I am Bootstrap (And So Can You!)

Like most people I thought entrepreneurship was reserved for those with business degrees. I thought I would need to learn how to write a business plan, buy a suit and try to make friends with my local banker. I thought I would have to have a BIG IDEA to have them overlook what some college era naivety had done to my credit rating. I was wrong. These are some of the myths that Bootstrap Austin helped me knock down, one by one.

Two years ago I was a hairstylist and a manager at a high-end hair salon. Today I have two businesses thriving in the Austin area. Both of these businesses have emerged from a natural process of listening to my customers and following bootstrap principles. The resulting businesses are so different from how I originally conceived them, that had I tried to sit down to write a business plan, I simply couldn't have done so.

One afternoon at the salon, I realized the photos of hairstyles on the walls were not only uninspiring, but out of date. I had been attending the First Thursday Gallery Night on West 6^th street with some friends each month and had met some really great artists. It occurred to me that I could use our wall space to showcase local art and beautify the space at the same time. Having a changing artistic environment would be fun for our clients and our staff, so I put the word out and soon I was having well attended art opening parties. Best of all, the artists were actually selling their work! Word got out and other local businesses were asking me to help them display local art as well.

Six months later, I launched Austin Art Start and was displaying art in local businesses, convinced that volunteering these services was the best way to go. I was uncomfortable charging the artists. I had turned down someone who charged to place art in my own business, so I decided other businesses wouldn't pay either. A friend of mine, Allen Beuershausen, had been urging me to make a business of this service. Because of the myths I believed about business, I consistently refused. Allen had been a member of Bootstrap for two years and had invited Bijoy Goswami to a meeting where I and a couple of other folks had planned to decide how I should proceed. (This meeting happened to also be the kick-off for the Bootstrap Art Subgroup.) This meeting went down more like an intervention than anything else and I left with a clear idea that it was possible for me to charge for what I was doing.

After this point I stalled for a long time. I just wasn't excited. The idea had been done. Every coffee shop and hair salon in town had local art displayed. However, I continued to actively participate in the lively art scene. In the meantime I had moved my hairstyling practice to a new salon and this is where the real breakthrough happened: my clients started asking me to keep an eye out for a special piece of art for their homes! My art consulting business was born, and the inspiration was back. Not only was I actively consulting my clients about the local art scene, I was learning quite a lot of them were intimidated by galleries and they welcomed the prospect of having a guide. I arranged studio visits with artists that intrigued them. Soon, they brought friends! I began renting passenger vans, hiring caterers, bartenders and support staff. I had stumbled upon a fun, unintimidating way for people to get involved in the local art scene. The studio tours now include dinner, drinks, transportation and a chance to see the studio where artists create, as well as get to know them on a personal level. What fun!

So, here we are. I have created something I love doing that is a unique and valuable service to my clients as well as to the artists I represent. My "big idea" emerged from the process. I am so glad I didn't waste any time writing a business plan or visiting with bankers - and I never had to buy a suit. One of the best parts for me personally is I now have a chance to help other people begin an entrepreneurial journey of their own through my second business. I launched Liminicity Consulting in the fall of 2007 and have helped several entrepreneurs use bootstrapping to get their start. Who would have thought?

Bootstrapping, Art and SXSW

I am excited and honored to sit on the Bootstrap 101 panel during SWSX. The Interactive portion of this event is proof that life reflects art and art reflects life, and business, deservedly is an art. This is probably why so many terms used by artists and entrepreneurs are so interchangeable. Art in its highest form is an inspiration of the spirit of mankind. When great artists deliver great art it transforms us, allowing us to view other possibilities, provoking thought and furthering the evolution of mankind.

Each work of art embodies the VISION of its creator(s), following the intent and values from their own unique experience of life. This is why the success of companies that have had a massive effect on the world such as Google and Apple can only be explained in reverse.

One of the unique properties that business provides to art is the ability of its practical participation. Where other art such as music, writing, and painting engage thought faculties that are much more boundless, the restrictions of material application force the entrepreneur artist many more restrictions. Works of art in the business community must have a buy-off from the collective and it must invoke action in the world. The entrepreneur artist must continue to have an ongoing magnetic presence where the collective world can interact.

It is inspirational that SXSW has recognized business in this category, and fittingly so.

Danny Gutknecht is the artist/Evangelist/cofounder of InHouse Assist.

Paul Carrozza of RunTex

Boot Rap has released the Paul Carrozza podcast from the February meeting of the Bootstrap Network.

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The Boot Rap Podcast is produced by Brian Massey of HearThis.com and Jeffrey Blair of Sound Quality Inc.

Bootstrap Sessions at RISE and SXSW

The second RISE Austin is March 4-6 (next week) as part of National Entrepreneurship Week. Bootstrap Austin is excited to be a partner in the event. A number of bootstrappers are leading sessions including Nancy Schill, Maura Thomas, Chris Greta, Michael Strong, Maggie Miller, Bjorn Billhardt, Kevin Koym and Bijoy. RISE is free and open to the public and a great way for potential and active entrepreneurs to learn and get inspired.

Bootstrap is also hosting 2 panels at SXSW Interactive:

Bootstrapping 101

Contrary to simple definitions centered around eschewing investor funding, bootstrapping is a third way of entrepreneurship. Differentiated from the cookie-cutter/franchise and VC/funding-driven approaches, it is an integration of these two paths. Bootstrapping brings together the low-cost features of the cookie-cutter, while generating the innovation of the VC. It can be described by its stages, actions and principles. The key stages are Ideation, Valley of Death and Growth; the key actions of each stage are Demo/Sell/Build; its principles include: right action right time, constraint creates innovation, dance with duality & use everything. Bootstrappers delay funding rather than reject it outright and bootstrap business models emerge from the process, rather than from up-front design or mimicry. Active bootstrappers working on our ventures, the panel will debate the differences between bootstrapping and other models and explain the unique bootstrap approach and mindset. You will gain a conceptual and hands-on understanding to get started on your venture.

