Author Archive
June 14th, 2010
The following is a guest blog by Rick Kadet, our featured guest at tomorrow’s Bootstrapper Breakfast in Sunnyvale. Rick is a Senior CFO Consultant with The Brenner Group and works with a number of early stage entrepreneurs, many of whom are bootstrapping their startups.
As a financial guy, I worry a lot about the failure of entrepreneurs to adequately plan for unforeseen contingencies and have adequate funding to realize the potential in their firm. Regardless of whether one is bootstrapping or working off of investor dollars, the problem is the same, how to keep resources and cash in front of your business so that you can be around long enough to succeed. If you are a true bootstrapper, here are a few key issues to keep in mind.
Bootstrappers have generally raised some funding from savings or friends and family. Getting by with small funding can be a matter of balancing. Some expenditure may be needed for equipment, software, rent and communications. But bootstrappers seldom pay their employees, their most key resource. For many bootstrappers, the main difference in risk when compared with a funded company is holding their team together. When employees are not paid, there can be spouse pressure on participants to find a paying job; personal saving are depleted. How do you protect your key employee intellectual property from jumping ship? Keeping the team together is a powerful reason to raise money if you are able. The best tactical thing absent money is to keep the product development and revenue generation on schedule. This way, employees can see their accomplishments and keep the vision of the company clearly in focus. There is nothing worse than discouraged unpaid employees that are not seeing the results of their efforts or when the situation might change.
A key tool for effective cash management is the financial model that reflects the company’s actual revenue and spending plan including realistic prospects for meeting the targets set. Compare notes with other entrepreneurs or advisors who understand modeling to ensure that you haven’t overlooked a key cash element that might affect your plan. The amount of cash needed will be influenced significantly by delays in the plan schedule, whether in completing the new product or in the time needed to bring in the revenues that will provide positive cash flow. In my experience, entrepreneurs nearly always believe (and plan) that the best possible scenario will be what happens for them. In just about every client over my nearly 13 years in working with startups, the schedule for new products will slip or customer revenues will be delayed. Spending plans laid too optimistically deplete cash that will not be there when revenues are delayed. Unrealistic forecasting (or no forecast at all) are common reasons firms run out of money.
Bootstrappers need to worry about the management of accounts receivable and customer credit. It is true that customers with their own cash flow problems may slow pay their vendors for free financing (example: GE takes six months to pay a lawyer on contract). Slow pay occurs with giant companies as well as underfinanced mom and pop business. Very dangerous are the firms that are on the brink of collapse financially but are buying on credit anyway without the vendor knowing. Regardless of size, bootstrappers need to do credit investigation and approval for their customers. Get help if you don’t know how to do credit checks. Knowing the actual payment habits of your customers will help you to have cash on hand when you need it and avoid selling to those that will not have the resources to pay.
June 13th, 2010
The Silicon Valley economy continues to test bootstrapping entrepreneurs cash management skills. Rick Kadet of The Brenner Group, Inc will be our guest at the Bootstrapppers Breakfast meeting, Tuesday, June 15 in Sunnvale to discuss Effective Cash Flow Financial Strategies for early stage entrepreneurs. Rick will provide a five minute overview of key principles that will be followed by our regular round the table discussion.
Rick is Vice President and Senior CFO Management Consultant with The Brenner Group, Inc., where, since 1998, he has engaged with over 60 valley firms as part-time CFO or financial advisor. Rick works with client firms on executive staff level financial management, financial reporting to boards of directors, financial and business planning, raising venture and debt capital, facilities, business infrastructure, business systems and risk management.
Whether you are actively bootstrapping a startup, considering entrepreneurship, or keeping a weather eye on the possibility of involuntary entrepreneurship as your next career stage, you are welcome to join us. Please bring your questions and lessons learned.
Bootstrappers Breakfast meetings bring together entrepreneurs who are serious about growing their business and gives them a chance to compare notes on operational, development, and business issues with peers.
June 12th, 2010
“Were all men equal tonight, some would get the start by rising an hour earlier tomorrow.” Elizabeth Gaskell
One reason to get out of bed to get to a 7:30am breakfast.
May 23rd, 2010
Adrian Perez is doing some independent research on what makes for effective entrepreneurial partnerships. He will be joining the conversation this Friday in Mountain View at Red Rock and will share a little bit about his research. He e-mailed me the following description:
Partner compatibility is a foundational part of weathering hardship and making sure a startup discovers and embraces opportunity. If you’re exactly like your partner, you may share a common language, but also have the same blind spots. And if you are too different, you risk constant misunderstanding. Adrian Perez is conducting research into the relationships between character strengths in partnerships. Using the VIA Survey of Character Strengths (available here: http://www.authentichappiness.sas.upenn.edu/Default.aspx ), I am collecting entrepreneurial partnership data to test a hypothetical matching algorithm suggested by the initial work on his research.
