You’ve probably heard the term ‘bootstrapping’ in business. The term implies financing your operations on your own—without the capital of external debt or equity investors. Bootstrapping implies clever and resourceful entrepreneurship despite not having a ton of cash. Fun fact: The word is (apparently) derived from the old saying, “To pull yourself up by your bootstraps.”
If you’re an early-stage SaaS business, the odds are decent that you’re in the bootstrapping stage. So here are some helpful tips to maximize your efforts during this time.
By following these steps, you can give your company the best chance of growing—and attracting outside capital in the process.
1. Only Hire Who You Need
In an ideal world, your young venture could hire the most qualified person for every role. But the world isn’t perfect, and you don’t have the money to splash the cash to hire the best in the world. The good news? You don’t need to. For a small SaaS start-up, there’s no reason to hire a CFO with 25 years of experience, for example. You probably need to hire a competent bookkeeper or maybe someone who’s been an accountant for a few years.
2. Watch Your Cash Balance
Cash is king, and it’s especially true for start-ups. You need to watch your expenses like a hawk because they can be the difference between going to the next level or going out of business. In practice, keeping an eye on your cash flow means always being aware of what’s coming in the door, and what’s going out. You should never be surprised by bills, for one thing---and that’s true of their amount, and when they’re due.
3. Know Your Runway
Every pilot has to know their runway. And the same is true for SaaS businesses. As you watch your cash balance, calculate just how much runway you have given your current burn rate. Start-ups that overestimate their runway don’t stand a good chance of taking off.
If you conclude that your runway is getting short, all is not lost, however. You may want to reduce some expenses, consider raising your prices if that makes sense, or injecting more of your own funds into the business—assuming that you have some and you’re comfortable taking that plunge.
4. Focus, Focus, Focus
If your product is successful, you may grow to the point that you can introduce another or branch out in your target industries. But for now, be wary of spreading yourself too thin. Trying to be too many things early on can distract you and deplete your resources. Focus is your friend.
5. Limit Your Churn
We’ve previously written about how important it is to reduce your churn—that is, the percentage of your installed revenue you lose each month. Some churn will happen, but above a certain point, it can throw the viability of the business into question: As one article points out, losing 5% of your MRR each month equates to 46% annually!
The Bottom Line
If there’s a theme that ties all these tips together, it’s conservation. As a founder or CEO, it’s wise to conserve your resources, spending only what you need to get the job done. Your cash is scarce, so limiting expenses—and keeping your existing customers, is critical.
Look on the bright side, though. If you bootstrap effectively, one day, you’ll have more than enough money to buy that fantastic ping pong table you’ve long had your eye on!
Ready for the day when you’re no longer bootstrapping and can take external financing? At Element Finance, we offer easy-to-understand term loans for companies just like yours. Give us a shout anytime. We’re always happy to chat.