Tag Archives: investment

Advantages and Disadvantages of Bootstrapping your Start-up

If you can’t find funding for your new business there is an alternative, bootstrapping. In fact many experts recommend bootstrapping rather than trying to find funding. Bootstrapping your startup

So what is bootstrapping?

Bootstrapping is basically the process of starting a new business without any external funding. A bootstrap start-up will rely on the internal revenue only. In other words the company spends what it makes.

In reality most early stage start-ups will need a little bit of funding so a typical bootstrap start-up may rely on the founder’s overdraft, credit cards or savings. Alternatively the business might be started while the founder is still working part time, or is doing some freelance work to cover the bills. The people involved in the company will typically work for little or no wages in the early days. A key element of bootstrapping is the idea that you can use ‘sweat capital’ rather than ‘investor capital’ to grow the business. In other words, you work hard.

What are the advantages of bootstrapping?

  • You don’t have to spend time hunting out investment
  • You control the company and are not answerable to investors
  • With no funding you learn to manage the company’s money efficiently very quickly
  • It forces you to be creative. If, for instance you can’t afford a shop without borrowing money then trade from market stalls, eBay or door to door until you can.
  • As all money is coming from customers they become your number 1 priority not investors. Product development and marketing have to become efficient quickly or you will fail
  • If you survive bootstrapping you will have a strong, lean, efficient, customer focussed company

What are the disadvantages of bootstrapping?

  • It is not always practical for businesses that need a large investment such as manufacturers or importers
  • It can take much longer to grow a company without investment
  • You will likely not be earning any money for quite a while
  • You can easily end up in a lot of debt

So does bootstrapping work?

Well for some people yes. Lists of companies that started in someone’s garage and bootstrapped their way to success normally include Microsoft, Apple, Amazon, HP and Disney. All are big businesses that started in a garage or tiny shed with a handful of enthusiastic people. In reality many of these businesses did bootstrap through their early stages but when investors and venture capitalists came calling they took their money. The bootstrapping stage for them was about establishing that they could produce a basic product and that people were willing to buy it. Once they had established their basic business model they then took on funding to allow them to grow.

By doing things this way your company can establish a customer base and some cash flow before you go asking for a loan or investment. This makes your business a much more attractive investment and improves the chances of getting some money.

Business Coaching for Start-ups: Part 2

Growing Business Start-upsIn our last blog post we looked at how business coaching can be used to help companies develop business plans and raise funding once they are established. However as we discussed with Paul Green, one of the biggest obstacles new start-up businesses face is often getting their initial round of funding.

As well as interviewing Paul Green, who generally works as a business coach for established companies, we spoke to Colin Wilkinson of Incubation UK. Colin operates as an investor rather than a business consult. He picks companies he is interested in and gets personally involved rather than charging a fee for offering advice. Colin has worked with a number of award winning start-ups helping them to revise their business plans and raise funding. An example of one of the businesses that Colin has recently been involved in is Three Sixty Entertainment. They needed to raise £2.7 million to launch their company but had only managed to raise £85,000 in 2 years. Once Colin joined them he helped them to rewrite their business plan, re-asses funding needs and access new sources of finance. As a result they managed to raise the funding they needed with a few months and won an award for start-up of the year. They managed to do this even though it was November 2008, only a couple of months after the collapse of Lehman Brothers virtually stopped business lending.

Colin Wilkinson of Incubation UKWe spoke to Colin about why he is able to secure funding for businesses and how this is applicable to start-ups generally. As with the advice we got from Paul Green a lot of the areas that Colin stressed are about business planning.

