ENTREPRENEURIAL TOOLBOX Presented By Jaine Lucas, Executive Director Innovation and Entrepreneurship...
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Transcript of ENTREPRENEURIAL TOOLBOX Presented By Jaine Lucas, Executive Director Innovation and Entrepreneurship...
ENTREPRENEURIAL TOOLBOX
Presented By
Jaine Lucas, Executive DirectorInnovation and Entrepreneurship Institute
Temple University
February, 2013
The Art and Science of Bootstrapping
ENTREPRENEURIAL TOOLBOX
A Dream and $10,000: Slingshot SEO• 3,597% growth in three years; #58 on the Inc
500 list of fastest growing firms• “Looking back, it’s clear three major factors
led to our exceptionally rapid growth in spite of our financial limitations, extremely limited staff and, basically, a zero-dollar marketing campaign. Those three factors were treating our customers right, focus and innovation”
• Strategies included:– Unprofitable projects to prove the concept– Didn’t take a salary for the first year – Every penny reinvested into the company
ENTREPRENEURIAL TOOLBOX
INC Magazine’sTop Growth Businesses That Can be Bootstrapped*
Green & Sustainable Building Construction – 23% Healthcare Consulting – 6% Digital Forensics – 13.7% Photography – 2% Artificial Grass Turf Installation – 12.3% IT Consulting – 3.2% Relaxation Drinks – 24.8% Translation Services – 2.8% Environmental Consulting – 2.8% Elderly & Disabled Services – 4.7%
5-Year Projecte
d AnnualGrowth Rates
* Data from independent research firm IBISWorld to pinpoint the best industries for bootstrapping a company right now.
ENTREPRENEURIAL TOOLBOX
START-UPS ARE TYPICALLY CASH POOR
The average small business start-up kicks off with $30K or less in capital (2009 Ewing Marion Kauffman Foundation) Companies launched with $10K or less in initial capital had almost the same median growth rate as those with abundant capital (2002 Inc 500 Survey) Like it or not, bootstrapping is an essential skill set for entrepreneurs!
ENTREPRENEURIAL TOOLBOX
WHAT THE HECK IS BOOTSTRAPPING?
Using a variety of techniques to strategically maximize the impact of the venture’s available cash Using creativity and ingenuity to launch and grow a business with few available resources Starting a business without an infusion of cash OR maximizing the impact of funding invested by the entrepreneur or others AND continuously optimizing cash flow and preserving capital Living the mantra: Cash is King!
ENTREPRENEURIAL TOOLBOX
QUITE SIMPLY…
Bootstrapping means you scrape by until cash flow becomes positive
through bartering, sharing, delayed spending and creatively exploiting
opportunities
ENTREPRENEURIAL TOOLBOX
WHAT BOOTSTRAPPING ISN’T Not just finding the cheapest way to
get things done Goals, objectives and milestones must be met Never spending money – you’ll have to! Behaving immorally or unethically
Not just for small or emerging businesses
Large corporations are bootstrap to preserve cpaital & maximize efficiency, cash flow and profitability
It’s not just something you do because you can’t get debt or equity funding
ENTREPRENEURIAL TOOLBOX
WHY DO FIRMS BOOTSTRAP?
Limited or no funding available Banks don’t finance start-ups Less than 0.038% of firms receive venture capital $6.5 billion in 890 deals in 3Q of 2012, according to the MoneyTree™ Report from PricewaterhouseCoopers LLP and the National Venture Capital Association
Postpone or eliminate need for external funding Avoids “dilution” maximizes % of ownership Maintain control over venture Can keep “special sauce” secret
ENTREPRENEURIAL TOOLBOX
WHY DO FIRMS BOOTSTRAP?
