The lack of diversity among startup founders isn’t about talent or intellect. It’s money.
A study published by RateMyInvestor exposed the bitter truth: Black startup founders only make up a measly 1% of those backed by VCs.
And if you think that’s bad, try being a black startup founder and a woman.
Farah Papaioannou, co-founder of the tech startup EdgeWorx, shared in an article published by Crunchbase how female startup founders belonging to minority groups are discounted during meetings. She even feared investors would find out that she was pregnant.
Fortunately, black startup founders are becoming more aware of alternative ways to launch without VCs. It’s called “bootstrapping”
What is bootstrapping?
Bootstrapping means launching and growing your startup using your personal financial resources and your co-founder’s. It’s not for the faint-hearted but it’s the most rewarding route. Here’s why:
You still own your startup.
Getting financial support from a VC can help you launch your startup more quickly.
But it comes at a hefty price.
That’s because the VCs who invested in your startup now become part-owners as well. When that happens, your share in the ownership of your startup is diluted.
On the other hand, when you bootstrap your startup, you can focus on developing a product around your customer pain points instead of having to focus on managing investor relationships.
You’re free to launch and scale when and how you want to.
Another challenge of working with VCs is having to sort through recommendations from multiple advisors.
When you bootstrap your startup, you are not indebted to anybody. So, you are free to scale your business based on your hypothesis. I recommend using the Lean Startup Methodology to scale based on your customers’ feedback. After all, they are the ones purchasing your product.
You become more diligent about developing your business model.
There’s no investor to look out (or blame) for your mishaps when you’re bootstrapping. So, you’re forced to squeeze your creative juices and pay close attention to every detail on how you design your product and your business model. Bootstrap budgets are lean. As a result, you become more careful about where you put your money and what to prioritize.
Success is sweeter.
Launching a startup isn’t easy. Bootstrapping to launch a startup is even more difficult.
But the moment you launch it and you start seeing the money come in, it’ll be worth it. After all, what’s more fulfilling than having a successful business that came from your sweat and tears.
That said, here are the ten steps to bootstrap your startup.
1. Get into the right mindset.
Bootstrapping your startup sounds great. But once reality sets in and the challenges start coming, it can quickly turn into a tough—even overwhelming—ordeal.
In this video interview with BLACK ENTERPRISE, Cheryll Contee explains the kind of mindset she had as she bootstrapped the tech startup Attentive.ly to successfully launch it. Today, it’s the only startup owned by an African American woman that Facebook acquired; it is publicly traded on NASDAQ.
2. Sell services first.
Your savings will only get you so far. You need to have a steady cash flow to fund your startup and your household expenses at the same time.
For many startup founders, that’ll often mean dividing their time between building their startup and offering their expertise as a freelancer.
Apart from being able to work from home and having a flexible schedule, working as a freelancer or consultant gives you the chance to learn more about your target market. You can then use the information toward building your startup’s product.
Becoming a freelancer also requires very minimal investment. You can get started by creating a blog where you can showcase your knowledge and expertise to get clients.
You can also chronicle your journey as you build your startup. Not only would this give you a way to help you collect your thoughts, but you can also find others who’ll be happy to give you advice to stay on track.
3. Practice growth hacking.
Growth hacking is one of the reasons why many of the “Unicorn” startups were able to launch and scale quickly.
Unlike many marketing strategies that require lots of research and planning, growth hacking uses the scientific method to propel rapid growth by testing one hypothesis at a time, no matter how far-fetched it may be.
One growth hacking technique that you can use is adding a postscript in your email signature with a link to your startup’s website.
This was what Hotmail used to quickly scale their startup to reach one million users within six months.
4. Don’t get funds from your credit card.
Sure, it’s easy to swipe your credit card to fund your startup while you’re building it. But considering that credit card interest payments now average 21.28%, using your credit card to fund your startup may cause more harm.
