Startup Workouts: Extreme Bootstrapping

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Slides from Portland Ten's Startup Workouts series. Topic: Extreme Bootstrapping.

Slides from Portland Ten's Startup Workouts series. Topic: Extreme Bootstrapping.

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  • 1. Startup Workouts: Extreme Bootstrapping
  • 2. Extreme Bootstrapping Everyone knows what bootstrapping is-- but what about "extreme bootstrapping"? This is a methodology that was tested via the "Hundred Dollar Business" experiments #1-6. Here are the basics of how it works...
  • 3. A: Set A Time Limit Most entrepreneurs are good at bootstrapping cash. But, completely horrible at bootstrapping "time". They'll work indefinitely, putting in long hours, for undefined periods of weeks, months, and years, on losing projects. Many days are spent not accomplishing much of anything. Extreme bootstrapping caps the amount of time you can spend-- 30 days to "get shit done" and get results, or shut the project down. This approach puts the pressure on you to take strategic, proactive action with the resources and project at hand!
  • 4. Example: 30 Days The original HDB project began as an idea on Saturday, November 26th. The business opened at the mall on the next Friday, December 2, and closed December 31. It was an extremely intense month-- I slept all day on Christmas, my only day off-- but definitely an intriguing way to see the startup process on a short time table.
  • 5. B: Cap Financial Resources Extreme bootstrapping pre-determines a dollar amount you "can" spend on the project, and restricts spending anything else. This limits the potential financial losses of the project, and forces you to be resourceful in putting the project together. Think you can't start or run a project until you have funding? That's completely false. Try limiting yourself to an extreme budget, like $100. How much revenue can you generate on that amount?
  • 6. Example: $100 The original HDB project, a mall kiosk, used $40 to get started, and generated $10,000 in revenue within 30 days. We spent the $40 on: 2 locks to secure the kiosk's tarp at night Paper print-outs of our agreements with vendors A DBA for our business entity We did not spend any startup capital on: Business cards. A logo. An office. Salaries. Inventory. Uniforms. Months of business planning. Fancy kiosk decor.
  • 7. C: Set Success/Failure Indicators Every entrepreneur is in love with his/her idea. It's a career hazard, unavoidable, and potentially toxic to the viability of the project. Before starting the project, set success/failure indicators-- clear, measurable results that will indicate whether or not the project is worth your continued effort & resources. It's too easy to put 3 years and $500,000 into a project that won't pay off. Why take the easy route? It's much more difficult, and smarter, to determine you will shut down a project after 3 months because the $3,000 you put in isn't panning out to generate any momentum.
  • 8. Example: $100 There were two sets of indicators for success for the HDB kiosk: 1. Financial success: $100 in profit after covering operational expenses during the 30 day period. 2. Having a well-run project in which operational processes were done smoothly, and all participating parties (volunteers, vendors, the mall, customers) were happy.
  • 9. D: Clarify The Project To The Essentials Establish a clear set of deliverables you HAVE to accomplish in this time frame. 1. Develop and launch the prototype. 2. Refine and test the business case. 3. Make $X in revenue. 4. Maintain your sanity as a founder. If you hit those milestones, you made it. Keeping it very simple increases your likelihood of success.
  • 10. Example: Good ops, cover costs, make $100 The overall deliverables for the HDB kiosk were: 1. Set up a well-functioning business. 2. Pay all business/personal expenses for the month. 3. Make $100 in profit.
  • 11. E: Do a Complete Cost-Benefit Analysis of the Project At the end of your time period, make an appointment with yourself to review the project and answer the following questions according to factual data, not your opinion-- A. Did we hit the budget? B. Did we meet the deadlines? C. How did we do in meeting our success/failure indicators? D. How accurate were our project deliverables, and what percentage of them did we meet? E. Is it financially feasible to continue this project? F. Does a truth-based "gut check" confirm we should continue to pursue this project?
  • 12. Example: C/B Analysis on HDB A. Did we hit the budget? Yes: $40 spent. B. Did we meet the deadlines? No: it required an extra month to finish up. C. How did we do in meeting our success/failure indicators? Not very well, here's the financial breakout: http://docs.google.com/View?docid=dhc755r5_18gqxhss D. How accurate were our project deliverables, and what percentage of them did we meet? The goals sounded good in there-- here was the original goal-- http://web.archive.org/web/20070304091749/www.hundreddollarbusiness.com/2006/12/ 01/the-hundred-dollar-business-experiment. In reality, it was a different story-- here were the results: http://web.archive.org/web/20070207013742/www.hundreddollarbusiness.com/2007/02/ 01/some-questions-you-may-have E. Is it financially feasible to continue this project? Not at all, so I took a job. See this: http://web.archive.org/web/20070206070941/www.hundreddollarbusiness.com/2007/01/ 14/crunching-the-numbers
  • 13. The Sum-Up So, the first HDB was a "failure", but it only cost me 2 months and $4,000. Awesome. I was able to test my idea and learn a ridiculous amount of startup life lessons in a short period of time, and without any long-lasting financial liabilities that prevented me from moving on to other, more interesting & viable opportunities. That is without question, the most interesting and positive result of taking an Extreme Bootstrapping approach to doing a startup. You find out fast whether or not a project will float, you get to test the idea, and you can move on without racking up serious baggage. :)
  • 14. Ten Tips On Extreme Bootstrapping 1. Set a time limit. (30 days!) 2. Set a dollar amount you will not exceed. ($100!) 3. Set an indicator of success or failure, in terms of project results or revenue generated. ($100 in post- expenses profit). 4. List every possible item/resource/"thing"/equipment/staff you could need to pull off this project, along with an estimated dollar amount for purchasing each item. 5. Take the list and cut every single item you can do without. 6. Prioritize every item from #5 according to whether it is critically necessary in order to reach your revenue goal (need) or whether it would make reaching your revenue goal a little easier, but isn't mission critical (want). 7. Identify 2-3 non-cash alternative ways to acquire the items listed in #6. 8. Pick the very cheapest way, and go after that option first. 9. Clarify the project to a very bare set of deliverables to accomplish, and do NOT go beyond this. 10. Realize that this type of entrepreneurship is very, very stressful because it requires a high intensity, high time commitment, and it leaves you naked with your project-- if it fails, it's probably because it's just not a good idea, and this approach requires you to be okay with that.
  • 15. Startup Workouts provide Portland entrepreneurs the opportunity to engage and strengthen their founder "muscles" through a 10-session series of 75 minute problem-solving-style "workouts". Topics include critical areas many founders struggle with, including revenue generation, sales, work/life balance, market validation, and more. Our summer session of Startup Workouts is posted here: http://www.portlandten.com/startup-workouts. You can also follow updates on Twitter at http://www.twitter.com/portlandten