Build wealth and income Cash flow is maximized, valuation too Increased cash flow builds cash reserves faster
Minimize exposure to risk Build cash reserves of 30 to 180 days Guards against catastrophic events or economic downturns
Maximize operational efficiency Utilize capital where it has the most impact
ENTREPRENEURIAL TOOLBOX
DISADVANTAGES OF BOOTSTRAPPING
Requires sacrifice and persistence – it is frequently uncomfortable and is often painful Not all businesses can be equally bootstrapped
Pharma and medical device firms Capital and labor intensive firms
Being outrun by well-financed competitor Missing “window of opportunity”
Especially true for IT businesses There is always something new coming from behind
ENTREPRENEURIAL TOOLBOX
SIMPLISTIC BREAKEVEN
TOTAL FIXED COSTSUNIT PRICE – UNIT COST
=UNITS TO BREAKEVE
N Business breaks even when operating profit from selling its products or services covers its overhead costs (wages and materials) Lesson: minimize fix costs, contractual arrangements and other stuff you can’t get out of
ENTREPRENEURIAL TOOLBOX
BOOTSTRAPPING & BREAKING EVEN
OVERHEAD (FIXED) EXPENSES LOWERED
LOWER OPERATING COSTS LEADS TO
HIGHER OPERATING MARGINS
BOOTSTRAP MARKETING LEADS
TO INCREASED SALES
LESS TIME TO
BREAK
EVEN
LESS FUNDING REQUIRED, EASIER
CREDIT
DRAW SALARY SOONER
HIGHER PROFIT MARGINS & CASH FLOW INCREASE
VALUATION
BEN
EFIT
S
ENTREPRENEURIAL TOOLBOX
OVERHEAD EXPENSES
General and administrative costs Support staff salary and benefits * Rent, utilities, equipment, software,
supplies, etc. Professional services: legal and
accounting Marketing
Capital costs Warehouses, machinery, equipment,
technology, vehicles , etc.
* Typically highest recurring cost
ENTREPRENEURIAL TOOLBOX
REDUCING GENERAL/ADMIN COSTS
Bootstrapping employee costs: Entrepreneur multi-tasks & works long
hours Family and friends help at no cost Shared admin supports Using temps for high volume periods Use unpaid interns and retirees, but
beware of legal implications Bring on seasoned talent for equity Stretch employees to max, use perks
& incentives
ENTREPRENEURIAL TOOLBOX
REDUCING GENERAL/ADMIN COSTS Office space
Incubation space, shared office space, rent unused space from downsized company, work from home
Utilities: Go Green Unplug electrical/electronic devices when
not in use, maintain reasonable office temps, reduce water consumption, turn off lights
Opt for free software or free trials Purchase used computers and furniture Volume purchase w/other businesses
ENTREPRENEURIAL TOOLBOX
REDUCING GENERAL/ADMIN COSTS
Reducing legal costs (average is $4-6K) Free legal clinics: Temple Small
Business Development Center and many legal trade organizations
Filing your own incorporation paperwork Writing your own contracts Templating and modifying available
documents (legalzoom.com) Friends and family
Pay for the critical stuff only Get referrals, estimates, rates, etc.
ENTREPRENEURIAL TOOLBOX
REDUCING GENERAL/ADMIN COSTS
Reducing accounting costs Accounting software packages Retired bookkeepers Contract unemployed accountants Keep meticulous records, be prepared Hire MBA student or accounting grad
student Friends and family Get referrals and estimates Barter if possible
ENTREPRENEURIAL TOOLBOX
REDUCING OPERATING COSTS
Operating costs = expenses to produce products or provide services
Goal is to reduce cost per unit Inventory and/or process
management tools to increase efficiency (Six Sigma)
Leverage competitor or similar business “best practices”
R&R: Read and research Poll employees for cost cutting ideas Use independent contractors
ENTREPRENEURIAL TOOLBOX
REDUCING OPERATING COSTS
Outsourcing can be “smart operating”: Reduce space and staff costs Manufacturing overseas can be
cheaper Can eliminate/reduce capital costs Frees up time to provide additional
value to customers Eliminates inventory costs Can reduce liability Leverages economies of scale Increase speed to market Can improve or decrease quality
ENTREPRENEURIAL TOOLBOX
BOOTSTRAPPED MARKETING Attracting customers and driving sales is
key to growth and sustainability Marketing is the process that gets it done Bootstrap marketing = entrepreneurial
marketing: maximize bang for buck Easier today than ever before thanks to
the web and social media Think long and hard about messaging and
media – both have to be spot on Don’t “build it and hope they will come.”