Bootstrap Collaborations

Are you building a business, a non-profit, or artistic endeavor? Through building their businesses together, entrepreneurs can get to success faster. We will share examples of how entrepreneurs can use less financial capital and more social capital to make their businesses successful, drawing upon our experiences with Bootstrap Austin, and other "enterprise tribes". Our panel's diverse backgrounds will show how this way of building businesses is having an impact on artist, non-profits, and startup businesses.

Look forward to seeing folks at these sessions!

Monday's Monthly Bootstrap Austin Meeting

For those that didn't make it Monday, you missed a good one! Paul Carrozza, the founder and owner of RunTex, spoke about his experiences bootstrapping RunTex into the bona fide Austin tradition it has become today. Some of the highlights of his talk included:

• Launching RunTex out of a small shop of old inventory on a personal loan from his parents
• Stories about some of the first running events and races organized by Paul that helped RunTex go on to bigger and bigger successes
• Paul's passion for running, his experience as an All-American runner in college and ironically how he constantly struggles with running due to Asthma
• His thoughts on the growth and expansion of RunTex as well as potential exit strategies
• How Paul built RunTex one shoe at a time and one race at a time

I think the one key thing I came away from this talk with was the importance of having a passion for what you do in your own venture or personal undertakings. Paul certainly embodies this. Paul wants to see people get in better shape by running and wants people to continue to grow as runners. Everything that RunTex does helps further Paul's vision for building a lasting community of runners here in Austin and beyond. Paul has taken a community based approach to spreading the running "gospel". RunTex follows this approach by building relationships through a network of coaches that RunTex provides to individuals, local community organizations, businesses, and even government offices.

There were several interesting bootstrap ideas within Paul's talk. One that stood out for me was how Paul financed new areas of development with cash from other revenue generating areas of the business. Paul's approach was to launch a project he believes in and then figure out how he'll pay for it! While this might now always be the most advisable course of action, it showed how his passion and vision would eventually help show him how to achieve ultimate success in new undertakings of the business.

It's not like he is flying blind financially...it was obvious that he understood the unit economics of his business. He has an excellent grasp of what each new running event could raise for RunTex and the event sponsor and what each shoe would cost (or make) for RunTex . He also knows what he could ultimately use those shoes for: either attracting new runners (and future customers) with training events that included new shoe giveaways or for children who are getting their first taste of the benefits and enjoyment of long distance running.

As I was running in my neighborhood the other night I realized Paul must be right at home as a runner and a bootstrapper. There are a lot of similarities between bootstrapping and running. Both require training the body and the mind to be prepared for what the road ahead has to offer, both demand discipline, and both need the runner/bootstrapper to have a deep understanding of themselves and their own capabilities for the ultimate journey to be a success.

Building business in Austin despite a possible recession

How can we buffet the effects of a possible economic recession with regards to business growth in Austin? Recently there has been a bunch of press about the growing threat of recession coming to the US. The New York Times tells a story that all of us as entrepreneurs need to start preparing for called "As Lenders Tighten Flow of Credit, Growth at Risk"
From the article there are two important paragraphs to note:

Credit flowing to American companies is drying up at a pace not seen in decades, threatening the creation of jobs and the expansion of businesses, while intensifying worries that the economy may be headed for recession.

The article goes on to focus on small business, and how small business is getting hit the worst. So why is this important? Small business is where all of our growth and job creation is coming from. From the NY Times article:

In recent months, smaller companies have been adding jobs even as larger firms have been shedding workers, according to the ADP National Employment Report, which tracks changes at companies with payrolls overseen by ADP. From May to October, 276,000 of the 378,000 jobs added were at companies with fewer than 50 employees, the report found.

It is the entrepreneurs that are building startup and small businesses that are contributing to the greatest growth of the US economy. Programs that are being structured by the government should take this in account- and support small business- versus focusing on solutions for large, slow moving corporations that typically are the benefactors of the pork coming out of Washington DC.

So what can entrepreneurs do in lieu of dealing with a drying up of financial capital other than make sure that they voice their vote strongly in the coming election? I and a number of international collaborators have been examining what can be done through how we organize our businesses together for the purpose of building our business... And given the continuing news of financial crisis, it is time to take action as business people and not wait on government programs. Even though financial capital might not be as available, social capital can be utilized to continue to build businesses. Social capital, called "human capital" in Paul Hawkin's book called Natural Capitalism can be a somewhat replacement in lieu of financial capital. Creating social capital is what we have been doing in Bootstrap Austin and other entrepreneurial social networks that we have been building. In fact, it has always been true in the US that social capital carried the day during financial crisis. A historical example of this can be found in our region's history of farming. In order to sustain their farms, farmers helped each other raise barns together... these farmers were creating social capital with each other ("I help you, you help me"). There are many examples in the past, including from my family, where farmers had no access to government support, nor other access to financial capital... but they could help each other, and survive the worst of economic downturns. It appears that the US is entering into a time that once again that entrepreneurs building social capital together will be the way that we will continue to build our businesses, as financial capital runs and hides during the storm.

Thankfully, Austin's wired technology community has been organizing into what I call "Enterprise Tribes" helping entrepreneurs build their businesses, recession or not. Research has shown that business that organize themselves as ecosystems (or as I say "enterprise tribes") positively grow each other much faster than businesses that try to stand alone. This social networking behavior with groups like Bootstrap Austin, Refresh Austin, Door64.com, Jelly in Austin (among others) are making a difference, supporting entrepreneurs to innovate at a level never before seen in Austin. Yet as much of our "tech elite" figure out these new ways of doing business and new ways of lowering the cost of work, we must as the community of Austin create broader integration between our businesses, cultivating a richer business ecosystem. Through this we shall build an even more vibrant Austin into the years to come.

