Self-funding a startup can be a challenging but rewarding path to take.
Starting a new business can be an exciting and challenging endeavor, with securing funding being one of the biggest obstacles. Traditional funding options, such as venture capital and angel investing, can be time-consuming, especially for new and untested businesses. In such cases, self-funding, or “bootstrapping”, might be a viable option.
Bootstrapping is a method of financing a business using only available resources, such as personal savings, credit cards or revenue generated from the business itself. This funding method does not involve outside investors and loans from financial institutions.
Email marketing company Mailchimp is a notable example of a successful bootstrapped small business. Started by co-founders Ben Chestnut and Dan Kurzius with a limited budget and no outside funding, the company grew to become a multi-billion-dollar company serving millions of customers worldwide.
To help you navigate the self-funding journey, we’ve compiled a list of tips from successful entrepreneurs who have been there before. Whether you’re just starting out or looking for ways to take your business to the next level, these insider tips on self-funding will help you achieve your goals.
Take action and start now
When it comes to self-funding a startup, an important consideration is to take action and start your business. According to Alexandra Cristin, the Founder and CEO of Glam Seamless, it is crucial to initiate the process, even if you don’t have a concrete business plan in place yet.
“When starting a business, many entrepreneurs ask themselves questions like ‘Where will I get my customers?’ and ‘How will I fund this?’ While these are great questions, focusing on what you are selling and perfecting your delivery is more important. Sales cure all, and you can figure out the rest along the way,” she says. The more you work on your business, the clearer your view is to help you keep growing your business. No one has all the answers when starting a new venture, so it’s better to start making progress and learning along the way than to get stuck in the planning phase.
Determine the VRIN score
When choosing a business idea for self-funding, it’s important to select one that will generate cash flow quickly. One way to evaluate the potential of an idea is by using the VRIN score, a rating system popularized by American investor and entrepreneur Tai Lopez. The VRIN score stands for “value, rarity, inimitability and non-substitution”.
To determine the VRIN score, you have to evaluate the four factors and assign each a score from 1 to 10, with 10 indicating the highest quality. To obtain additional insights into the viability of your business idea, you can conduct market research and analysis of the competitive landscape, target market and scalability.
The VRIN score evaluates:
- Value: How much do people want the product or service?
- Rarity: How unique and uncommon is the product or service in the market?
- Inimitability: How difficult is it for the customer to reproduce or create the product or service on their own?
- Non-substitution: How difficult is it to find an alternative product or service that can replace it?
If the VRIN score for a business idea has an average score of less than 8, it is likely that the idea will not generate positive cash flow in the short term. However, it’s important to keep in mind that the VRIN score is just one but not the only tool to evaluate the potential of an idea for bootstrapping. It’s also possible that the idea may have potential in the long term but may not be the best option for bootstrapping in the short term.
Gain a competitive edge
A bootstrapped startup should gain a competitive edge because it allows the company to have more control over its direction and decisions. One of the key strategies to achieve this is by identifying your unique selling points (USPs) or natural advantages that differentiate your business from competitors.
To create an effective USP, you need to understand what you are offering to your customers. You can include tangible details, such as the time-saving function of your product, to bolster the unique value of your product and convince your customers how it will benefit them. However, it’s important to ensure that you can deliver on the promises made in your USP.
You should also know your target audience and cater to their needs, preferences and backgrounds, including their age, interests and values. By putting yourself in their shoes and considering their needs, you can present your product or service in a way that appeals to them and highlights its unique value.
Other ways to make your business stand out include:
- Creating a sustainable business model that is difficult to replicate.
- Building a strong brand that can help you differentiate your business and create a memorable image in the minds of consumers. This can involve creating a unique logo, distinctive packaging and consistent messaging that conveys your business’s values and benefits.
- Acquiring patents and intellectual property to protect your innovations.
- Forming strategic partnerships and networks to expand your reach and resources.
Risks of self–funding to consider
Self-funding can be a great way to finance your business, but it is not without its risks. One of the main risks of self-funding is that you may run out of resources to sustain your business before it becomes profitable. This could lead to the failure of the business and the loss of personal savings or assets. Moreover, self-funding can restrict the business’s growth and expansion due to limited resources. To minimize these risks, be sure to do thorough research and consult a financial advisor before deciding to bootstrap. With careful planning and consideration, self-funding can still be a viable option for financing a successful startup.
The final word
Bootstrapping is not a one-size-fits-all solution, and not every business can be self-funded. You should weigh your options carefully and consider the unique needs and challenges of your business. Some businesses may require external funding or expertise to achieve their goals, given the high level of competition in certain industries or markets. Before going for the self-funding approach, it is crucial to assess the competitive landscape, potential for growth and resources available through bootstrapping. Ultimately, the success of a self-funded business will depend on its ability to create a unique selling proposition, build a strong brand and overcome any challenges along the way.
Also read:
- How to Bootstrap Your Startup From Scratch
- Why Startup Runway Is Important and How You Can Optimize It
- Why Do Big Companies Go Bust?
- What Are the 5 Basic Resources Needed to Start a Business?
- The ABCD of Funding
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