Lessons Learned from the Bootstrapper’s Bible

Lessons Learned from the Bootstrapper’s Bible

3 FEBRUARY 2009 11 COMMENTS

The Boostrappers Bible by Seth Godin is one of the best compilations of actionable, business insight I’ve seen.  It took me a while to go through it and each time I go through, I find another nugget of insight or a new lens.  I’ve been recommending it to friends, family, and colleagues.  The price is right – free – and it’s one of the best consolidations of insight and action I’ve seen in a while.

What I especially like about the Bootstrapper’s Bible is that it actually resonates.  For more than 8 years, I’ve pitched projects and ran them cradle to grave.   I know the challenges of bootstrapping projects and getting incremental buy in.  I also feel the pain of getting incremental results and keeping the score, and proving yourself to your stakeholders, while trying to knock the ball out of the park.   I also know how crucial it is to innovate in your process in order to grow your capability and keep your business agility.  Seth’s lessons definitely reflect experience from the school of hard knocks.

Key Take Aways Here are my key take aways:

• Know whether you are an Entrepreneur or a freelancer.  The mindsets are different.  An freelancer will happily work away at their craft, while an entrepreneur is about being a part of something bigger than themselves, and changing the game.  Risk is a key part of the entrepreneur’s lifestyle. It’s more of a roller-coaster ride.  A freelancer on the other hand, prefers routine and perfecting their skills.
• Know the 9 rules to take care of your business.  While there’s no guarantees of success, Seth’s 9 rules are a way to help you stay on track.
• Reinvent your business process every 3 months.   Review your business process every 3 months and look for opportunities to change your approach.  A tweak here or there could change your game.
• Keep the score.   Monthly checkpoints are a good way to stay on top of your game.  This is especially true for the business.  A lot can happen in a month.  If you’re keeping the score along the way, you’ll avoid some wild surprises down the line that could wipe you out.
• Plan for the money.   If there’s no money, you’re out of the game.
• Use mini-mentors.  Learn from everybody.  Whatever you want to learn, chances are somebody’s been there and done that.  Rather than start from scratch, leverage other people’s experience and expertise.
• Surround yourself with people who are succeeding.   You become who you hang with.  By surrounding yourself with people who are succeeding, you’ll learn what’s working and what’s not.  You can model their success and open doors that you might otherwise not see.
• It’s like walking through a maze.  I really like Seth’s maze analogy. Each time you open a new door, you have to stop and take a new look at where you’re at.  Each new door presents new choices.  One of the most important choices is that if you’re in the wrong place, move.

What’s a Bootstrapper Seth writes that a bootstrapper is:

… A bootstrapper isn’t a particular demographic or even a certain financial situation. Instead, it?s a state of mind.  Bootstrappers run billion-dollar companies, nonprofit organizations, and start-ups in their basements. A bootstrapper is determined to build a business that pays for itself every day. In many ways, it?s easiest to define a bootstrapper by what she isn’t: a money-raising bureaucrat who specializes in using other people?s money to take big risks in growing a business. Not that there?s anything wrong with that…

9 Rules to Take Care of Your Business Seth outlines 9 rules to take care of your business:

• Rule 1: Find people who care about cash less than you do.  Seth writes that borrowing from other businesses to fund your business is smarter than borrowing personal money.  Borrow money from suppliers and your customers who have the greatest interest in your success.
• Rule 2: Survival is success.  Seth writes that if you can survive dealing with a tough project or a testy customer, do.  Survival is the name of the game.  Don’t wait for the perfect pitch.
• Rule 3: Success leads to more success.  Seth writes being in front of people will lead to new opportunities, new products, new enactments.  Be in motion, because customers like motion.
• Rule 4: Redo the mission statement and the business plan every three months.  Seth writes success brings more success, and you learn as you go.  He adds that six months in you’ll realize your first business plan was naive. 
• Rule 5: Associate with winners.  Seth writes that four groups dramatically influence how your business evolves: 1) Customers 2) Employees 3) Vendors 4) Peers. 
• Rule 6: Beware of shared ownership.  Seth writes that a 50/50 split is almost never fair.  Someone feels cheated and someone goes for the ride.
• Rule 7: Advertise.  Seth writes that from the first day you should allocate a percentage of your income to marketing.  He suggests letters, phone calls, banner ads, space ads, and TV.  Don’t think of marketing as expensive, think of it as an investment.
• Rule 8: Get mentored.  Seth writes that you should find someone who’s come before you and ask for help.  Don’t ask for money and don’t ask for free output.  Seth adds that mentors don’t commit for money, but for the gratification of seeing someone else succeed.
• Rule 9: Observe those little birds that clean the teeth of very big hippos. Seth writes that you should find a bigger, richer, more stable organization and partner with them.  It gives you credibility and access and sometimes, cash flow.