More on the study and how it works can be found here: http://www.dropby.com/ElGrande/strengths.html
I took the VIA Survey of Character Strengths a few years ago and found it offered some useful insights into my personal style and effectiveness. Whether or not you want to take part in Mr. Perez’s study it’s free and worth the hour or so of your time it will take to fill it out accurately. Adrian will take part in the conversation on Friday, if you are interested in learning more please either drop by the breakfast or contact him directly.
May 22nd, 2010
“A happy woman is one who has no cares at all; a cheerful woman is one who has cares but doesn’t let them get her down.”
Beverly Sills
Optimists (and optimistic bootstrappers)
- Are seldom surprised by trouble.
- Look for partial solutions.
- Believe they have control over their futures.
- Allow for regular renewal.
- Interrupt their negative train of thought.
- Heighten their powers of appreciation.
- Use their imagination to rehearse success.
- Are cheerful even when they can’t be happy.
- Believe they have an almost unlimited capacity for stretching.
- Build lots of love into their lives.
- Like to swap good news.
- Accept what cannot be changed.
“Twelve Characteristics of Tough-Minded Optimists” from Alan Loy McGinnis’ “The Power of Optimism“
May 19th, 2010
One of our fellow Bootstrappers, Mandeep Singh Dhillon, co-founder and CEO of Togetherville Inc, (Togetherville.com) launches his social network for children to the public. Katherine Boehret wrote about them in “A Social Network to Grow On,” reporting that after operating as a private beta with 800 test users for six months, the site went public on May 18, 2010.
“The site provides a social-networking environment that kids can enjoy and that parents will feel comfortable managing. It is designed to function as a safe, kid-centric social network. The site guides kids ages 6 through 10 on how to communicate online with others, using canned responses and parental participation. Togetherville links into Facebook so parents who use the popular social-networking site can have a say in who their children are connecting with and can even interact with their kids online.”
Larry Magid covered them in his “Magid on Tech” column “New Social Site Designed for Children” noting some well thought out features:
Like Facebook — and unlike virtual worlds like Club Penguin — children are identified by their real names and real pictures, but the only people they can interact with are other children who have been pre-approved by their parents.
It’s a totally different model than anything I’ve seen before, and after a preview and several conversations with founder Mandeep Dhillon, I’m very impressed with what they are trying to do.
The idea behind Togetherville is to create online “neighborhoods” similar to real-life neighborhoods where children interact with each other and adults they know.
Only a parent can set up a child’s Togetherville account and link the child to other children and trusted adults such as grandparents and other family members.
Children can interact with other Togetherville members but only by selecting prescreened “quips,” text comments approved by Togetherville staff.
That greatly reduces the chances of cyber-bullying and abusive behavior and eliminates any opportunity for a child to reveal personal information such as their home address.
Kevin Makice calledTogetherville a “Digital Training Ground for Young Geeks” noting that:
Fully compliant with the Children’s Online Privacy Protection Act (COPPA), Togetherville is intended for kids who are too young for Facebook, officially, but have parents immersed in that culture. The 6- to 10-year-olds are invited to engage with their real-world friends, play games, watch videos, and create art. Grownups act as the gateways for new contacts, assuming the responsibility for inviting other families to join each child’s online neighborhood. Experiencing online networking together, grownups can guide their kids through the age-appropriate content in an ad-free environment.
Mandeep attended the Palo Alto Bootstrappers Breakfast in December of 2008 while he was still bootstrapping. We asked him today about his journey since then and for any advice for fellow bootstrappers. He said:
When we started Togetherville, we had passion, and no money. For more than two years I passed up opportunities to do other things because I believed that building a better online experience for my kids was worth it. If you have the passion, you can cross a lot of barriers. We were not going to be deterred, and ultimately, passion is required to produce a product that has real impact.
May 14th, 2010
I came across this answer by Gypsy Rogers to the question “What is a Bootstrappers Breakfast?” from a public LiveJournal entry in March and really liked it.
It is a group of entrepreneurs who come together once a month to discuss ways to cut costs and push their businesses forward without trying to get venture capital but also without hurting your business by being too much of a cheap skate.