As you build your business, please do join our Bootstrap Austin network to collaboratively build businesses together and join the discussion around my forthcoming book and my Exponential Entrepreneurship blog.

If You're Selling to Humans, You've Got to Tell Stories

If a friend of yours told you he was going to make soup in his kitchen and deliver it to you each week, would you find that appealing? You might wonder about health issues.

What if he told you it would be $10 a quart? That's a bit pricey.

What if he told you he was going to deliver it on his bicycle each week? That certainly sounds a bit unreliable.

This was the business proposition of the Soup Peddler, an Austin phenomenon created by David Ansel that has grown into a commercial kitchen, a small fleet of delivery trucks, and a loyal group of "Soupies" who order week after week.

How did David build a business peddling soup around Austin? He sold something more valuable than good soup. He sold a story.

Here's how the Soup Peddler described Tomato Basil soup back in April of 2002:

This week's Tomato Basil Soup is sure to get your summer started right, and may indeed have the power to stoke your fire inside...Tomatoes and Basil are firmly entrenched among the ranks of the most aphrodisiac of nature's offerings.

He then goes into a history of the tomato; about it's reputation as the "love apple" and the scandal created by its "red, juicy, sensual flesh."

With regard to basil, he warns against frequent smelling, as it was believed that this would cause "spontaneous generation of a scorpion inside the brain."

I've got to get some of that soup.

His prose never talked down to his readers. In fact, he always assumed that they were like him.

I know many of you probably join me in the habit of curling up in bed with a good cookbook. You read the little headnotes, scan the ingredients, make mental notes of the clever little twists to the recipe or improvements that you'd likely make.

He gave his customers the honorary title of "Soupies" making them part of the business. He cajoled them to return their empty containers because he believed reuse was important to protect the environment.

While he's no longer peddling through the streets of Austin to deliver soup, he continues to write the stories for his creations each week and to dote on his Soupies.

I only tasted his soup once, at a semi-formal dinner. The hosts spent considerable time telling us the story of the Soup Peddler. The soup was good, but I remember the story most.

Your Hidden Story

When you stop taking yourself so seriously; when you pull your head out of the financials and the management details of your business; when you think about those customers that you really love to serve, what stories come to mind?

If you didn't feel that you had to put up a professional image, what parts of your personality would shine through?

Try This

Hire a creative writer to describe your business. Tell them you want three versions of the description, each one completely different. Arrange for them to go to happy hour with your employees.

Your stories may start to emerge.

Can accounting software be a "breath of fresh air" in an otherwise constricting environment? Can manufacturing equipment be "soldiers at the ready, guarding against waste and flaws?"

You tell me. Tell me about the businesses whose stories you're engaged in. The comments are open.

Find more of David's tasty prose here in his Menu Archive.

Brian Massey writes about online marketing and conversion on the Customer Chaos Blog.

Vivek Wadhwa debunks Business Plans and describes Demo/Sell/Build

Vivek is a seasoned entrepreneur who has taken both the bootstrap and funding-driven paths. He teaches entrepreneursship and writes regurlarly for BusinessWeek.

In this article he starts with fallacy of business plans in the Ideation stage. My favorite line: A startup business plan is always a good piece of fiction filled with great ideas. He then goes on to describe the Demo/Sell/Build process from which the business plan emerges.

Bootstrap Film Subgroup

The Bootstrap Film Subgroup was kicked off at the June 2007 meeting with Tim League, owner and cofounder of The Alamo Drafthouse. He inspired bootstrappers by sharing his journey of creating a successful business and demonstrated how bootstrapping a business has its rewards. The film subgroup is led by Brandy Rainey, who provides us with a review of the year's speakers and topics. The dominant theme: technology has impacted all aspects of film making and is creating opportunities for bootstrap film makers everywhere.

Chris Hyams of B-side Entertainment gave us some insight on how the industry is changing and how alternate models for distribution will find their way to the mainstream. B-side is being very smart with their approach by matching an audience's demand with the content they are seeking, and creating a win-win for the audience, filmmaker and distributor.

Daniel Benner launched his online social community Gindie and shared his vision for creating a space where filmmakers can network to find resources, talent, and crew and promote themselves, their projects and their respective groups.

Stacy Schoolfield passed on some valuable tips that she learned first hand on how to self-distribute a film. She was very generous in providing us with contact information of several independent theaters throughout the country that were receptive to filmmakers contacting them directly. She encouraged us to be open to finding who the film's real audience is and constantly adjust the marketing plan to reach that audience.

The group discussed how the internet has opened doors for more and more filmmakers to have their content seen by an audience; however the quality of many of the films found is very bad and it is somewhat frustrating to be lumped with a group of amateurs when you are out to use the technology as a serious and viable way of connecting with your audience. Jason Cronkite offered us a solution by informing us how Kulabyte can provide ways to condense HD files to allow filmmakers to post quality work on the web. He also introduced us to NetCastHD, which offers content distribution for HD and SD works on the web with video-on-demand capabilities. Revenue streams for independent film are slowly but surely making themselves available.

Dave Evans introduced us to Snapse, a web based turnkey video sharing solution designed for marketing and promotion. They are experimenting with different applications and challenging filmmakers to provide content that is then mixed and meshed to create something new. Product placement has become another revenue stream whether integrated with the content or advertisements placed before short videos. This will continue to rise.

There are very diverse applications of people's creative energies within the film subgroup. I would like to encourage everyone to keep thinking outside the box and ask yourself these questions:

1. How can I get my film to its audience?
2. Who is the film's REAL audience?
3. What marketing strategies can I use to gain notoriety for myself and my film?

The Art of the Startlet, i.e. Bootstrapping

I thought this was an interesting use of 10 minutes. It's a video featuring Guy Kawasaki called The Art of the Startlet. Kawasaki started his new venture Truemors for about $12,000. Some of his most interesting points include:

Don't spend money on Marketing. That's easy for him to say given his celebrity.