Core Business Assumptions – One of the things that Colin stressed the most was the need to do your research. He talked about the need to have solid figures outlining exactly what you are going to sell, who you are going to sell it to, for how much and how often. This research can come from having worked in a similar business, or from suppliers, or from people in the industry your new business is going to be part of. Whatever the source of the figures they need to be accurate, and take account of all costs, as well as sources of revenue. These figures can then be used to test the core assumptions behind the business and establish the likelihood that it can be successful. Colin also emphasised that while you need to be able to show that the core business is going to work, being able to demonstrate the potential to scale the business is equally important. So for instance opening one shoe shop might be great for you but is unlikely to be exciting for a large investor. Being able to demonstrate how you could grow the business will get them excited about the potential return on their initial investment.

Credibility – When approaching potential investors or suppliers it is important that you appear credible. Having done your research properly and being able to show this through the confident presentation of figures is vital. However the people involved in the business can also be important. Showing that you have experience in the industry you are starting your business in can be valuable. Where this is not possible you may need to find people who do have credibility in your new industry to work with you. Colin spoke about the possibility of getting an established figure in your sector to join your company as a non-executive director thereby lending credibility to your board.

Networking -  When we spoke to Colin he kept coming back to the importance of doing your research properly. He emphasised that the research phase is a great time to start establishing your network of contacts through suppliers and established industry players. Getting your name and business known will help to open doors to investors and make it more likely that they will take a meeting with you. It also means that you are more likely to know which doors are worth opening and who you should be focussing on meeting. This is another area where having someone with industry experience on board can help. Experienced figures within a particular industry will know how to approach their peers and what to say to them.

Elevator Pitch – The Elevator Pitch is a well known business technique. It is based on the idea that getting a meeting with the right investor or supplier can often be very hard and so you need to be able to make a convincing case for your business quickly. An elevator pitch should sum up your business idea, and what makes it unique, in the time it takes to go up a few floors in an elevator. When we spoke to Colin he recommended that people really ought to have two pitches prepared. The first he called ‘waiting for the elevator pitch’. This is the first 10 seconds which will get your foot in the door and make people want to hear more about your business. If this is successful then you can go into your full elevator pitch which should last between 30 seconds and 2 minutes. Being able to sum up your business in this short a time shows that you know what you are talking about and have put some thought into it. Again it is a way of establishing credibility and making a good impression.

Throughout the conversation that we had with Colin he emphasised that all of these areas are interlinked. You are unlikely to be able to do a convincing elevator pitch if, for instance, you haven’t done your research properly. Similarly he did not say that it was essential to get outsiders involved in your business but that they can help to point out potential problems and opportunities for your business as well as adding credibility. If you are going to look for a business coach or mentor then Colin recommended that you look for one with experience within your particular sector rather than a generic coach. Above all he emphasised the importance of talking to as many people as possible, business coaches or not, to make contacts and gather ideas.

Fund Your New Business without a Bank Loan: ask the crowd

Fund you new business without a bank loanLots of people have an idea for a new business but lack the funds to get it off the ground. One traditional way of raising new company start-up money is to raid your own savings or borrow money from friends or family. However many people are not willing or able to do this and without some basic capital of your own, or a house to act as security, it can be hard to get a bank loan.

In recent year a new option has begun to emerge through crowdfunding. Crowdfunding is like a Dragon’s Den pitch that is open to the public. People with a business idea can put a pitch up on a crowdfunding website describing what their new venture is, how much money they want and what the investors will get in return. Users of the website can then choose to give as much or as little money as they like. If target set by the new company is reached they get their funding. If the target is not reached then the investors get their money back. Unlike Dragon’s Den through, the investor does not normally get a share of the company. This is largely because of investment regulations which place limitations on how businesses can buy and sell their shares. Instead they might get priority access to the new company’s services or limited editions of their products.

Crowdfunding has proved to be popular with Kickstarter, who helped to pioneer the model, having raised $200 million since they launched in April 2009. This total was achieved through 1.8 million people funding 20,000 projects as diverse as an urban farm, an online magazine and numerous films and works of art. One of the most high profile success stories for Kickstarter has been a company called Pebble who went on Kickstarter looking for £100,000 to produce their new high tech watch. They hit their funding goal within 2 hours and ended up raising $7 million.

