The nature of startup funding is changing. Though seed funding has exploded in recent years, the number of A rounds hasn’t followed suit. Less than 0.05% of startups receive more than one found of VC investment. Of companies that raised seed-round funding between 2008-2010, just 15% stayed standing to raise their fourth round. That means scaling your business via a funding rounds structure is perhaps more challenging today than ever before.
In general, less than 1% of total startups get funded. In spite of a growth in investment in seed-stage companies, today’s successful seed-stage startups need to be more developed than ever before to secure that holy grail of their first funding. The figures show that back in 2010, just 9% of seed-funded companies were generating revenue. By 2018, that figure had hit 51%. There’s more pressure on young companies than ever to get the ball rolling themselves before looking for that external push.
Aside from that, as we examine how the funding game is changing for young startups, and the challenges it presents, there’s a school of thought that says ‘why look for external funding until you know your business can actually make money?’ Starting out on your own allows you to validate your business concept by actually making sales. Indeed, there’s a reason why less than half of seeded startups went on to a second round (i.e. Series A). A reliance on investors means many haven’t fully tested their business model, since they haven’t had to rely on sales revenue to get them off the ground.
Aside from that, there’s the freedom that an investor-free scaling brings. Funding isn’t like going to the ATM: it comes with commitments, responsibility, external opinions.
So where does all this lead us?
The idea of scaling your startup or young business with minimal external investment. It’s a huge risk that can often mean a slower growth curve. However, if you’re meticulous in your expenditure, how you use your resources and how you position your product, it can mean favourable financial outcomes further down the line.
Looking to scale your business with no money? Check out our insider tips for bootstrapping your way to success.
6 Bootstrapping Tips For Young Startups
Have a Clear Value Proposition
At the end of the day, you can have an all-star team, a great presentation, and all the connections in the world, but if your product doesn’t cut it, you don’t stand a chance. So, as you kickstart your saver’s scaling strategy, ask yourself: ‘does my product add value to my clients?’ Then ask yourself ‘how much value does it add?’ Solve a pressing customer need rather than offering an attractive, nice-to-have want. Make sure your entire team is clear on your value proposition, and can explain it clearly and succinctly at a moment’s notice: you never know when you might find yourself pitching your startup.
Take Advantage of Free Stuff
You’ll need all the gifts you can get. And you’ll be happy to hear that there are a number of useful scaling tools available for free, if you’re willing to look for them. Many young businesses go all-in on expensive subscriptions to analytics, design, SEO and marketing tools that they don’t use. These subscriptions become a sponge on your precious capital. Many alternatives like Buzzsumo for content performance analysis, Canva for design, Mailchimp for email marketing offer free versions that equip your startup with the basic tools you need without the price tag. Whilst bootstrapping, you need to become a bargain-hunter, so take advantage of these excellent tools which won’t cost you a penny and allow you to redirect your resources elsewhere.
Outsourcing is Your Friend
It can sometimes feel like, as a founder, you put on ten different hats a day. You have to be a CEO, a marketer, an accountant, a developer and head of your PR strategy - all in one day. Sometimes though, it’s important to remember that you can’t do it all. By stretching your skills too widely, you could end up with poor-quality, bandaid-style quick-fixes that come back to bite you sooner or later. But never fear: help is at hand.
There are multiple online marketplaces that can help you find the help you need straight away. Check out Upwork, Fiver and other freelancer marketplaces to locate someone with a specific skillset such as video creation or SEO, able to dedicate themselves fully to the task at hand. Realise that writing content simply isn’t your thing and your blog is looking a bit bareboned as a result? Outsource to a freelance copywriter or expert content marketing expert. Realise that your one developer is overloaded by bug fixes and building customer-requested features? Hire an external developer to help with specific sprints as and when you need them. Realise that you don’t know anything about press and so your ‘media buzz’ is looking more like a low hum? Outsource to a PR company.
However, spend wisely and frugally. Calculate your ROI from outsourcing specific areas of your business and always make sure the investment is worth it. Still, outsourcing to experts in niche fields of your growth can allow you to focus on what you love, scaling your business and delivering a high-quality product.
