Providing Startup Financing Solutions Since 2001

Risk Mitigation Tips for Bootstrapping Entrepreneurs

Nothing is more difficult than bootstrapping a startup. It can prove to be the ultimate test of endurance for many a wannabe. And, until you’ve weathered the storm yourself, it can be difficult to fully understand just how gut-wrenching starting a business can really be, especially if you already work at a steady job, have a nice paycheck, and are used to having others tell you what to do.

Sure, the upsides of entrepreneurship are practically limitless, but tell that to anyone who has failed horribly as an entrepreneurial venture and you’ll get a different perspective. If they failed their first time, it may have completely dashed their hopes and caused them to wash-out. If they failed multiple attempts, then they’re probably not going to be the best person to go to for a “pick-me-up.” It is in that spirit that I hope to showcase some of the ways to mitigate startup risk. It is important to understand how to do this regardless of whether you use your own or other people’s resources in your startup.

Personal Expense Reduction

Every business startup owner or manager has personal expenses to manage, not to mention the business projects that can quickly eat up resources. Apart from dining only on ramen and never marrying, there are other ways to reduce your personal expenses checklist. Yes, you should attempt to lower personal necessities to a minimum and find ways to pay for such expenses until the business really takes off. Keeping expenses at a minimum is one thing, but if income doesn’t meet expenses, it really doesn’t matter how low your expenses are, you’re still going to run out of money.

Risk Mitigation

Risk Mitigation

If you can find odd jobs, contract work, or freelance labor that can help to cover the costs associated with your personal life, it will help to greatly mitigate the risks associated with running out of money before you run out of month. However, I recognize this is easier said than done.. Often it takes little creativity and ingenuity. I have a personal friend who washed windows and did landscaping in the evenings to feed his entrepreneurial habit that later led to huge revenues from his bootstrapped startup companies.

If you’re married, this adds another level of complexity to the mix. In some cases, it can make things easier, especially if your spouse is supportive (mentally and financially) of your entrepreneurial vision. On the other hand, a lack of support can squelch any entrepreneurial idea long before it’s even hatched. Hence, mitigating risks is of the utmost priority prior to even starting the company of your dreams.

Successfully Trimming Business Expenses

At the beginning, business expenses, like personal expenses can be extremely low. In fact, in today’s marketplace nothing more is needed than a simple $5/month webhost to get started. Bootstrappers unfortunately lack the funding provided to venture capital-backed operations whose nice sleek office downtown gives them the appearance of success while in reality they have negative income statements.

I will forever be the evangelist for bootstrapping and cost-cutting, but there are some times when being frugal can actually cost you profits in the long run. Here is one home-spun example. A good friend of mine runs a business that provides consumer home decor. She avoided showcasing her wares at some of the biggest trade shows in her niche because she claimed she couldn’t afford it. Finally, after several years of trying to break into the market, she bit the bullet and paid out the $13K it cost to put up a booth. Since then, her annual sales have hit $500K levels–a tenfold increase over any of her previous ten years in the business.

Starting small also can mean you have a really great story to tell people when you finally reach the top sometime down the road.

Build By Sweat

For the scrappy business builder with a very limited budget, the “cost, quality, speed” conundrum can hamper getting a quality product or service to market rapidly without a substantial cost can be near impossible. The time cost associated with old fashioned sweat equity is often the cost a startup manager must pay.

Here is a relevant example. Many of the websites I personally own or have helped clients build up over the years have avoided relying on traffic from paid sources as they felt managing a PPC campaign would cost them just as much time as doing traditional link-building and optimization. They instead opted for the more time-expensive path of link-building.

If time is your only resource, then use it. This is especially true for younger entrepreneurs who’ve much more time on their hands to tinker and find a method that works for them.

Go Guerrilla

In the same vein, entrepreneurs should seek out ways to “go guerrilla.” Nothing screams entrepreneurship more than guerrilla marketing tactics. I’m not just referring to viral videos and Fiverr contractors for procuring thousands of Twitter followers for $5. Going guerrilla means working with your network to find the right connection to get in with the right buyer, product sourcing specialist, or seller.

For the entrepreneur looking to sell a company, doing guerrilla networking to find the right buyer is especially helpful. In fact, starting business exit planning early by networking with other like-minded companies can provide for a much larger payout when it finally comes time to sell.

Whether you’re selling a product or service, going guerrilla can certainly be helpful. Building your company with sweat equity is no easy feat. It takes drive and determination, but it will also require you to pinch your pennies, especially in the early bootstrapping years of business entrepreneurship. Luckily the earlier you start, the more experience you’ll receive and the better understanding you will have about how to grow your company to the point where you’ll not have to worry about the same issues at the end of the cycle as you did at the beginning


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