Spend money on the lawyers to setup the company (he spent $5000).

He 'offshored' development to North Dakota for $4500. Apparently anything outside of the valley

He spent $1000 on domains.

The best quote: "more people can try more $25,000-things than they can $2 million things."

Debuting FoundWatch: “The Art of the Startlet” with Guy Kawasaki « FoundRead

Bootstrap Austin Speakers in 2008

We are incredibly lucky to have so many successful bootstrappers in our city - and Bootstrap Austin has been privileged over the years to have many of them share their stories at our monthly meetings. 2008 is no exception with David Ansel (Soup Peddler), Paul Carrozza (Runtex), Clayton Christopher (Sweet Leaf Tea) and Larry Warshaw (Constructive Ventures) already confirmed to speak. The sheer diversity of this group alone - food, retail, fitness, beverages, real estate - is a testament to the broad applicability of bootstrapping beyond technology.

I didn't realize we would be embarking on an incredible learning journey about the bootstrap process when I invited Neal Kocurek to be or first speaker in October, 2003. Neal explained how he realized that Radian's ability to grow was constrained by its ability to develop leaders. This led to his 12-step leadership recipe, which he implemented at Radian and generously shared with anyone willing to listen. With the trusty Bootstrap Map, it's now clear that Neal was describing a key action associated with building the organization in the Growth Stage.

It is striking that these natural bootstrappers navigated their (ad)ventures without the benefit of formal training, yet they resonate and agree whole-heartedly with the Bootstrap Map when I share it with them. Is bootstrapping innate to the individual or can it be taught? I suppose the implicit assumption at Bootstrap Austin is that the latter is indeed the case. Furthermore, through the activities and interventions we have evolved over the years, our community can be a place where that critical learning can happen just-in-time. Our modified tagline might therefore read: right learning right time --> right action right time.

The Entrepreneurial Imperative

If you're an entrepreneur, we need you.

The videos shown at my kids' elementary school are touching. Small cinder-block rooms are shown, lined with basic shelving for books donated by American students and parents. Smiling, singing black children pull at the heart strings.

And the shelves are almost empty.

The empty shelves are promising. The books are in the hands of ravenous minds in dusty villages of Africa. This year Laurel Mountain Elementary will build four such libraries in Africa. By and large this is considered a good thing.

Doris Lessing presented this in her Nobel Prize acceptance speech. She can do much to raise sympathy for the plight of African children, but it takes a different energy to create action.

The entrepreneur doesn't ask, "how can we build another library." The entrepreneur asks "how can we build an organization that builds hundreds of libraries."

It means creating a business where it is really needed.

It means ignoring norms that says the government of Uganda spends 110% of it's revenue on the bureaucracy, much of which is foreign aid.

It means creating jobs in the communities that need them.

Andrew Mwenda makes a compelling argument for the dire need for entrepreneurs instead of foreign aid on the African content.

Building a business and making money is what we as entrepreneurs are supposed to focus on, but it's not why we're here. Our unique powers may seem odd to others, and this is something that often stops us. But these intuitions that plague our thoughts are important when we focus them.

For the sake of this country and others, find your partners, focus on the possibility that only we can see, and take action on your vision. For entrepreneurs, it may be the only way to stave off madness.

A hunger for books | Review | Guardian Unlimited Books

TEDTalks

Image by Duncan Walker

Do you want to be Rich, or be the King?

I'm a fan of the content coming from Found+Read. I thought you'd enjoy this.

Do you want to be Rich, or be the King? « FoundRead

Bootstrapping - the Third Way of Entrepreneurship

When I started the BD Tech Daily blog posts, I mentioned that bootstrapping is a third way of entrepreneurship, differentiated from the cookie-cutter/franchise and VC/funding approaches. Bootstrapping is actually an integration of these two paths. It brings together the low-cost features of the cookie-cutter, while generating the innovation of the VC. I hope this has become more clear as we have covered the 5 stages of Preideation, Ideation, Valley of Death, Growth and Rebootstrap.

This literal integration highlights the final key concept of the bootstrap process - the dance with duality. The key action of each stage - awaken, demo, sell, build, rebootstrap - is the coming together of two seemingly opposing motivations. The key ability that the bootstrapper and the organization must cultivate is holding these opposites together until they resolve - what Jim Collins has called the genius of the AND in his seminal book, Built to Last.

Each opposing motivation will seem to want to consume the other. Rather than allow this "collapse," the bootstrap holds both together until they resolve. In the VoD, the purity of the demo has to be resolved with the needs of customers. Notice how the Google founders found a way to do both. This Dance with Duality is symbolized by the yin yang symbol, particularly when seen as a flow diagram, moving around the perimeter and resolving in the center.

In the next series of posts, I will highlight bootstrappers from Bootstrap Austin who are using the various bootstrap principles in their businesses. I also look forward to answering your questions. Please drop me a line at: bdtechdaily AT aviri DOT com.

Rebootstrap

The Growth Stage does not last forever and the great ventures realize that they must continually repeat the Demo/Sell/Build actions of Ideation/VoD/Growth. In others words, they must rebootstrap. And if they are still involved with their companies, founders are the best-equipped to lead this process. Virgin and Apple are two of the most prominent and successful rebootstrap companies in the current landscape. Both are still led by their Evangelist founders, Steve Jobs and Richard Branson and rebootstrap in different ways.

Virgin finds Maven partners in different industries and uses its unique Evangelist core, to take the ventures through Ideation, Valley of Death and Growth. Virgin Galactic is a fine example of this process, partnering with Maven, Burt Rutan to create one of the first low-orbital space vehicles (Demo/Ideation). With the tagline, "Space is Virgin Territory," flights have already been pre-sold years before the vehicles are ready (Sell/VoD). Using its unique technology design sensibility, Apple has recently extended beyond personal computers and made successful forays into music and telephony with iTunes/iPod and iPhone.

