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Ways to Avoid Needing External Investors

Posted by: Today's Tip Contributor on March 1, 2010

Bootstrapping, the practice of avoiding external investors when building your business, is a popular approach for small business owners who are seeking to circumvent the current credit crunch. Here are four tips to help small business owners and entrepreneurs ease the process of bootstrapping.

1. Build your credibility. Plan ahead for your startup needs by establishing good credit. Obtain a copy of your credit report and credit score from each of the three credit bureaus to ensure the information on file is accurate.

2. Frugalize. Bootstrapping demands creativity and ingenuity. Become a master of doing more with less and cut your overhead costs down to the bare essentials. Be cautious: Every penny you unnecessarily spend cuts into your ability to succeed.

3. Become a one-man team. Manage all of the day-to-day activities and do it yourself as much as you possibly can. Even if you don’t know a lot about a particular subject matter, you can always tap an online resource, such as a social networking site, to find the information, services, and resources necessary to help grow your business.

4. Create the right mindset. Plan for success, not failure. Planning ahead for failure seems like the smart thing to do, but by removing all possibility of failure from your mind, you’ll be more likely to succeed.

Using these tips during bootstrapping will not only make the process easier, but also enable you to grow your business by reinvesting profits into your own development.

Steve Nielsen

Reader Comments

Ralph Blanchard

March 2, 2010 8:12 AM

Henry Ford is alleged to have said that he must be rich because he owes so many people so much money. But this article contains excellent advice and runs counter to the general assumption that job #1 for s start-up is to secure outside funding. In my experience and also watching other small businesses evolve, half or even more of the total wealth created by a small business is realized when the business is sold. Diluting ownership at the beginning or saddling the business with debt that has to be satisfied at time of sale drains wealth away from the start-up entrepreneur. Better to start small (which may require cutting back the start-up ego a bit) but retain ownership and control in anticipation of selling or taking 100% of the dividends once the business becomes profitable. My motto: "Small is Beautiful" (a chapter in "Creating Wealth With a Small Business" -

Jill Stevens

March 3, 2010 11:55 AM

A new website which gives a wealth of free information about the information on your credit report has been set up by several people who used to hold high office at Experian. is worth a visit.

Rick Spence

March 4, 2010 2:35 PM

Individually, these tips are all good, but in aggregate I fear they might encourage a "lone wolf" mindset. The best way not to fail is to surround yourself with (and stay in constant touch with) mentors and advisors who understand what you are trying to do and want you to succeed.

Also, offering some form of "phantom shares" can get you the help you need now without imposing onerous financial obligations. Let people who help you now know that if things work out, their assistance will earn them a number of "phantom shares" - units of money that they can cash in if your business meets certain metrics.
That way they can share in equity-like rewards without you having to give up control - or any cash up-front.
Rick Spence
"Canadian Entrepreneur"

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