Reduce Overheads By Ditching the Office
We know the idea of your own office space, complete with football table, coffee machines, and Silicon-Valley-style chillout spaces is attractive. But especially among small teams, the workplace revolution is seeing many innovative businesses leaving behind the physical office space. Say goodbye to rental fees, long-term commitments, internet and electricity bills, and furniture expenses by opting for a coworking space instead. It adds flexibility as you grow your team, provides you with an inspiring work environment, and helps you build connections with other startups, investors and mentors. Most importantly, as you bootstrap you can’t be forking out for office overheads, so channel your funds into customer acquisition and marketing before splurging on that table-tennis table.
Carefully Selected Automation
When it feels like there aren’t enough hours in the day, setting up complex automation processes can seem like the last thing you want to do. However, leveraging automation at certain checkpoints within your business can free up your employees to be more creative and take risks without the burden of granular tasks. Automation often helps you improve customer experience too. Confused about where to start? For pre-seed startups, the most common areas that are ripe for automation are:
Customer service. Chatbots can allow you to deliver lightning-speed replies, winning customer loyalty. At the same time, they reduce the time-consuming task of replying to queries one-by-one. According to a 2018 report on the state of chatbots, 64% of respondents said the biggest benefit of chatbots is the ability to deliver round-the-clock service to customers.
HR and payroll. Many companies don’t think to automate their internal processes, but you can save time and resouces by automating processes like invoicing, payroll, scheduling, training and holidays.
Take a good look at your business and pinpoint areas that make sense to automate. It’ll be different for every startup, depending on the skills you have in your team. Be careful though: automation has become a buzzword that means some startups invest too much in automation before they’re ready. The golden rule is not to overspend on automating processes that you can quickly, cheaply and easily handle in-house. Start small and specific to use automation to help you scale.
Hustle for Press
As you scale your startup, getting people talking is vital. Media buzz and exposure has multiple benefits: building brand recognition and integrity, customer acquisition and new leads, attracting potential investors, attracting potential business partners, making your startup attractive within a competitive talent pool, and more. But if you’re bootstrapping, the retainer for that hyped PR firm might be simply beyond your budget.
So how can you create a buzz around your startup without breaking the bank? Well, it’s time to hustle. Make the most of every connection you have, whether it’s your university professor’s wife or your uncle’s friend’s son. Don’t be afraid to reach out to personal connections and ask for a favour, if you think it will help build a hype around your startup. Cold-calling and emailing can work, but more often it’s a waste of time and actually becomes counterproductive since you alienate potential advocates of your brand, and make your startup look desperate. Go for the human approach instead. Attend conferences and events focussed on your industry armed with a pocket full of business cards, and tell your story in person. You’re much more likely to build lasting connections with publications, journalists, bloggers if they meet you and hear about your stand-out startup directly. Failing that, social media can be a great way to get your foot in the door with press: start a conversation on Twitter, deliver headline-worthy insights through content and engage in online debate about the big challenges facing your industry.
There’s no use simply shouting about how great your product is either. Come up with a way of generating buzz around your startup via a news-worthy headline. Maybe the idea for your startup came to you in unusual circumstances, or perhaps you met your business partner during a skydiving trip. Have you broken records, or got a staggering statistic about the difference your product has made to the lives of your first customers? Stand out from the crowd with a story audiences can get behind.
Finally, when trying to build exposure yourself, make sure to do your research. There’s no use reaching out to publications that focus on an industry niche that isn’t yours, startup blogs that only focus on Stage C businesses or a political journalist about your fintech product. By utilising a research-driven, carefully targeted, personal approach, there’s no reason why you can’t build a buzz around your startup using nothing but your own creativity.
The DIY approach is a big risk. But it can be hugely rewarding, both personally and financially. Though it might feel like investment is the only way, if you’re an early-stage startup, there’s no reason you can’t do it yourself. Remember: bootstrapping is a state of mind. By following these six tips you can scale your way to a successful startup, without external funding.