All the bootstrap principles are in play. Neither company is guaranteed success with any of its new undertakings (Apple TV is yet to take off) and must discover the unique business model through bootstrapping - there is no skipping of steps. Apple's first version of the iPhone was the ROKR, a partnership with Motorola, incorporating iTunes. While not a dramatic success, it allowed the company to learn and subsequently develop the iPhone.

Apple and Virgin's continual rebootstrap efforts have led to the discovery of entirely new multi-billion dollar markets. Both companies demonstrate the power of a founder's continued involvement in their venture, long after the first Valley of Death is crossed.

Many large companies, occupied with the concerns of growing and defending existing products, rebootstrap in spite of themselves. Internal bootstrappers start clandestine projects in a process coined, "bootlegging." Bootstrap's Rebootstrap service helps large organizations proactively foster and support these efforts.

Growth!

In our ongoing tour of the Bootstrap Stages, we leave the Valley of Death/Opportunity and arrive at Growth. I wrote an article in the latest issue of Business District Magazine titled, "Investor Funding (much) later than you think," which covers some of the important considerations of the Growth phase, including the ever-prevalent question of investor capital.

Growth is paradoxically the most sought-after stage and often the least interesting to the founders, who are best suited to Ideation/VoD. In this first Growth stage, it's time to bring on a COO and management team. They will help turn a chaotic and dynamic beast into a smooth-running machine which systematically and predictably serves its customers, develops its products and takes care of its employees. In other words, it is time (finally) to build the organization around all the insights and lessons from the first three stages. Hello MBAs!

The founders must be attuned to their potentially divergent needs from those of their now-growing offspring. Many times Maven founders find the dynamics of a growing organization all too taxing and exit, either leaving entirely or retreating into the background. Some are content to have a lifestyle business, choosing to keep it small and stay involved. Others are excited by the thrill of growing a large organization. The Leagues, cofounders of the Alamo Drafthouse decided they enjoy running the theaters. They found a third party to take the Alamo national while they continue to operate the Austin Alamos. Jim Goodnight, the founder of SAS, one of the largest software companies in the world, still spends 30% of his time coding! Meanwhile, bootstrappers John Mackey and Michael Dell have helmed their companies through the growth stage and beyond.

Many bootstrappers are tempted to start brand new products or initiatives in the early Growth period. This is not yet the right action! That comes next, in the first Rebootstrap phase, which we will discuss next week.

Valley of Death (renamed!)

When the founders quit their job, they leave the heady Ideation stage armed with their Demo and enter the Valley of Death. Or is it? Earlier this week I had the pleasure of interviewing John Paul DeJoria for the Bootstrap Bootcamp DVD. JP spoke to Bootstrap Austin in November, 2005. He cofounded Paul Mitchell, Patron Spirits and is involved in numerous other startup ventures including John Paul Pet and DeJoria Diamonds. While agreeing with the Bootstrap stages, actions and principles, he made one modification, renaming the "Valley of Death" the "Valley of Opportunity." 

And indeed, that's exactly what it is, particularly for the Evangelist cofounder. The VOO is where the potentiality of Ideation comes to fruition through customers. The precariousness and possibility of "death" propels the bootstrapper toward the absolute necessity of discovering their customer. And as I wrote earlier, constraint creates innovation. This crucible is vital for the business to emerge and also why investor capital is the enemy of the venture at this stage. John Paul recounted how the planned $500K investment for Paul Mitchell fell through; the founders continued with a $700 combined investment. The scarcity of capital caused a number of innovations such as the use of a black/white color scheme for the bottles and outsourcing production. They were also able to get get distributors on board by first securing orders from salons before approaching them. 

 The pitch is the all-important tool of the Valley of Opportunity needed to make the sale. It articulates the value proposition in terms of the customer's needs. The pitch is perpetually presented, amended and reformulated before the right one emerges. Pitches are presented to various customers before the right ones emerge. It's a trial-and-error process with ongoing feedback, both from the customer and the Maven. Eventually, the finely-tuned pitch takes the venture out of the Valley of Opportunity into Growth. Meanwhile, the product evolves from a demo to a customer-driven version 1.0.

The conversation is on BootRap ATX Podcast, which is relaunched and available on multiple podcast platforms. 

Investor Funding, (much) later than you think

This is a guest post by Bijoy in the Nov 2007 issue of Austin Business District Magazine.

Most business schools teach us that the first step in starting a business is to write a business plan and raise capital from investors.

Except in a few very rare and exceptional cases, this is just about the worst thing you can do for yourself and your fledgling venture. To understand why, we must explore the critical stages of a business and what occurs in each stage.

How do Businesses Emerge?

Contrary to business mythology and corporate marketing departments, Michael Dell didn’t start his company because he saw the need for a direct approach to counter an inefficient PC distribution channel; Bill Gates didn’t start Microsoft with the vision of a PC on every desktop; Herb Kelleher didn’t start Southwest Airlines because the hub-and-spoke system was broken; Pierre Omidyar didn't start eBay because there was an untapped market for buyers and sellers; Howard Schultz didn’t start Starbucks because he saw the need for a “third space.”

 

And, Larry Page and Sergey Brin didn’t start Google to “organize the world’s knowledge.”

 

Google, an overnight success, only started generating substantial revenues five years after its inception. The first version of the Google search engine went live on a Stanford University server in August 1996. It was based on Page’s simple insight that websites have an inherent ranking based on the number of incoming links from other websites.

 

Google simply counted the links and presented the “most voted” at the top of the search results. Unlike other engines which showed pages upon pages of results, Google’s engine provided the most relevant ones in the first few pages.

By 2000 Google had built incredible momentum with an ever-increasing and loyal user base. Yet it faced a fundamental challenge: how to generate revenue. They clearly could not charge users to run searches.

The founders had earlier considered and rejected the idea of blending advertising with search as they felt this would compromise the user’s requirement of a trustworthy search result and bias the site towards advertisers.