Key Points Here’s my notes from the Bootstrapper’s Bible and Seth’s advice:

• What big companies have that you don’t have.  Seth says there’s five things that big companies have: 1) distribution 2) access to capital 3) brand equity 4) customer relationships 5) great employees.
• 7 bootstrapper tools.  Seth says the little guys have: 1) nothing to lose 2) happy with small fish 3) presidential input 4) rapid R&D 5) the underdog 6) low overhead 7) time.
• You can’t win if you’re not in the game.  Redefine the game.  Play on your home field.
• Figure out which business to be in.  It’s one of the most important things you can do to ensure your success.
• Success is more fun than failure.  Seth gives the example it’s way more fun to run a successful vegetable stand than to be a bankrupt comedy club owner.
• Great ideas can wipe you out is the first law of bootstrapping.  A great idea is bold, brazen, and takes your breath away.  Seth goes so far as to say great ideas will kill you.
• It’s not the brilliant idea, it’s the business model.  According to Seth, finding a business model that works is more important than a brilliant idea for a business.  According to Seth, a business model is a machine, a method, a plan for extracting money from a system.
• Get off on the right foot by starting the right business.  Know the mechanics of a business model before you start your business model. 
• Five Attributes of a Business Model.  Seth says there’s five keys to starting the right business: 1) They should be profitable 2) They should be predictable 3) They should be self-priming 4) They should be adjustable 5) There should be an exit strategy (optional)
• Without a business model, you won’t make a profit.  Seth writes that without a business model, a company can get publicity, hire employees, and spend money – but it won’t make a profit.  He also points out that the Internet is the home of scary business models, with many people with no idea how they’re going to make a living.
• Don’t fall into the trap of doing the easy business, fun business or sexy business.  The critical rule is, just because it’s hard to start, doesn’t make it a good business.  You can look for scalable, predictable models that allow you to extract excess profit, but don’t ignore the critical rule.   Any failed business is no fun.  Seth adds that The Inc 500 (http://www.inc.com/inc5000/ ) is a list of the fastest-growing small companies in the country, and almost all are boostrapped.  His key point is that the businesses are varied and boring, but the people running them are having the time of their lives.
• Decide if you’re a freelancer or entrepreneur.  Seth writes that a freelancer sells their talents.  While they may have a few employees, they’re doing a job without a boss, but not running a business.  There’s no exit strategy or pot of gold, but they make their own hours and be their own boss.  Examples include layout artists, writers, consultants, film editors, landscapers, architects, translators, and musicians.  Seth writes that an entrepreneur is trying to build something bigger than themselves.  They take calculated risk and focus on growth.  An entrepreneur is willing to receive little pay, work long hours, and take on great risk in exchange for the freedom to make something big, something that has real market value.
• The Subway Example and the Photo Booth Example.  The numbers of the business model for Subway don’t support absentee management.  You end up both the franchisee and the manager. In the photo booth example, an entrepreneur mortgages everything to build a company with 60 employees in less than a year.  They either hit a home run and influences the lives of a lot of people or it fails and they’re out of the game for an inning or two, but they’ll be back.  Seth points out both are good opportunities but only one will do for you.
• Entrepreneur vs. Freelancer.  The entrepreneur is comfortable railing money, hiring and firing, dreaming big, and persuading others to share the dream.  The freelancer focuses on their craft.  They build their business by doing great work consistently.
• If you bootstrap successfully, you’ll get the money to grow.  Seth writes that if you bootstrap successfully, you’ll find that bankers, angels, and investors are more likely to give you the money you need to grow.
• Trade on the success of a proven business model.  Seth writes that the most successful boostrappers don’t invent a business model.  They trade on a proven one.  Seth identifies 4 advantages: 1) You can be certain that it can be done 2) You can learn from their mistakes 3) You can find a mentor 4) You’re not alone.
• Know your value chain.  It’s the first step in getting to the core of how you’re going to succeed.  The value chain is the path the product goes through to reach a consumer, along with who adds value along the way.
• Consider selling your service or product directly.  Seth writes that if you’re selling a custom service or high-priced good, consider selling it directly.  The example he provides is that an architect who brings in a contractor can expect more profit than a contractor who got the job and brought in the architect.