If you need to make an online purchase to get the resources you need for your startup, opt to use a debit card instead.
A debit card’s connected to your bank account. So the funds available are based on what you have.
5. Get a co-founder only when you have to.
Startup Genome revealed in a study that having two startup founders can help you raise up to 30% more capital, grow customers faster by three times, and improve your business scale rapidly.
However, choosing a partner for your business also means giving up a sizable portion of your business.
That’s what Zuvaa’s founder, Kelechi Anyadiegwu, learned when she pitched her startup in popular TV show Shark Tank.
If you do decide a co-founder would still be the best route to take, you need to clearly define each of your roles. This will help you make sure that you leverage your co-founder’s strengths and capabilities. It’ll also help prevent nasty power struggle fights in the future.
6. Find an advisor.
Advisors steer you in the right direction as you bootstrap your startup. Through their experience and expertise, advisors can also identify specific areas of your startup’s operations that you can optimize to get better results while keeping your expenses down.
For example, Stephanie Lampkin, founder and CEO of Blendoor, sought the wisdom of Elevate Capital‘s Nitin Rai and his team to scale her startup.
With Rai’s help and his team of advisors, Lampkin quickly optimized her startup’s product-market fit and her revenue model. As a result, she was able to launch and scale her startup quickly.
7. Find a solution to an existing problem and tell that story.
Startups need to get recognized by their target market, and the best way to do this is to tell the company’s story and make it relatable to those who need it.
This is how Chris Bennett, CEO of the education startup Wonderschool, grew his business.
Bennett was able to identify a lurking problem in the education system. With Wonderschool, parents can provide their children with quality child care that’s also affordable.
8. Minimize your overhead costs
Since you are on a tight budget, use resources that won’t cut a huge portion of your money.
One example is to rent a co-working space instead of an actual office. Not only is the rent cheaper, but it also covers the things you’ll need to build and launch your startup like the internet, electricity, and, of course, those endless cups of coffee to help you keep working.
And instead of employing an in-house team to help you build your startup, why not build a remote team by hiring freelancers? You can easily find freelancers who’ll help you get the job done without skimping on quality and stay within your budget.
9. Build your brand
Did you know that SaaS (software as a service) startup founders allocate as much as 120% of their budget to marketing and sales?
Why? Simple.
As of 2019, there are approximately 30 million small businesses in the U.S. alone. More than 600,000 small businesses are estimated to open annually.
That’s a lot of competition!
The only way you can cut through the noise and get the word out about your startup is by investing time, effort, and even money to market your startup.
One of the best marketing strategies you can use while bootstrapping your startup is through word-of-mouth advertising.
Studies show that more customers are likely to buy a product or service recommended to them by someone they know. That’s because there’s a level of trust they share.
The best part about this is that the cost to market your product using this strategy is minimal compared to other marketing strategies, making this ideal for startup founders to use.
10. Religiously keep tabs of your finances
Reham Fagiri, co-founder and CEO of AptDeco, said in an interview that she and her co-founder, Kalam Dennis, focused too much on growing the business but failed to monitor their financial health. After seeing their bills balloon, Fagiri and Dennis started keeping an eye on every dime they spend.
Make sure that you also keep an eye out for your startup’s MRR (on monthly recurring revenue) churn. This includes the revenue your startup loses because of customers canceling their purchases and any delinquent expenses you incurred as you build your startup. The higher your startup’s MRR churn, the less revenue your startup generates.
Bootstrapping a startup is tough, but worth it.
Sufficient working capital is one of the things that you’ll need to start a business, even if you’re not launching a startup. Unfortunately, this is the one struggle aspiring black entrepreneurs face.
While the strategies shared here are geared toward African American founders to help them launch their startup, this can also help other black entrepreneurs planning to start different types of businesses.
Bootstrapping any business has its challenges. But for as long as you stay determined, believe in yourself, and apply the strategies shared here, you can make that entrepreneurial dream a reality.
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