How To Bootstrap Your Startup

How To Bootstrap Your Startup

Written by Matt Rogers / September 10, 2007

The first in a series of posts about how to run a startup and develop a product, written by guest author Matt Rogers of Aroxo – a person-to-person trading exchange for consumer electronics, computer gear, whitegoods, and more.

The aim of many entrepreneurs is to take a business idea and convert
it into a professional and functioning business on a low budget. This
is typically called “bootstrapping” and it is fraught with potential
pitfalls and dangers. But when done well it can really help get a
company going fast, professionally and without the founders having to
give up much (if any) equity – or bankrupting themselves.

Over the next 5-6 posts I’ll outline the process which I’ve now
followed at several corporates and which I’ve honed to work with my own
startup, Aroxo.
I’ll discuss what skills you’ll need, how to write your requirements,
how to source developers and designers, how much to budget, how to
agree a development contract, how to manage your vendors, how to plan
your release, all the documentation you’ll need, and much more.

What is bootstrapping?

So, what does it mean to bootstrap a company? Bootstrapping involves
launching a business on a low budget. Practically this means that
you’ll outsource (most likely off-shore) your design and development,
you’ll rent your servers, you won’t have an office and you’ll have no
salary. Prior to launch, the only expensive professional services which
you’ll buy will be your legal advice and accountancy services.
Everything else, you’ll have to pick up yourself and learn as you go
along.

Why bootstrap? There are a couple of good reasons a company should
consider bootstrapping its market entry. The founders may believe they
are onto such a good idea that they don’t want to give up any equity.
Or the founders have taken on a small amount of seed financing, just
enough to get them into the market. Either way, bootstrapping is a
viable model.

Overview of the bootstrapping process

I’m starting this series of weekly posts with an overview of the
whole process. In the upcoming posts I’ll go into much more detail
about each one.

Bootstrapping is a potentially very exciting prospect to an
entrepreneur. But it is fraught with risks – and the primary risk you
need to guard against is software development failure. Two thirds of outsourced projects fail, so there is a high likelihood of failure. The main causes are:

  1. Client fails to precisely express their requirements to the vendor;
  2. Client continuously changes their mind during the development process;
  3. A poorly constructed development contract.

To have the best chance of success, follow this bootstrapping process:

  1. Strategy – build your idea into a documented
    strategy, write down the market you want to serve, what is wrong with
    how it is currently being served and how you are going to fix it. Also
    think pointedly about how you are going to get the word out to your
    potential users, where they are online and how you’ll approach them.
    Test that your idea makes sense.
  2. Mock-up – build a mock-up of the system you want;
    each screen in the mock-up must contain the information and navigation
    that you want the final system to contain. You’ll need several goes to
    get this right, it is not simple.
  3. Functional Specification – write a document called
    a functional specification; this explains to the developer what each
    screen in your mock-up does and what every button and link on the
    mock-up should do.
  4. Vendor long-list – build a “long-list” of possible software vendors and NDA them all, but don’t rely on it (more on this later).
  5. Request of Information – Write and run an RFI process to sift your long-list of vendors down to a short-list of between 4 – 10 vendors.
  6. Request for Quotation – Write and run an RFQ
    process to determine approach, costs, timescales and conditions under
    which each vendor would deliver, select a preferred vendor and a spare
    in case of any problems during contract negotiations.
  7. Award contract – Negotiate a software development
    contract. There are some essentials to ensure that you’ve got covered,
    which I’ll go through.
  8. First trip – if you’ve off-shored then you’ll need
    to go over there and see the developers to get them started, take them
    through the entire mock-up and all the documentation, to ensure that
    they know how the system hangs together. Building a real face-to-face
    relationship with your developers is not only immensely valuable for
    you, but also for them too.
  9. Managing the development – running the development
    as a client has many responsibilities; you’ll need to know how to deal
    with delays, systems problems and how to think like a developer so that
    you can communicate with them. During this phase you’ll need to be
    there for the developers to answer all their detailed queries which
    they’ll have, as they start to architect and design the system
  10. Alpha, Beta, launch Aroxo is currently in the process of recruiting beta testers (feel free to sign up
    using the sign-up code “readwrite”). Getting a large number of
    triallists and acting on their feedback is essential to building a
    strong business and having a successful launch. I’ll go through the
    best way to achieve this in a later post.

Clearly, whilst I’ve presented this list linearly, it is entirely
possible to parallel run some components – e.g. you can start building
up a vendor long-list while you are doing the mock-up and you can
easily run your RFI and RFQ process when writing your functional
specification. But each stage needs to be completed, if you are to
reasonably expect a quality product.

Running through a process such as this is what it means to be an
“entrepreneur”, so I’ll be going through each of these stages in plenty
of detail in the coming posts.

How much will this cost?

It is often said that bootstrapping is cheap. But producing a
professional and slick product costs money. Our development was a
particularly complicated build requiring 5 developers, a systems
architect, an html coder, a SQL specialist, 4 testers, 2 designers, a
graphic designer, a project manager and a security specialist. If our
aim was to raise financing and employ these people directly, we’d have
burnt through $5-7 million before launch.

With that in mind a rough budget sufficient to bring a system of
reasonable complexity to market would be as follows (and note this
doesn’t consider any marketing or PR spend):

Expense area Low High
Travel $4,000 $10,000
Development $30,000 $150,000
Professional fees $3,000 $15,000
Patent fees $2,500 $25,000
Design $2,000 $8,000
Domains/hosting $1,000 $1,000
Misc $5,000 $5,000
Total $47,500 $214,000

Project complexity is the main driver of cost – i.e. delivery
risk and timescale. Therefore it is exceptionally hard to be accurate
with this, but you are in for a minimum spend of $50k. Systems as
complex as a trading exchange will involve much bigger numbers. If you
have less than this, then you’ll have to do the development yourself –
nothing else is going to shift the needle. And by doing the development
yourself, you’re competing with an offshore company that has
specialists in all the skill areas I mentioned above. Plus there’s a
practical limit to the size of the project you can accomplish.

Should I offshore?

When you consider the question of whether to offshore your
development, if you keep things local you’ll save on your travel
budget. But if you’re in the US for example, then your development cost
will be anything from 5-10 times higher than offshoring to India or
Eastern Europe.

Similarly you’ll need at least one fulltime founder during the
development phase to handle the developers and manage any other
business development issues which arise during set-up. You’ll notice
that there is no budget above for any salary for this individual, so
the real cost is much higher if you consider lost earnings during the
build.

Conclusion and Key Takeaways

This should give you a good overview of the bootstrapping process,
In my next post I’ll outline how to document your requirements in a
“functional specification”, how to build a mock-up of the service using
free development tools and how to structure your strategy. And I’ll be
giving plenty of examples.

Here now are the key takeaways to this post:

  • If you are outsourcing design and development, then you’ll want a
    budget of around USD 50k – 100k – more if you’re developing a complex
    solution. Anything less and you’ll need to develop the system yourself.
  • You are not going to be able to manage professional developers part-time.
  • You must thoroughly think through how to implement your idea.
  • Be 100% sure that you have the drive and finances in place to see it through to delivery

 

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