Bootstrapping Learnings: Scaling a Winning Idea
Founders are familiar with the idea that 9 out of 10 startups fail, however, the chances of success are likely much better than you think.
A recent study in Fortune revealed that the odds of failure are close to 60%. The most common reason entrepreneurs don’t make it is premature scaling, defined by Forbes’ Nathan Furr as “spending money beyond the essentials on growing the business … before nailing the product/market fit.”
For bootstrapped startups that are funded by the founders’ savings or immediate revenues, thoughtful scaling is especially crucial. Microsoft, Apple, and Oracle are just three of the many globally popular brands who bootstrapped instead of accepting investors or venture capital funds. Knowing how and when to invest in your company is critical to making sure that a winning idea reaches its full potential.
Validate Before Scaling
Without finding the right product-market fit, an idea won’t turn into long-term revenue streams. Validating the idea is critical, especially before you invest in talent, technologies, tools or an office space.
The best way to validate is to test a concept that is close to the idea on real-users. Here are some low-cost ways from Mark McDonald:
- Performing one-on-one outreach to prospective customers via LinkedIn
- Launching a survey and incentivizing it
- Attending targeted meet-ups and earning one-on-one time with successful entrepreneurs
Watch the Run Rate
Run rate, or a projection of how the current monthly revenue will translate into annual profits, is among the most important metrics for bootstrapped startups to know and monitor. The longevity and success of the idea depend on the run rate and how quickly you’re able to build the revenue to the point where you can afford to scale.
While you’re working to build profitability, entrepreneur Rodrigo Santibanez recommends that founders take the following actions to cut the extras before they try and scale:
- Adjust your business model to increase cash generation flow
- Watch your personal expenses
- Don’t outsource unless it’s strictly necessary or you can’t learn it
Stay focused. Really focused.
If you’re trying to make too many iterations of the idea available to three different customer profiles, you’re losing focus on what’s important: scaling the business to long-term profitability. Clay Collins, for example, is a firm believer in the “One” test as a tool for focus. Before you scale, it may be helpful to make sure you’re staying focused on ensuring you have:
- One target market
- One product
- One conversion tool
- One channel
Steve Blank’s Rule #12 in his Customer Development Manifesto is:
“Preserve all cash until needed. Then spend. The goal of Customer Development is not to avoid spending money but to preserve cash while searching for the repeatable and scalable business model. Once found, then spend like there’s no tomorrow.”
Signing a lease on a fancy new office with ping-pong tables and microbrew on tap is every founder’s dream come true. However, while the plans for scaling will most likely include real estate at some point, premature major investments burn cash resources at a staggering clip.
Conclusion: Cautious growth always matters
The one thing that many entrepreneurs believe that is that all startups should adopt a bootstrapped mindset, even if they have investors backing their idea.
While the road to bootstrapped startup success is sure to be paved with “sweat equity” or good, old-fashioned hustle, knowing how and when to scale increases the chances of long-term success.
The thumb-rule is to spend money on growth essentials, but not burning resources before you have validated your idea or fine-tuned your focus.
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