• Instead of starting a business that makes stuff for people just like you, do some real research.  Don’t assume everyone is like you.  Everyone is not like you.  Seth writes that your business should reflect what you know, love and are great at, but don’t fall into the trap that everyone needs what you need, wants what you want, buys what you buy.  He puts it bluntly by saying don’t extrapolate from your own experience and multiply it by 250,000,000.
• Emulate and improve on the market leader.  Rather than invent something that requires you to have a handle on the purchasing habits, the psychologics, and the changing demographics of the country, find a thriving industry and emulate the improve on the market leader.
• Consumer products are almost impossible to boostrap.  Seth warns that it’s expensive to get the first person to buy, and you have to pay a bunch of money to let people know they need one, and you have to share a lot of the profit with the retailer.  The worst part is you have to fill the shelves in advance, but the retailers won’t pay you just to fill their shelves.
• Find the flaws behind a potential business.  Seth writes that all the trappings of a successful business – business plan, marketing plan, PR agency, patent lawyers, and articles of incorporation – can hide the real flaws behind a business.
• Is the market ready?  Seth gives the examples of Steve Jobs, bill Gates, Phil Knight and Ted Turner.  He says they picked giant business models and got lucky.  The market was ready and they won.
• Pick a business that’s friendly to boostrappers.  Seth writes to find one that will likely give back what you put in.  He points out that businesses that are also hobbies usually cause the most trouble and he gives examples of restaurants, toy design and invention, and creating gourment foods. (I think he’s alluding to the E-Myth issue).  He says on the other hand, mail order, consulting, acting as a sales rep or other sort of middleman all work great, as does focusing on an obscure market that is growing fast.
• Don’t compete in a world where you’re not wanted.  Seth tells the story of a friend who wanted to break into the toy business.  She had worked on the process of meeting people, inventing products, licensing them and earning a profit. 
• The problem is the toy company works hard to keep inventors away because of lawsuits and hassles of outsiders.  On the other hand, the book business publishes 50,000 new ideas every year, relies on 100 percent on outsiders, and hires editors who look for ideas from the outside.  It’s a different product, but the same job.
• Understand the market and persevere.  Seth writes that his friend succeeded because she understood what her market wanted and she persevered for years and years to build her reputation.  She was also careful with expenses, didn’t waste her equity, and set herself up for success while protecting against failure.
• Get used to being wrong.  Seth writes that starting a business is the most public, most expensive, riskiest way of all to be wrong.  Consider all the sensitivity analysis, business model, and value chain analysis.  He says you’re going to be wrong so get used to it.
• Stop planing and start doing.  Seth writes that you have to get out there and do it.  The more you do, the more you do.  Doors open, opportunities appear, models change, your reputation increases and you become a magnet for smart people, good customers and investors.  He wants this won’t happen if you stay inside and keep planning.  Seth sums the guidance as build your business, one day at a time, one customer at a time, lower your downsides, focus on the upsides, and start building.
• Plan for the money.  Without money, there is no business.  Seth writes that when you run out of money, your creditors will shut you down, your employees will leave, and your spouse will worry.
• Get a 9 month look on your worst case expenses.  Identify your most, average and least expenses for the past six months.  Write down your expenses for each month.  Next, identify the most, average and least for the past six months.  this tells you your best and worst case.  Next, figure out 9 months of maximum expenses.  Multiply your most, average, and least expenses by 9 to see what your potential expenses would be.
• Get a 9 month look on your worst case revenue.  First, figure out 9 months of contracted revenue.  Write down guaranteed revenue you have for the next 9 months.  Next, figure out figure out 9 months of likely revenue, from all possible sources.  Hope for the best, but plan for the worst.  Be pessimistic in your predictions.
• Figure out how much you’re willing to sacrifice for the business.  The expenses and revenue don’t include money for you to live on. 
• Successful boostrappers change their lifestyle when they start the business.    If they’re too focused on taking from the business and not focused enough on building it, it’s a sign of failure.
• Figure out key decisions before you run out of money. Seth suggests figuring out critical decisions with your family including whether you’re willing to move, sell your car, and cut major personal expenses to invest in the business.
• Run with your business or bring in freelance income.  If you have enough money to run with your business if everything goes wrong, then go run your business with focus and confidence.  If you don’t, then spend a percentage of your time each week on low-risk revenue sources, while you build your core business.