ENTREPRENEURIAL TOOLBOX
LAY THE FOUNDATION FIRST Establish a brand with a consistent voice,
personality, core value and tenets Understand market and industry trends Understand the customer
What matters most? Where do they go for information?
Don’t try to sell the kitchen sink: focus on one or two key product/service benefits
Segment and target the market properly Can you market to it efficiently? Where is the competition?
ENTREPRENEURIAL TOOLBOX
SHOE-STRING MARKETING
Word of mouth Networking Public speaking Customer referral programs Buzz marketing campaigns Post customer testimonials
online
Viral marketing – WOM spread via internet YouTube Blogs
People are watching 4 billion videos a day on YouTube and uploading 60 hours of video very minute. 4 billion hours are watched monthly!
In 2012, over 31 million bloggers in the US alone, and over 42 million blog
sites.
ENTREPRENEURIAL TOOLBOX
SHOE-STRING MARKETING
Publicity/Public Relations Has “third party” credibility Minimal cost NEW is NEWS worthy Press releases – include
“hook” and make it interesting, intriguing and thought provoking
Know the media, establish relationships
Create innovative events
ENTREPRENEURIAL TOOLBOX
SHOE-STRING MARKETING
Social Media Builds online communities Provides a variety of ways to
dialog, connect, message, comment and share content
Allows entrepreneur to build awareness of business and products, and maintain a relationship
ENTREPRENEURIAL TOOLBOX
ACCORDING TO CHATTERBLAST MEDIA
To create brand awareness As an online reputation
management tool Learning, research and
competitive recon For recruiting and
partnering As a lead generation tool
to find potential business prospects
FIVE WAYS SOCIAL MEDIA CAN BE USED FOR NEW
BUSINESSES
ENTREPRENEURIAL TOOLBOX
BOOTSTRAP MARKETING ODDS & ENDS
Great design sells – an impactful, strategic and eye catching logo is essential
Websites are “cost of business” and an indication of credibility
Online directories and classified listings Craig’s List – it’s free!
Brochures, flyers, business cards Street teams Newsletters Trade shows – but watch for hidden
costs and select carefully
ENTREPRENEURIAL TOOLBOX
MANAGING CASH
Beware: A business can be profitable but have negative cash flow
The #1 cause of start-up failure is death Death = Cash Depleted
Create systems to enter and track the inflows and outflows of cash
Bill promptly, ask for deposits in advance
Review customer accounts receivable – look at incentives for faster payments
Anticipate price increases, shortages, loss of customers, etc and plan ahead
ENTREPRENEURIAL TOOLBOX
ALTERNATE CAPITAL – Use it!
Intellectual Capital Be smart, be intelligent Study, go to seminars, read
and learn Add value
Relationship Capital Build relationships and help
people “Cash in” your relationship
capital only when you need it most
INTELLECTUAL CAPITAL + RELATIONSHIP CAPITAL = FINANCIAL CAPITAL
ENTREPRENEURIAL TOOLBOX
Seven Bootstrapping Tips from Mashable Test the market
Assess potential interest in the product & validate model – justify the firm!
Keep the team & salaries small; use incentives and equity as compensation
Interns – a “win win” Marketing – Social media; MediaSync and
Help a Reporter; Outsourcing: Staff and projects Social Networks: connect with customers
and prospects & become the expert
ENTREPRENEURIAL TOOLBOX
FINAL WORDS
You must have a business plan Recognize the difference between “wants” and “needs” Don’t bootstrap to the point of strangling growth Eliminate all unnecessary costs, minimize necessary ones and maximize impact of available cash Look for additional revenue streams to increase reaching “breakeven” and fund organically Don’t quit your day job Get out of debt before launching a new enterprise Treat every dollar like it was your own personal money