At the moment many of the crowdfunding platforms are American but Kickstarter and Indiegogo allow projects and investors from around the world to participate. Meanwhile there are a range of UK based crowdfunding platforms in the works with seedrs and crowdfunder being leading examples.

The potential of crowdfunding for business start-ups has been recognised by President Obama who recently signed the Jobs Act. This will allow American start-ups to sell up $1 million of shares through crowdfunding. Some people have raised concerns that this will leave business start-ups and investors open to fraud. As with any business or investment opportunity people will need to be aware of the risks and invest carefully. Crowdfunding may not yet be a mainstream way of raising money for new businesses but if you have an interesting or quirky product it can be an excellent way to get prototypes and other proofs of concept under way.

Show Off Your Business To Potential Investors

company-investment-showcaseAt The Company Warehouse, we’re always eager to do everything we can to help new businesses with the process of getting started. This means that we aim to expand and improve our services to give the best possible support to new start-ups and SMEs. Further still, we have added numerous FREE services our list of support offerings for new businesses.

We’re aware that acquiring business finance can be difficult for new businesses, which is why we’re offering support it two different ways. The first of which is our company showcase.

Company Investment Showcase

With the popularity of TV shows like Dragon’s Den and the growth of venture capitalists and business angels, people are starting to realise the importance of getting their business seen. Potential investors are always on the lookout for new, exciting and innovative businesses to invest their money in. So we’re now offering to give new businesses a helping hand.

Record a short video about your business, visit our Company Showcase page, upload your video to us and show off your business for free.

The best videos will be showcased on our website for the world and potential investors to see. This means free advertising for your business. Get your new business seen today.

How Do I Upload My Video?

Record a simple video using your webcam, mobile phone or video camera, visit our Company Showcase page, upload it and you’re done. Nice and easy. Best of all, it’s entirely free, so what have you got to lose?

Business Start-Up Myths – You need a lot of money to get started

Business start-up costs

Time to crack open the piggy bank and start your own business!

One of the most common myths about business start-up is to do with money. Many people believe it costs a lot of money to start a business. Of course, it is true that you could spend a lot of money starting your own business (through your own choice) and you certainly have to spend money to make money, but you do not need a lot of money to get started. That’s just misleading.

Starting a business using our company formation service for example, you can get started for FREE. The costs from then on are what you wish to invest in the business. Money invested will (with luck) be paid back over time as the business comes successful and grows. After all, that’s what you are going into business for isn’t it? To make money?

Obviously some businesses cost more than others to start, but there are always ways of cutting costs. If you’re trying to start a brand new pub or nightclub from scratch then the costs are obviously going to be higher than simply buying an already established business from someone who is retiring or moving on.

Clever planning and detailed research will help you to keep start-up costs down. A well thought out business plan will allow you to know how much investment will be required in the first few months, based on your intentions to expand and grow your business empire. Market research will help you decide the best location for your business based on potential customers versus location costs. While thorough planning will help you get the most out of every penny you invest.

Spending money to make money

Starting up a business, the more you can invest, the more you are likely to make back in return. As a simple example, if you spend a little extra by investing in a website for your business, then you are likely to be able to cater to a wider audience, encourage more customers to your business and raise your profile. Obviously for some businesses a website is essential, but for others it might be an optional extra. But bear in mind that having a well designed website could mean a world of difference to your business. With more and more people using the internet on their mobile phone, simply having a profile on the internet will allow you to reach those individuals searching for a service while they’re out and about.

Other investments like registering a trade mark could mean avoiding future legal problems and investing in an asset which could potentially grow in value in the future and be used to the benefit of your business. Take a look at our article on the benefits of trade mark registration for more information.

I’m sure you can think of a few more examples. Especially if you have been following the articles on our blog. In the end, a business will cost as much or as little as you are willing to spend and there is a lot of truth to the old saying that you get out what you put in.