• Build multiple income streams.  Develop a multiple income source strategy before you run out of money. Seth writes that a cash flow makes you more stable more confident, and more likely to have a successful business and that freelance guys can turn into that that will help your core business.  The caveat he points out is don’t focus your energy on the sideline instead of the dream.
• Keep the score.  Every month, share the numbers with your spouse and board of advisers: 1) Cash in this month 2) Cash out this month 3) Money in the bank right now 4) At the current rate, how many months until no cash left.
• Don’t live on debt.  Seth beautifully points out that having available credit is good, but living with debt regularly will enrich everyone at the banks long before it will enrich you.  He sums is nicely with borrowing to build is the only borrowing you should do.
• 3 key rules to remember on borrowing.  Seth identifies 3 key rules: 1) don’t borrow money just to cover expenses 2) try to avoid personal borrowing at all costs 3) when you borrow money from friends, spell out the terms.
• Be sales-focused.  Seth writes that a well-financed company can afford to build a product and hope customers will come buy it.  You can’t.  According to Seth, a company with plenty of sales can almost always fix its other problems, but a company without sales is close to dead.
• If you figure out how to get the money, you’re the king.  The customer is king because the customer has money.  Publishers go to Barnes & Nobles because they sell a lot of books.  Actors and directors want to do a movie for Disney because Disney has a huge customer base.
• 2 key sales rules.  Know the 2 most important sales rules.  Seth writes the most important rules are 1) sell something that people want to buy (and know how to buy) 2) Own the sales process.
• Make it easier or more effective.  You need to make a product significantly easier or more effective.  Seth writes easier to buy, easier to use, easier to teach other people how to use, more effective at solving the problem.
• People with power do the buying or make the sales.  Seth writes that if you pick any industry, the people with power are those who either do the buying or make lots of sales.
• Follow the money.  Seth writes that money leads to power – the power to make decisions, the power to build the business you want to build, the power to hire and fire and shape and dream and succeed.
• Sales is the reasons your business exists.  Seth writes that if you can’t sell what you make, you can’t help anyone, or make anyone’s life easier, better or more convenient.  If you can’t sell what you make, you can’t pay yourself.  You’re finished.
• Have a formal business reinvention process every 3 months.  Seth suggests adding a formal business reinvention process to your calendar.  Involve your most trusted advisers, employees, backers, and customers.  It helps you correct course and avoid having short-term decisions become habits.
• Sometimes firing a customer is the smartest thing you can do.  Seth writes that some customers are greedy and dishonest, and some demand products and services that non one else could possibly want.  Seth sums the guidance as sometimes the cash you’re receiving from a particular customer – even a big one – may not be worth it.
• Find peers.  Seth writes devote several hours a week to doing favors for people with no intent of being repaid.  Do some favors for strangers and some for friends.  This could be anything from sending a relevant e-mail to finding opportunities to brag about them or referring business their way.  His key point is that a few hours a week should net you a group of 100 or more peers who will benefit from your efforts as much as you’ll benefit from theirs.
• Surround yourself with people who have succeeded and are still enjoying the ride.  Seth writes that an alternative to finding peers through favors is to start or join an organized peer group.  He warns that you should join one that’s as upbeat and enabling as you are.
• 5 rules for shared ownership.  Seth identifies 5 rules for when you start talking about shared ownership: 1) Plan for success 2) Ideas aren’t worth much 3) Always leave both sides an out 4) Match compensation with performance 5) Never, confuse profit participation with governance.
• The four most important rules of advertising.  Seth writes the four rules are: 1) Spend regularly on advertising 2) Persistence is the secret to success 3) Be clear 4) Test and measure.
• Two steps to get a mentor. Seth identifies 2 steps to get a mentor: 1) pick the right person and 2) make it easy for the mentor to say yes and easy to say no.
• Use mini-mentors.  Seth writes about somebody he knows who has a series of mini-mentors, people who help her with specific issues.
• Do your "sensitivity analysis."  Seth writes that this is about looking at the pressure points of your business.  It’s knowing what you have to do to increase profit.  For example, do you need to reducing overhead or increase prices, or increase productivity.  He suggests pending an extra month to figure this out since you’ll be in business a long time, you’ll save yourself headaches, and you’ll have a better understanding of what to focus on.