However, Google’s many attempts to license the engine to portals received little to no traction. Worse, the bursting of the Internet bubble through 2000 meant that there would be no “exit” for the company through a sale, as the founders and their VC backers anticipated.

The company had to try something new to become self-sustainable.

As a desperate last measure, it launched AdWords, copying, with a twist, the idea from GoTo.com, a rival search engine. Bill Gross, the founder of GoTo had the insight that people and organizations that wanted to be found would pay for that privilege and had advertisers pay for keywords online.

Unlike the GoTo engine or the old Google engine, the newly-modified Google site was in fact two engines – one with the familiar Google results in the main body of the page and the second with paid results clearly marked at the top and right.

Google’s story is not unique. A close inspection of any of the aforementioned companies reveals a similar pattern.

Companies go through two critical stages before they reach the nirvanic and sought-after Growth Stage: Ideation and Valley of Death (VoD).

In Ideation, the company founders do not start with a grand vision, but something more prosaic; a simple demo. Like Google, the cofounders of Microsoft created a version of the BASIC programming language for the Altair. When Altair went bust some years later, Microsoft had no revenue for a year (VoD). Its seminal deal with IBM in 1981 to provide an operating system for the IBM PC happened accidentally and Microsoft resold an operating system, Q-DOS (quick-and-dirty operating system) it had bought from another company in Seattle.

The greatest of success stories in business do not start with clarity about what their business will become.

The idea that anyone can know this is not only borne from arrogance, it is foolhardy.

The business emerges through the VoD, and it is precisely the constraint that creates the key innovations. Furthermore, the VoD continues for an unknown duration.

So when are you in Growth?

Your venture emerges from the VoD and into Growth when it has developed a systematic and reproducible way to serve its customers and get paid doing so. This is finally the time when you can focus on scaling what you’ve learned.

The team can easily produce all the key elements of a business plan without making up the numbers and the true essence of the business has become clear to all. Pithy descriptions like “a PC on every desktop” ring true because they are. Not only that, you know with reliability what must be done to achieve growth.

To bring it full circle, most business schools concern themselves with the domain of growth – HR, marketing, leadership, management, infrastructure, information systems, customer service, culture, process. A crisp marketing message can now be developed because the value proposition to the customer is clear.

The unique culture of the organization must be reliably transmitted to new employees. A strong management team must be built, etc.

Right Action Right Time

Capital has one (and only one) important property: it is an amplifier. Whatever the organization is doing, an inflow of capital allows it to do bigger and faster. Moving a venture quickly in a particular direction in the first two stages creates momentum in the wrong direction and withers the organization's ability to quickly shift course, adapt and try new things.

In growth, however, capital provides the needed fuel for a correctly-pointed rocket. Meanwhile, the suppliers of capital seek one thing: a significant return on their capital in a predictable time period.

The Ideation/VoD business cannot deliver this and you will find yourself selling investors and spending all your time doing so. However, in Growth they will court you. Finally, you will retain control of your growth-funded business and not your Ideation/VoD-funded one.

Investor capital is the foe of the venture and the founder in Ideation/VoD and their friend inGrowth.

Have the discipline and courage to delay the funding event for as long as you can until you have emerged from the Valley of Death.

It will be painful, but you will be glad you did.

Ideation - DEMO

The awakened bootstrapper is now in the Ideation stage. The singular goal of this stage is to create a Demo of the product or service to be offered - not a business plan, funding or patents as is often recommended. The key task at hand is to create a first version using available resources.

A common false myth is that of singular entrepreneurs. Rather that go it alone, bootstrap founders find complementary opposites and this is a key task of Ideation. In Apple, a Maven, Steve Wozniak, paired with an Evangelist, Steve Jobs. The dynamic tension accentuates each founder's strength and diminishes their weaknesses. Rather than perpetually tinkering, the Maven's talents are focused by the Evangelist's need to show something to a customer. Without Mavens, Evangelists would have nothing to evangelize.

Here's a 5 min Youtube video from the Bootstrap Bootcamp explaining all the bootstrap stages.

Preideation - AWAKEN

Bootstrap companies are the offspring of their founders. Just as with a child, the founders' DNA and parenting ultimately results in a totally unique entity. PreIdeation is the first stage during which the founder develops their passions and talents. There is rarely any contemplation of a company or even a notion of a particular product during this time. Preideation begins with the founders' birth, childhood and beyond and culminates when they awaken to the possibility of taking an entrepreneurial journey. In terms of the Hero's Journey, this is the Call to Adventure.

The key task for the founder-to-be is to develop and deepen their passions and talents. "Passions" refer to external interests. Steve Wozniak tinkered with electronics well before inventing the Apple Computer, creating a number of devices, including a Blue Box to make free long distance calls. He demonstrated the early first version of what would later become the first Apple computer at a gathering of electronics geeks at the Homebrew Computer Club. Bill Gates discovered a passion for computers in middle school and dedicated many hours writing code and becoming conversant in programming languages. Microsoft would later start life as a BASIC language supplier for the nascent personal computing industry.

"Talents" refers to innate capabilities. Maven, Relater and Evangelist are terms I use to describe three very different energies in founders. In bootstraps Mavens are the product innovators, while Evangelists find the customers. While there is a pervasive myth about solo entrepreneurs, it is most often a complementary team that starts ventures. Discovering and deepening one's talents and realizing the need for a partner are essential activities in the Preideation stage.

Here's a 5 min YouTube video from the Bootstrap Bootcamp explaining all the bootstrap stages.

Bootstrap member company Greenling in PC Mag

Greenling has recently been featured in PCMag as a top-10 innovator using tech in smart ways to run their business. Congrats!

Bootstrap Your Startup

Kevin and Bijoy led a panel discussion at the 2007 SXSW Interactive. The podcast is live on the SXSW site.

