According to Angelsoft.net, the world’s largest angel investment deal platform, only 2.3% of angel investment applicants successfully raised capital in the past 12 months. Do you know what type of companies successfully raise capital? It is the companies that don’t need to raise capital. The startups that build successful, revenue generating, profitable businesses don’t need to raise capital to stay in business. They need investors to help them grow faster, not to help them make their first sale. Your startup does not need investors. Your startup needs sales, and cash flow. There are 2 primary reasons why your startup doesn’t need outside investors.
1. Startup Costs Are Low – When you are starting a business you need one of two things. You need time, or you need money. Bootstrappers typically don’t have money, so you need to find time. If you have the time and the willingness to learn, you can start a business for under $500.
- Website Hosting – $150 for the first year
- Domain Name – $10 per year
- Logo – $75 on Elance.com
- WordPress Themes, Plugins, etc – $150
That is all it takes to test the market with your business. Until you have sales coming in that prove there is a market for your product or service you don’t need to waste precious dollars on accounting software, incorporation fees, trademarks, patents, etc.
2. The Bootstrap Model is Alive and Well – The bootstrap model is simply this: Use customers to fund development of the business. How? First, you create a product or service that solves one problem. Sell that basic product or service. Days or weeks later your customer will come back and say, “boy it would be nice if your product could do xyz” or “I could really use someone to take care of this for me.” Your response should be, “we can do that.” Now you build that feature into your product or service. You could have built the feature in the first place right? But what if you build a feature that no body wants? The beauty of this model is that you let your customers tell you what features are best, and they are willing to pay for it, right? Each time they ask for an additional feature or service, they probably assume that there will be some cost associated with that upgrade. So that is how you let your customers fund the development of your business.
So forget the glamour and the perceived glory of raising a million dollar investment for your startup, and simply build a profitable company. Then, if you need growth capital in the future, you will actually be able to capture the attention of potential investors. Please keep an eye open for my next guest blog post titled, “Top 3 Keys to Bootstrapping Your Startup.” Happy Bootstrapping!