- Define bootstrapping and illustrate how it applies to entrepreneurs - Identify common bootstrapping strategies used by entrepreneurs - Explain the difference between crowdsourcing and crowdfunding [SLIDE 1] Very few entrepreneurs manage to get formal funding for their new ventures. In fact, 98% of startups begin without any external financing, and 14% of the 500 fastest growing firms started with less than $1000. Bank loans are actually difficult for new businesses to access, and investments from angels and venture capitalists are not as common as people would like to believe. This is because entrepreneurs often have difficulty proving the value of a business that has not gotten off the ground yet. The process of building or starting a business with very little funding or capital, or virtually nothing at all, is called bootstrapping, so called because it means to lift yourself up by your own efforts. Many of the world's biggest businesses, like Coca Cola, Apple and Microsoft started off from operating on a shoestring. Bootstrapping is all about finding creative ways to access every resource you have available to launch your venture while minimizing the amount of cash you spend. [SLIDE 2] Bootstrapping means applying the eight components of the Practice of Entrepreneurship as described several lessons back. Remember that the components are:
  1. Identify your desired impact on the world
  2. Start with means at hand
  3. Describe the idea today
  4. Calculate affordable loss
  5. Take small action
  6. Network and enroll others in your journey
  7. Build on what you learn
  8. Reflect and be honest with yourself
This will enable you to think creatively about starting a business with little to no money. Take Lon McGowan for instance, who at age 22 had the idea to import a low-cost digital camera, the iClick, from Asia to the U.S. In order to pay for the $20,000 he needed for the first 500 cameras, McGowan signed up for 8 no-annual-fee credit cards, giving him $35,000 in credit. This gave him the opportunity to jump-start his business and iClick is now a very successful Seattle business selling low-cost cameras and other products. Of course, this strategy is not without risks and other entrepreneurs prefer different paths. Some turn to friends, family and fools, or the 3Fs for financial assistance. While borrowing from people you know may be an easier and quicker way to get the cash you need, it is better to treat the arrangement as a formal one with terms agreed on by both parties, because many families have fallen out over arrangements like this. [SLIDE 3] There are many reasons why entrepreneurs might choose bootstrapping. This includes complementing current traditional financing sources, reducing reliance on them, or eliminating them entirely. Entrepreneurs may simply not have access to traditional forms of financing due to lack of business history and credit. Additionally, entrepreneurs may voluntarily choose self-funding or funding from family and friends for all or most of the venture's financing to maintain control and autonomy over business decisions. While formal financing is more difficult to get, there are some benefits to acquiring funding from channels such as angel investors and venture capital firms. Not only do you get the money you need, but you also gain advice and guidance from people far more experienced than you, as well as their contacts and connections that will ultimately help your business before more profitable. However, most entrepreneurs do not seek out such investment -- at least not in the beginning. Most entrepreneurs appreciate the degree of independence and control they acquire by funding the business themselves. It keeps them focused and determined, and allows them to grow the business the way they want to, on their own terms. They have the freedom to test their ideas and make decisions without having to explain them to investors. They do not have to share ownership or give away equity. There is no pressure to repay bank loans or other debt, and revenue made goes to the entrepreneur or straight back into the business. In any case, most new ventures are not ready for investment. Investors are more likely to invest in businesses that have been bootstrapped from the beginning as it showcases the entrepreneurs' commitment and resourcefulness as well as the market reaction to and demand for the product or service. In addition, an entrepreneur who bootstraps with a good product-market fit, a committed team and a decent customer base is in a much better negotiating position with investors should they express interest in the business. [SLIDE 4] Most new ventures begin as a marathon, not a race. This means you are better off starting off at a steady pace and achieving desired milestones than trying to launch a dream businesses as quickly as possible. It is normal to begin on a shoestring. By spending time to build up the business piece by piece, you are more likely to generate a larger customer base as well as a steady stream of income. Once these building blocks are in place, there is a better chance of rapid growth and scalability. There are several different ways of bootstrapping a new venture, including using savings, using credit cards, funding