Bootstrapping, not just for tech

The bootstrap process - Demo/Sell/Build - can be applied to ventures in many industries. At Bootstrap Austin we have subgroups in art, publishing, film, health, nonprofit, and food.

What does it mean to bootstrap a book? Rather than focus on finding a publisher, the author creates their demo and takes it directly to customers. In the case of The Human Fabric, Dave and I wrote the first chapter and released it on the website. Customers who purchased the book at this early stage were offered a steep discount. We released each successive chapter and engaged our readers soliciting their feedback. The feedback improved the final product and guided the direction of the book, while the price increased with each new release. The Bootstrap Publishing Subgroup, led by Thom Singer, will share our experiences at BookPeople on Oct 7.

Bootstrapping presents viable alternative in other industries. Rather than go for a record deal, a band creates a demo, sells it directly to its fans and builds an organization around it (Righteous Babe Records). Rather than go to a studio to fund a film, filmmakers make it themselves and seek out niche audiences (Flatland). The excellent film, Before the Music Dies, deals with the demise of the record industry as we know it. Appropriately enough, it's a bootstrap film, distributed by another Bootstrap Austin Member, BSide. Long Tail distribution mechanisms like iTunes, YouTube, amazon.com, BSide, eBay, enable the bootstrapper to get their product to their customers. These demo/sell/build platforms are in turn causing a shift to more bootstrap-friendly formats - music singles, short films and ebooks.

Discussion from Bootstrap vs VC on BootstrapONline

A nice discussion is emerging on the Texchange group on BootstrapOnline after last week's debate.

The 5 Stages of a Bootstrap Venture

Bootstrap ventures go through five distinct stages of development: Preideation, Ideation, Valley of Death, Growth and Rebootstrap. Each of the first 4 stages corresponds to the birth of a crucial element of the venture - bootstrapper, product, customer, organization - with a corresponding key action to accompany it - awaken, demo, sell and build. The successful completion of a particular action naturally leads to the next stage and forms the basis of the next action.

In Preideation the sole focus is the awakening of the bootstrapper to their passions and talents. None of the other elements require any energy - it simply isn't time yet. In Ideation the bootstrapper element continues with the quest for a complementary partner. Using the terminology of The Human Fabric, an Evangelist (Steve Jobs) and a Maven (Steve Wozniak) come together. Led by the Maven, the partners focus on the key action of Ideation - creating the demo (Apple I). The demo is a first version of their imagined product or service. The Valley of Death (VoD) begins when the founders go full-time on the venture. The Evangelist takes the demo and searches for customers (the Byte Shop) - anyone who will pay for the demo. Through the feedback from customer conversations the Maven evolves the product, moving it from alpha to beta to version 1. Meanwhile, more bootstrappers might get added to the team. Emerging from the VoD with positive cash flow, it is time to shift focus again to building and scaling the organization in the Growth stage. A basic organizational structure likely first emerged in Ideation when the partners created their agreement, but it was not time to truly focus on organization-building until now. With the emergence of the business model, key functions such as Marketing, HR and systems are created. The fifth stage, Rebootstrap, is the spawning of the next products and services for the company. See the stages and actions play out for Apple Computer.

From the above discussion we come to understand the key principle of bootstrapping - right action right time. Like a good parent, the founders' job is to understand the stage of the venture and take the appropriate action for that stage. Sometimes that might even mean moving backwards! We also see how certain commonly-accepted actions such as business planning or fund-raising from investors are taken inappropriately.

The master bootstrapper rises above the need for strict definitions of stages and actions - they develop an intuition for the process and take the right actions, trusting they will learn from each and discover how to proceed. For them everything occurs in its right time as well.

Here's a 5 min Youtube video from the Bootstrap Bootcamp explaining all the bootstrap stages.

Weekly bootstrap post on BD Tech Daily

I'm thrilled to participate in Business District's Tech Daily newsletter with a post every Friday.

Bootstrapping is often contrasted with the VC model of entrepreneurship and much of the discussion centers around avoiding funding from investors. This commonly used definition falls far short of the true essence of bootstrapping. Through an ongoing study of numerous bootstrap masters and working with my fellow-bootstrappers, I have come to understand it in a very different way. Phrases like: right action right time; constraint creates innovation; use everything; power of 2; demo/sell/build - all hint at what is really going on. Bootstrapping is simple yet mysterious, obvious yet subtle, tactical yet enduring. Neither cookie-cutter nor funding-driven, it is a third way of entrepreneurship involving the modern heroes' journey. Bootstraps might start out looking similar to other businesses, but quickly evolve into unique entities. They might even take funding, but it will be to scale rather than develop the business. Their "competitive advantage" lies in the accumulated steps taken in their thousand mile journey.

In the coming weeks and months we will embark our own journey of discovery. If I do my job right you will examine and question your current assumptions about entrepreneurship and bootstrapping and find your own answers at the end of the yellow brick road.

In the mean time, you might start by picking up a book from my recommended list, reading the Bootstrap Austin wiki, or attending my upcoming Texchange "debate" with Tom Ball on Sept 19th .

Interview on Business District Radio Show

Jason Myers - founder of Business District Magazine, Marcy Hoen - founder or Austin Art Start, and Bijoy discuss bootstrapping, particularly the PreIdeation and Ideation stages on Business District's talk radio show. Master bootstrapper Richard Branson was highlighted, including his book, "Losing my Virginity," covered by the Bootstrap Book Club.

Here's the podcast.

Bootstrap vs. VC at Texchange

I'm looking forward to a conversation with Tom Ball from Austin Ventures at Texchange next week. We had an enjoyable lunch and found that we agreed more than we disagreed, so it will be a very interesting discussion! Business District Magazine will cover it for their October issue and it will be on the BootRap Podcast.

We have also created a Texchange group on BootstrapOnline, our social network, which we recently opened to anyone interested in connecting with the bootstrap community. The group is moderated by Linda Ford, a member of Bootstrap and Texchange.

