No doubt times are tough for first-time entrepreneurs trying to raise seed capital, especially in this region with few funding bodies.
Add to that the current downturn and you are compelled to take what you can get and extract maximum mileage out of every dirham. In reality, it is difficult for a small first-time entrepreneur to go beyond the "friends and family" round of funding. True entrepreneurs maximise the tight funds with resourcefulness and innovation until they can approach banks and venture funds with a trackrecord.
Some of the biggest companies we see today started from garages and kitchen tables on shoestring budgets. They got through their initial days by using practices known as "bootstrapping".
In the current economic climate, bootstrapping is more relevant than ever before. Investopedia defines bootstrapping as "A situation in which an entrepreneur starts a company with little capital."
Lean and mean: The bootstrapper's team is always lean. He has to rely on fire-in-the-belly workers who are also excited to be part of a start-up, share his passion for work and are hungry to grow with the company. He can offer such workers — students or young mothers for example — something that larger companies will not give: flexible hours, part-time work or the freedom to work from home.
Clever compromises: The bootstrapping approach focuses on essentials and postpones what is "nice to have". One entrepreneur who couldn't afford his own premises or machinery rented a workshop for use after their normal closing hours. He got his product out by working nights.
Get the cash flowing: Instead of struggling to raise money to get the ideal launch pad, the bootstrapper works to get his product or service out in the market, even at break-even prices, if only to get some cash flow coming in.
Be realistic: Instead of gearing up big to service the "dream market share" he might capture, he calculates how much he can actually deliver with the limited resources he has and aims for that. This avoids wasteful staffing and at the same time generates cash flow. It also gives him a chance to refine his product before expanding.
Free help: Fortunately for entrepreneurs, we live in an era of the internet. Bootsrapping means minimising any form of independent paid research, market analysis, design, advertising, among others.
Minimise capital: When an entrepreneur raises funds from friends and family, he is advised to take only what is absolutely essential — just enough to cover operating expenses till his product or service can start generating some revenues.
Remember, these funds are not gifts. In return, he is parting with shares so he should keep a maximum to himself. This allows him to keep control of his decisions. These are a few examples of bootstrapping. So what's new? Is this not common sense? It is, but you will be surprised how many companies shut down because they do not follow these simple principles. Many studies conducted cite poor management of limited resources as a reason for failed start-ups. Sometimes resources are not limited, but are frittered away by poor management. For example, grand branch openings before even one store or office has started generating revenues. Sometimes it takes consultants with a third-party perspective to rescue the company. Sometimes ego gets in the way of starting small or having a not-so-fashionable address. First-time entrepreneurs who leave corporate jobs often find it hard to adjust to their new circumstances.
The writer is the managing director of Salvus Strategic Advisors based in Dubai.