S2E2 – Funding Options for a Bootstrap Startup

 

Mr. Matthew Ley:  Welcome to Boot Strap: Insights for the Self-Funded Entrepreneur with Frank Cianciulli.  My name is Matthew Ley, and as always, I will be your host.  On this, the first [sic] episode of season two, we’re going to dive into one of your big questions from last year, and that is how to get your funding right when you are a bootstrap company.  Frank, when I hear funding I think banks, I think angel investors, venture capitalists, none of which makes me feel like it’s a bootstrap.  What do you mean when we’re — what do they — you talking about when you say funding in this environment?

Mr. Frank Cianciulli:  Well, I mean, you know, getting access to any amount of money that can allow you to launch and survive until you can drive business.  So yeah, everything you mentioned are different forms of financing.  I think most people believe that banks would be there, you know, if you have a great idea, where they’re not.  Banks typically do not fund — the most brilliant idea you can come up with, banks do not fund for that.  Banks give you money when you don’t need money anymore.  So for the most part, whether in Canada or the US, you’re tied to your own capital, friends and family or what we call angel investors or venture capitals.  And again, venture capital for the most part, at least in the last few years, has been geared towards technology.  So again, most people that got really great business ideas but aren’t really as sexy still struggle to get access to capital.

Mr. Matthew Ley:  Right.  And you’re doing a bootstrap business, so you might be using your credit card, your mom’s credit card.  I mean Jeff Bezos started his business in his parents’ garage, right?  He had that first server sitting there.  What recommendations do you give to someone?  They’re out there.  They’ve got an idea.  Like when you started, they knew they could be successful in an industry.  How do you decide whether or not you go out and get a — go for, you know, a couple million dollars and cash up or do it, you know, much more bootstrap?

Mr. Frank Cianciulli:  Well, rule of thumb is always, you know, get as much money as you can whenever you can.  That being said, a lot of entrepreneurs want to keep a lot of their business.  So the more money you go and raise when you don’t have any revenue yet, as people observe if they ever watched Dragons’ Den or Shark Tank, is the more of the business you give up — because they say well, your business has no value.  Well that kind of sucks.  The whole point of building a business is so you can have equity in it and own it.  So that’s why I’m more of a bootstrap guy and say listen, I don’t want to take anyone’s money unless I absolutely need it.  So every dollar’s got to stretch a long way.  So as far as in my case we did raise some money with friends and family, but only as much as we needed, and ultimately the real access to our capital, and which most people should really focus on, is sales.  Sometimes you can do a lot of presales even before you launch your business, and we can talk about that.

Mr. Matthew Ley:  So presales before you launch your business, so you’re — I guess you’re out in beta or something, or you’re just kind of getting started?

Mr. Frank Cianciulli:  Yeah.

Mr. Matthew Ley:  And then you use that money to fund, I guess, what you do next.

Mr. Frank Cianciulli:  Yeah, I mean if I were, you know, if I had an idea, and you know I wouldn’t necessarily wait to raise money, rent an office, hire some people and then start my prospecting.  There’s no real reason in most cases you can’t at least get that proof of concept and have some customers say hey, listen, this is an idea I’m thinking of.  This is how I think it will help your business.  I’m going to be live on this date.  Can I count on you at least at that time to come and talk to you and really, you know, get you into beta or actually buy my service?  That will give you an indication of how quickly you’re going to come out of the gates and give you a better idea of your actual performance or pro forma going forward.

Mr. Matthew Ley:  But isn’t sometimes that’s a problem, you know, in many cases the more you sell, your cost of goods sold go up, your infrastructure needs to increase, and then you get into a situation where you’ve got to pay people a lot of money?

Mr. Frank Cianciulli:  Yep, and now we’re talking about another great — that leads into another great source of financing is your vendors, which is, you know, not always easy, especially if you’re a startup because, you know, the suppliers might not know whether you’re good for the money.  But oftentimes you would be surprised, especially with startups.  You’ve got suppliers that are big enough to support you because they see the potential that you’ve got, so it’s going to be a — you’re going to be a big piece of business for them.  They might extend you 60- or even 90-day terms, and that helps a long way because then if you sell something hopefully you can get paid by your customer before you actually have to pay your supplier.

Mr. Matthew Ley:  And I would — when you started and you had vendors when you started [unintelligible], right?

Mr. Frank Cianciulli:  I did.

Mr. Matthew Ley:  I imagine you had, you know, a real conversation with your vendors about where you were at —

Mr. Frank Cianciulli:  Absolutely.

Mr. Matthew Ley:  — so they recognized the importance of maybe not being your bank, but of extending you those types of terms.

Mr. Frank Cianciulli:  Well, it kept me — you know, when we were late they kept calling.  We’re not your bank.  In our case we actually made them partners.  You know, we actually made them partners in our business.  Therefore they were tied to our success, and they, you know, they got value out of helping us or being our bank, so to speak.

Mr. Matthew Ley:  Right.  But that is an interesting form of funding, right?  You find a strategic partner, they get a piece or whatever for it, and as a result you can alleviate some of those cash stressors [sp] early on.

Mr. Frank Cianciulli:  I mean there’s two components to basic business, right?  You’ve got to become profitable.  But sometimes even if you’re — because some entrepreneurs say oh my God, I’m profitable, but we’ve got no money.  So there’s two components.  There’s being profitable first and foremost, and then cash flow.  But if you’re consistently profitable, obviously cash flow will catch up.  But while you’re getting started you’ve got to walk the fine line of both.  So obviously trying to collect money as quickly as you can is important.  That sometimes gets neglected when you’re out there trying to just sell and survive and grow your business.  You kind of forget about collecting, or you don’t have the process in place to collect that cash flow quickly.  But there’s other ways to stretch, right?  We talk about vendors giving you maybe some extra terms.  Credit cards are popular that way, you know, because you get an extra 30 days, give or take, if, you know, if you’re able to pay certain expenses to your credit cards as well.

Mr. Matthew Ley:  Perfect.  Well, part of that is the discipline within finance, and I would recommend if you haven’t seen it that you check out our discipline episode from last year.  But later on this season we’re going to get into how to structure your finance organization in a bootstrap startup and answer some key questions there.  But next week we’re going to go back.  Last week — last year one of our most popular episodes was the — I think it was episode one, actually, people hiring and hiring best practices.  And you said some things about the type of people you like to hire in a startup, which really resonated with everyone.  And so we’re going to do a deeper dive on next week’s episode.  Until that time, please leave your comments below, share this with your friends, family or loved ones, and keep it lean.

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