Source: http://hightekvagabond.livejournal.com/328127.html
May 6th, 2010
I came across a recent post by Griffin Caprio on “Being Your Own Angel Investor” at that addressed an issue that comes up at many breakfasts. Here is the core of Griffin’s approach but go ahead and read the whole thing:
“So, if I bootstrapped, but didn’t fund myself with personal money, what did I do? Simple: Consulting. Unsexy consulting. I’m thinking long term and, in my mind, spending a year or so consulting to fill my business coffers simply made sense. I wasn’t trying to strike quickly or catch the wave of any given fad. I wanted to build a business that endures. To do that, I needed a stable cash runway similar, to an angel investment, that would give me the freedom to build the kinds of products I wanted to build. So that’s what I went out and got for myself. However, instead of talking to an angel and trying to acquire an funding in exchange for some debt or a piece of my (non valuable) company, I’ve spent the first 12 months of 1530s existence scooping up any and all consulting gigs I could get my hands on.”
April 22nd, 2010
The Department of Labor recently clarified their guidelines in “Wage and Hour Fact Sheet #71″ on the demarcation between employment and an unpaid internship. The fact sheet “provides general information to help determine whether interns must be paid the minimum wage and overtime under the Fair Labor Standards Act (FSLA) for the services that they provide to ‘for-profit’ private sector employers.”
The full text is here http://www.dol.gov/whd/regs/compliance/whdfs71.htm the heart of their test follows:
The Test For Unpaid Interns
There are some circumstances under which individuals who participate in “for-profit” private sector internships or training programs may do so without compensation. The Supreme Court has held that the term “suffer or permit to work” cannot be interpreted so as to make a person whose work serves only his or her own interest an employee of another who provides aid or instruction. This may apply to interns who receive training for their own educational benefit if the training meets certain criteria. The determination of whether an internship or training program meets this exclusion depends upon all of the facts and circumstances of each such program.
The following six criteria must be applied when making this determination:
- The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
If all of the factors listed above are met, an employment relationship does not exist under the FLSA, and the Act’s minimum wage and overtime provisions do not apply to the intern. This exclusion from the definition of employment is necessarily quite narrow because the FLSA’s definition of “employ” is very broad. Interns in the “for-profit” private sector who qualify as employees rather than trainees typically must be paid at least the minimum wage and overtime compensation for hours worked over forty in a workweek.
The FLSA makes a special exception under certain circumstances for individuals who volunteer to perform services for a state or local government agency and for individuals who volunteer for humanitarian purposes for private non-profit food banks. WHD also recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation for religious, charitable, civic, or humanitarian purposes to non-profit organizations. Unpaid internships in the public sector and for non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible. WHD is reviewing the need for additional guidance on internships in the public and non-profit sectors.
April 15th, 2010
Kevin Spreng, one of the moderators for the Minneapolis Bootstrapper Breakfasts®, forwarded this article from VC Experts on “Sources of Capital – Bootstrapping Sources And Techniques from VC Experts.” The article outlines techniques in the following areas:
- Friends and Family Loans and Investments
- Alternate Revenue (e.g. Consulting Revenue)
- Customer Prepayments or Discounting Accounts Receivable
- Supplier/Vendor Financing and Extended Terms
- Customer and Supplier Barter Arrangements
- Revenue and Pricing (price increases can provide funds)
- Customer and Supplier/Vendor Investments
- Deferred Employee Compensation
- Outsourcing (e.g. payroll & benefits, manufacturing, distribution and selling)
- Working Capital Management-Inventory, Accounts Working Capital Management-Inventory, Accounts Receivable, and Accounts Payable
- Operating Profit
Although the authors’ sympathies seem to lie with professional investment as the best source of startup capital there are some good overview insights for bootstrappers:
“Bootstrapping is the term used for nontraditional funding of a company using a series of interim techniques and sources to move from one company stage to another…The technique is routinely used by start-up or early stage businesses that do not have institutional or professional investors, keeping in mind that the great majority of start-up and emerging growth companies do not obtain funding from institutional or professional investors.”
“From the perspective of the entrepreneur or businessperson, bootstrapping may be viewed as a resourceful or creative way to address the financial need of the business for an interim period using the cash flow of the business and minimizing the use of external capital until the cash flow of the business can support ongoing operations. Given that excess funds are rarely available in this situation, bootstrapping may have the benefit of instilling financial discipline in the company’s leadership team and processes as they focus on managing cash flow and all of the influencing factors; they grow accustomed to running a tight operation.”
“Most entrepreneurial ventures are bootstrapped to some extent. Sources of funding come from anywhere the entrepreneur can find it. Much of the funding is through the use of services of other companies who might have an interest in the product or service if fully developed or launched. Entrepreneurs are creative, and how they structure relationships with other companies and obtain services is as varied as their personalities. … A word of advice: Never lose control of the intellectual property or enter into a relationship that cannot be reshaped into an independent entity capable of demonstrating growth, creating future value, and being financed.”
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