. Favors with no intent of being repaid. Do some favors for strangers and some for friends.
Whatʼs a favor? Sending someone a relevant newspaper clipping or e-mail message. Even better, referring business to another company that can handle it better than you. Find opportunities to brag on other companies and other people you know. Youʼll be meeting sometime with someone who might need to work with them.
If you interview someone who’s terrific but not for you, send that person to a peer . You just made two friends! If you write an article and need a case study, ask a peer to contribute. If you deal with a business and youʼre happy (or unhappy) with the experience, write a letter to the president and, founder to founder, let her know, how she did.
A few hours a week ought to net you a group of 100 or more peers who will benefit from your efforts as much as youʼll benefit from theirs.
Another alternative is a more organized peer group. You can start one yourself or join an existing one. The Young Presidentʼs Organization (YPO) does this for entrepreneurs under 40 with pretty significant companies. Other groups include your local chamber of commerce or local CEO clubs.
A warning about the organized groups: Be sure to join one thatʼs as upbeat and enabling as you are. It does you no good to sit around complaining about employees and banks and customers. You need to surround yourself with people who have succeeded and are still enjoying the ride.
I was lucky enough to be invited to address a monthly dinner club with people like that—six people who meet in Manhattan to trade war stories, play a little poker, and hear from guest speakers who can teach them something. All the group members took time to tell me how much the club had helped them build their businesses.
RULE 6: BEWARE OF SHARED OWNERSHIP (OR, WHY RINGO WAS THE LUCKIEST BEATLE)
A 50/50 split is almost never fair. Itʼs almost impossible to find a situation in which two people contribute equal amounts, have equal needs, have mutually consistent expectations, and will stay with the business the same amount of time.
Remember, the number one thing you have to invest is your time. And itʼs almost impossible to guarantee that a partner is going to invest her time in the same way or with the same impact as you. At the early stages of starting your business, itʼs tempting to undervalue the company, to let the experts have a big piece of the pie in exchange for getting you in the door.
One entrepreneur I know was enamored with a well-connected expert who offered to get him in the door, giving him the audience he needed with all the right clients. And the expert wanted only 20 percent of the company profits, no up front money.
Six years later, the entrepreneur is still sweating, still working to keep the company going. And by now, the company is doing $10 million a year in sales. And that first consultant, who stopped contributing more than five years ago, still owns 20 percent of the company. Of course, the insights and productivity that come from productive collaboration are irreplaceable.
So what should you do? Doing everything yourself is counterproductive. And being fair to the people who contribute to your business is essential. Here are five principles to consider when you sit down and start talking about shared ownership:
1. Plan for success. Sure, giving away stock in a failed venture costs you nothing. But imagine that your venture is going to be worth $100 million. This attitude will help you in every aspect of the business. And it especially helps focus your attention when you start taking in partners.
2. Ideas aren’t worth much. Itʼs not the idea thatʼs going to make you money. Itʼs the sweat and the effort and the execution. If you want to brainstorm with people, thatʼs great. But make it clear up front that the pay is the pizza on the table or a flat fee or whatever else, so long as you donʼt give up a piece of your company.
Hereʼs one way to do it: “Help me dream this up. If it works, and xxx happens, Iʼll give you a check for $50,000 in cash, for you two hours (or two days or two weeks) of work. If it doesnʼt work, we both lose.” More often than not, the party who doesnʼt really want to be an entrepreneur anyway will be happy to focus on the fixed number. By the way, donʼt forget to put your terms in writing.
3. Always leave both sides an out. Nothing lasts forever, especially business partnerships. A dear friend of mine spent two years wrestling with a former partner when he left in a huff. In the end, everyone loses. Make sure you have a well-defined clause that lets either party leave without wrecking the business.
One common approach is a shotgun clause. It says that at any point, Person A can offer to buy out Person B. Person B then has a few days either to take the money or to turn around and pay Person A exactly the amount proposed. Itʼs guaranteed to be fair, and itʼs quick.
4. Match compensation with performance. An approach thatʼs worked for a lot of bootstrappers is a performance-based split. Imagine that two partners start a business. They each own 5 percent with 90 percent in a mutually owned pool. Every six months, the 90 percent is allocated by a predetermined formula for hours invested in the business or sales made, or products developed. Two years later, all 90 percent is allocated, and the partner who made the biggest contribution clearly ends up with the biggest share.
5. Never, confuse profit participation with governance. The biggest problem with a 50/50 split is that no one is in charge. Someone has to be in charge. So divide control of the company differently than profit participation. Make sure that, especially in the early days, one person makes decisions. If you canʼt trust your partner enough to cede this to him, or vice versa, time to find another partner or try another business.