It’s Like Walking Through a Maze 
Seth writes that it’s like walking a maze:

Learn as you go.  change as you go.  Building a business from scratch is like walking through a maze with many, many doors.  Once you open one, 100 new doors present themselves.  As you move your way through the maze, you need to stop and check your location.  Look at a map.  If you’re in the wrong place move.  But if you’ve discovered a new place, there’s nothing wrong with exploiting it.

3 Example Business Models 
Seth identifies 3 example business models:

• Business Model Example 1. Nike – Hire the world’s best athletes as spokespeople.  Buy an enormous amount of advertising.  Use the advertising to get every sporting good store to carry your produces.  Make your product overseas for very little money.  Charge very high prices.
• Business Model Example 2. Poland Spring – Find local businesses that care about their employees.  Offer them a free water cooler if they allow you to refill it.  Earn money by making deliveries on a regular basis.
• Business Model Example 3. Microsoft – Create the operating system that runs every personal computer in the world.  Then use the power you gain from knowing that system, which controls the computers, to create software, Web sites, online services, even travel agencies.

According to Seth, what makes these descriptions business models is they are the formula that takes the asset of a company and turns them into cash.

7 Questions to Ask a Business Model and Value Chain Seth offers 7 questions to challenge a business model and value chain:

• 1) Who’s going to buy your product or service?
• 2) How much are they going to pay for it?
• 3) Where will they find it? 
• 4) What’s the cost of making one sale?
• 5) What does it cost to make, package, ship, and inventory the item you just sold?
• 6) What’s your profit on one sale?
• 7) How many sales can you make a month?

4 Action Steps for Your Value Chain 
Seth turns the first four questions into actions:

• 1) define the audience
• 2) do a value analysis to figure out what it’s worth compared to alternatives
• 3) determine how much of the distribution of the product you control, and what value is added by the retailers or reps you use
• 4) divide the cost of sales by the number of products you’re going to make.  (You just figured out whether they’re worth selling.)

Additional Resources Here’s key additional resources::

• The Bootstrapper’s Bible
• Seth Godin’s Blog
• The Inc 500

My Related Posts

• Lessons Learned from the Dip
• 8 Rules of businessThink
• STARS Model of Business Evolution
• Working on Your Business is Working on Your Life
• What Our Business Is, Will Be, and Should Be

http://sourcesofinsight.com/lessons-learned-from-the-bootstrappers-bible/