Bootstrap Austin Launches Online Social Network

The Bootstrap Austin community is generated through contributions made by its members. We encourage our members to become Contributors, using the community as a platform to develop their products and services while serving their fellow-bootstrappers. This has resulted in many outstanding initiatives within the community and also aided in the development of unique offerings by bootstrappers for their customers.

Once such contribution is our social network, BootstrapOnline, powered by Small World Labs. SWL provides technology and expertise to develop private-label social networks akin to mySpace and Facebook.

Bootstrap has recently opened BootstrapOnline to the general public in order to increase the connectivity between the bootstrap community and those interested in working with bootstrappers. Anyone interested in bootstrapping or connecting with bootstrappers can join the network and is encouraged to do so.

Organizations engaged in supporting entrepreneurs are also represented with their own groups on the network. Organizations already signed up include: ATC, SBDP, Rice Alliance, TiE Austin, Texchange, FLOW, EO, DCI, HBMG, ATI, Acton MBA, AIBA, SCORE, ACA, AWTA, AIEA, Business District, EFF, CTAN, PeopleFund, BSC, WFS, LES, ICF, Technology groups include JOOMLA, Drupal, Webmopac, Agile, and Ruby on Rails. Economic Development organizations around the region include Seguin, San Marcos and Matagorada, with more to come.

In a recent article in Business District Magazine, I encouraged the Austin community to "come together right now! (over us)." We are excited to offer BootstrapOnline as our way to help weave together the fabric of the entrepreneurial community. It is our hope that this will foster Austin and the Central Texas region toward the cause of creating more successful home-grown innovative companies.

If you are interested in participating, please join BootstrapOnline now and get involved! And, of course, invite your friends.

Web Subgroup - domain names

Fellow bootstrapper Andrew Alleman spoke to the web subgroup about domain names. He provided a write-up of the talk on his website. The audio will be posted on the BootRap shortly.

Interview on Bootstrap, BootKarma, THF, Bootcamp on KXAN

Jenny Hoff interviews Bijoy on her Sunday morning show.

Bootstrap Book Club on ABD Radio

We had an excellent discussion on Sunday July 29, with David Miller, CEO of Creative Class Strategies, about Austin's place as a Creative Class City. Fellow bootstrapper and publisher of Business District Magazine, Jason Myers and Phyllis Blees, lead of the Bootstrap Book Club were in the studio.

Bootstrap Speaking Initiative

The Bootstrap Speaking Initiative was kicked off in March of this year with a 6-session class covering a variety of interests, taught by Professional Speaking Consultant Tonja O'Neill. The topics included basic and advanced speaking skills, overcoming anxiety, getting paid to speak, and giving and receiving feedback. The classes were very well attended with a total of 30 bootstrappers and approximately 10-12 each class.

Because it was such a bit hit, we decided to continue the initiative with follow-up classes. Steven List, Professional Speaker and Speaking Coach, taught a 3-session class on storytelling in June & July. Tonja will be facilitating a 3-session workshop on creating and delivering business pitches in August.

The purpose of the initiative is to help bootstrappers communicate more effectively in order to improve business sales, whether presenting in front of an audience, giving a sales pitch, or simply speaking one-on-one about your business.

To get more information about the initiative and how to sign up, please visit the bootstrap wiki. See the bootstrap calendar for specific dates on the upcoming Business Pitches Workshop.

Constraint Creates Innovation

***Originally published in Austin Business District Magazine. 

“Necessity, who is the mother of invention” – Plato

As a business owner, I’m sure you are familiar with a very uncomfortable situation where everyone in the business is committed full time, success is within reach, but the venture has yet to be come profitable. Cash flow (or lack thereof) becomes all consuming in the entrepreneur’s mind.

At Bootstrap Austin we call this the “Valley of Death” (VoD), and it can be an intimidating and scary place. Many times, the desire to avoid it causes many entrepreneurs to prematurely seek funding from investors hoping to propel the venture over the VoD with minimal pain both for the founders and the venture. 

But that would be the wrong thing to do. The concept of funding too early belies a fundamental misunderstanding of the role of constraints in the innovation process. 

Constraints are not the enemy – they are the ally of the venture. They cause it to innovate and ultimately, to discover its unique business model. 

In the early days of Southwest Airlines, the lack of cash caused the company to sell one of its four airplanes. Instead of viewing this as a step backwards or seeking investor capital to solve the problem, the team asked themselves a question they had never asked before: how can we deliver the same rate schedule with three airplanes as we did with four?

They noticed the hour-and-a-half turnaround time (an “industry standard”) and wondered if they could reduce that down significantly. This led to the many innovations – only using Boeing 737s, flight attendants cleaning the aircraft, etc. – that today give Southwest the shortest turnaround time in the industry. Notice, for example, the urgency you feel to board a Southwest flight because of the free seating and A/B/C grouping. Unlike other airlines, Southwest has their passengers helping to speed up the turnaround of their airplanes! 

Many other examples abound: Virgin’s move from a mail-order music business to retail stores came from the constraint of a postal worker strike in pre-Thatcher Britain. The transporters from Star Trek (inspiring the phrase “Beam me up Scotty!”), were invented because the production company didn’t have the funds to make the sets. Dell’s direct business model emerged from the lack of money to buy the parts when making computers. 

The list goes on and on. 

It bears repeating: constraint creates innovation. Indeed, the great ventures discover their business models by directly facing the constraints they experience during that first VoD. This also reveals the issue with formulating a “business plan” in the Ideation stage of a venture. After all, how do you know your market if you haven’t proven it yet?

Yes, VoDs are repeating themes in the life of every business—and it means that Growth stage could be just around the corner. So the next time you are asking yourself, “how am I possibly going to make this work?” Just realize that companies that learn to embrace their various “valleys of death” eventually propel their ideas into growth and profit. 

And without it, it might not happen at all.