RULE 7: ADVERTISE
From the first day, allocate a percentage of your income to marketing. Do marketing before you take out money to pay yourself. Letters, phone calls, banner ads, space ads, even TV—theyʼre all cheaper than you think. And youʼve got to spend the money to get the money back.
RULE 8: GET MENTORED.
Nowhere does it say youʼve got to do this all alone. Find someone whoʼs come before you and ask for help. Odds are, youʼll get what you ask for.
What youʼre doing here is pursuing the American Dream. I donʼt know about you, but I love seeing people succeed. And if thereʼs a way to help someone else reach a goal, most people are eager to pitch in.
To find a mentor, you need to take some initiative. Finding the right person in the right industry at the right stage of her career takes some homework.
Lester Wunderman, the father of direct marketing and the most influential person in his industry, has been a tremendous teacher for me. So has Jay Levinson, the original guerrilla marketer, along with several other less famous but no less influential mentors Iʼve found.
If you feel as though youʼre alone out there, go get some help. Not everyone will say yes (most of us are way too busy to mentor everyone weʼd like to). But if you can find the right people, odds are some of them will be happy to assist you.
I recommend two steps in acquiring a mentor:
1. PICK THE RIGHT PERSON. Famous people arenʼt always your best bet. Theyʼre busy, theyʼre in demand, and they may be hard to reach. And, believe it or not, theyʼre not always the smartest people in town. The mentor you choose should be convenient (a mentor 5,000 miles away isnʼt going to help you much unless e-mail is the interaction mode of choice). And he should have life experience and a network of connections that really help your business. Picking a willing mentor isnʼt nearly as important as picking an effective one.
2. MAKE IT EASY FOR THE MENTOR TO SAY YES AND EASY TO SAY NO. Youʼre asking for a favor here. A big one. For that reason, you canʼt feel defeated if the mentor doesnʼt have the time or the interest to help you. If that happens, overcome your natural bootstrapper desire to persist, and graciously move on.
Iʼm a big fan of a letter, or maybe two letters, in which you lay out who you are and what youʼre looking for. You probably donʼt want to write to a stranger and say, “Hey, want to spend 10 hours a week giving me free advice?” Instead, start the relationship in a simple, no-obligation way. Maybe ask the person to lunch to pick her brain. Maybe inquire about friends of friends who might be able to point you to other friends…
One woman I know is an expert networker. She has had a series of minimentors, people who help her with specific issues.
She asks her network of people, “Who do you know whoʼs an expert on topic x?” Then she writes a short letter to the person whoʼs been recommended, mentioning the person who recommended she write and asking for 15 minutes on the phone.
She calls the personʼs secretary, then sends the letter. Nine times out of 10, she gets her 15 minutes on the phone. She spends 10 minutes exploring the issue she needs help on, then asks for (and usually gets) the names and phone numbers of three or four other people who might be able to help.
And she always sends a nice thank-you letter.
Is it hard? Not at all. Does it require preparation so she doesnʼt sound uninformed? Absolutely. But it is the single dynamic behind her phenomenal success—she seems to have access to any person and any information she needs.
One last thought: Never ask your mentor for more than advice. Donʼt ask for money. Donʼt ask for free output (like a designed ad or a written proposal). If you do, both of you are put on the spot. And your request will often lead to an awkward end to the relationship. Mentors donʼt commit for money, but for the gratification of seeing someone else succeed. They want to see your work pay off.
RULE 9: OBSERVE THOSE LITTLE BIRDS THAT CLEAN THE TEETH OF VERY BIG HIPPOS
My son Alex was blown away by the diorama at the Museum of Natural History in New York. Thereʼs a giant rhino, bigger than a Volvo, with its mouth open. And there, in the mouth of the beast, are a bunch of little birds.
“What are the birds doing in the hippo, Dad?” he wanted to know. As always, I told him more than he probably wanted to know. I explained that the birds eat the bugs the rhino canʼt get to. The birds are happy because they get an easy meal. And the rhino is happily bug-free. Thereʼs a lot a bootstrapper can learn from these little birds. By creating a mutually beneficial relationship with a hippo, you can make a lot of money, generate credibility, and avoid being eaten.
Find bigger, richer, more stable organizations. Partner with them. It gives you credibility and access and sometimes, cash flow.
Most big-company founders hate what their companies have become. They rail against the slowness, the bureaucracy, the inability to get anything done anymore. What they need is someone like you. Someone who can take on a specific task and turn company assets into gold.
Youʼll be amazed at how easily you can license a brand name or do deals for ad space or take over projects for a big company. Occasionally, the company will pay you up front, just to maximize the chance of success.
Corporations large and small are eager to find bootstrappers who can turn their wasting assets into cash.
Is it that easy? Follow 9 rules and you automatically succeed? In a word, yes. But following all 9 rules isnʼt easy. It takes commitment and concentration. You wonʼt hit every one every day, but theyʼre a great place to start.