the start-up from a salary or taking equity out of one's home. However, all these methods require careful thought -- the entrepreneur must consider how far they are willing to risk their own personal finances before getting into debt. Once the entrepreneur has a cutoff point in mind, they will be able to gauge whether they need to move beyond bootstrapping to find more financial resources or end the business altogether. This ties in with the concept of affordable loss -- the amount one is willing to lose to take the next step to bring the venture to life. Whatever the strategy, the entrepreneur will certainly put in a huge amount of effort to get the business up and running. Sweat equity is the increase in value or ownership created as a result of this hard work. [SLIDE 5] Bootstrapping strategies will help you to minimize the cost of running your business, but will also delay or alleviate the need for external funding through investments or bank loans. There are many different ways to bootstrap. You might: [SLIDE 6] Some more strategies include: Above all, be mindful of the cash flow you need to keep your business operative: cash in, cash out and overall cash needs. [SLIDE 7] As new entrepreneurs quickly learn, formal investment can be difficult to get and bootstrapping can only take you so far. The emergence of crowdfunding -- the process of raising capital for a new venture from a large audience ("the crowd") typically through the Internet -- has become a new pathway for many entrepreneurs. People who use crowdfunding to raise money are known as crowdfunders, and people who contribute financial support to crowdfunding ventures are known as backers. Usually, crowdfunding works by drawing on small contributions from a large number of people to fund entrepreneurial ventures. Crowdfunding is often confused with crowdsourcing, but the two are not the same. Crowdfunding focuses on raising capital for new ventures, whereas crowdsourcing involves using the Internet to attract, aggregate and manage ostensibly inexpensive or even free labor from enthusiastic consumers and likeminded people. Therefore, crowdfunding is a resource for money, while crowdsourcing is a resource for talent and labor. Like crowdfunding, crowdsourcing is a form of bootstrapping because it is a valuable method of saving money by utilizing the expertise and knowledge of the crowd to bring your ideas to life. As we have seen, information is a critical and valuable resource and finding ways to access this information is key to the success of the business. However, sometimes it can be difficult or even costly to acquire this information. Crowdsourcing is a means of obtaining information that is contributed and shared by members of a crowdsourcing platform. Companies have capitalized on social media platforms and social networking sites to gain such information. Let's looks at three different ways crowdsourcing is used to gain knowledge and information. [SLIDE 8] PatientsLikeMe is a social network for people living with health conditions. It provides a space where members can discuss their condition, exchange information and learn from others. Through the site's openness policy, members are encouraged to document test results, diagnoses, symptoms, treatments and so forth. PatientsLikeMe collects the information, aggregates and anonymizes the data, and sells it to companies in the healthcare industry such as pharmaceutical firms, medical device companies and healthcare providers. Members benefit because they are contributing to the development of treatments for their condition and companies get access to the data they need.   The firm Local Motors used crowdsourcing to develop the design for a new sports car by asking members of its community, many of whom are designers, engineers and car hobbyists, to suggest ideas. One idea, Kim's Rally Fighter, was chosen from 200 submissions. Members then competed to develop the secondary parts such as the side vents and light bar while Local Motors designed or outsourced the chassis, engine and transmission -- those parts that require expertise to ensure safety, performance, and manufacturability. The time from sketch to market was just 18 months, using just 10 Local Motors employees. Through crowdsourcing, the firm was able to save labor costs as well as find a creative way to improve efficiency in the car-making process. Using low cost 3D printing facilities and software tools like Google's Sketchup, users can create sketches or 3D models of their own invention, which can then be turned into prototypes using specialized printers such as the MakerBot which costs less than $1000. The prototype can then be manufactured into the real thing in China which is efficient enough to manufacture in small batches, even in batches of one -- something that was previously impossible. Plans for manufacturable items are available through crowdsourcing. For example, Wikihouse offers blueprints to build homes without involving a construction team. The blueprints are freely available online for anyone who wants to build an affordable, custom-built home. Aspiring can get the parts digitally printed before assembling the parts themselves, much in the manner of an Ikea furniture pack kit.