Month 5: The Art of Bootstrapping Part I

It is said the mother of all invention is necessity, but as a start-up without any money, you find yourself an orphan where necessity becomes the absent father of bootstrapping.

Often at the top of a long list of wantrepreneur excuses are “I don’t have the money to start today” or “I can’t afford to stop working”. I will explain some of the actions that were pivotal in solving the funding problem at goParcel – Express Courier.

I found our bootstrapping actions fell into two main groups; those that eliminated expenses and those that brought forward revenue. I do realise some tips are situation specific and even against the start-up norm, but they worked for us.

So this month I discuss bootstrapping actions that brought forward revenue and next month those that eliminated expenses.

Don’t quit your day job.

Both founders work part-time to meet our living expenses and moonlight as entrepreneurs. This is in contrast to the first three months where living off my credit card and working full-time on goParcel seemed like a good idea. All I managed to do was get myself into a position where my card repayments were my biggest monthly expense. In realising that drawing a wage or raising capital wasn’t going to happen anytime soon, going back to work has kept the dream alive. Whilst working you find yourself short of time, but at least you know there will always be another day to fight.

Create a sinking fund.

Just like you code or hustle every week, I suggest you raise funds amongst co-founders every week in advance of expenses. You might not be able to pool a group of angel investors together, but if each co-founder commits to a nominal amount of funding each week, it pools to become quite significant ($150/week x 4 weeks x 5 months x 2 founders = $6,000). The bonus is as the build runs late and your launch date slips, you continue to stockpile a war chest of funds to support your launch.

White labelling an MVP.

In my second blog I discuss ‘Lean Principles’ and how one can innovate and learn quickly in order to waste less money and time, creating the wrong product or service. As there is a lot of ‘white labelling’ of this concept, I am not going to go over the topic again. I think it’s better to discover for oneself by reading the book.

However ‘white labelling’ is a useful bootstrapping concept. White labelling involves leveraging or branding another business’ functionality, data, content or product (with their permission and generally for a fee). It’s a very common practice in big business and a common example for a start-up is using PayPal to power your online payments. PayPal is an easy integration with no upfront or monthly fee. This is in contrast to building your own payment gateway and setting up a merchant account with one of the big four banks.

At goParcel we took it a bit further and actually used an existing parcel quoting & booking platform to facilitate our jobs. This meant we didn’t need a payment gateway, merchant account, to provide credit terms, transit insurance, a marketing budget, or even a first customer to underpin our MVP. So my recommendation is don’t build bespoke software, use what is freely available and save time.

Pick the Low Hanging Fruit.

When you have been building the product for six months easy cash sales become the life blood of your start-up. Easy cash comes from sales that involve little effort and generate instant cash. However cash sales in their nature tend to be limited in scalability, amount and never seem to come from the customer segment identified in your business plan.

It is difficult as an entrepreneur to say no to chasing larger companies for big rewards. If a long sales cycle and credit terms are involved, you might find yourself winning over that customer, charging for a whole lot of work but still failing due to poor cash flow.

In practice this has meant our first paying customers tended to be individual parcel senders, not our medium to large e-retailers that our business plan is based on. These limited sales are our means to an end and ensure we have enough cash to fight another day.

After six months and $6,000 goParcel was launched and achieved first revenue. It’s a milestone that I am proud to have achieved. It’s one thing to have an idea and get it off the ground; it’s another to have done it ‘without’ any money.

Continue to follow the trials and tribulations of these young entrepreneurs every month. Discover next month the bootstrapping actions taken to minimise expenses at goParcel – Express Courier.

If you have some great tips or tools for other entrepreneurs I would love to hear your comments.

Month 4: Small Launch, Big Bang Theory.

Yes we did it! goParcel’s 3 hour delivery service was launched three weeks ago in Sydney. We completed our first parcel delivery and a dozen more over that time. Congrats to us! However, I’m sure we didn’t maximise our sales in those 3 weeks.

I questioned in last month’s blog whether the marketing and sales work we had done to date were going to be enough to successfully launch goParcel. I also mentioned that I believed many start-ups underestimate the time it takes to break through the noise and gain the attention of potential customers. This has now been proven.

The overwhelming tsunami of parcels that we feared would crash our server didn’t eventuate. We got so caught up in meeting our launch date we shifted our focus away from customer acquisition. One valuable lesson learnt and now we are out selling the goParcel service day and night, causing this blog to be overdue!

Like a sparkler at New Years, our initial burst of light and excitement came to an abrupt end. So I jumped on-board another’s “big bang”.

I have been following with interest a report by Deloitte, titled Digital Disruption – Short fuse, big bang? Where fuse is the time to disruption and the bang is the magnitude of the transformation within the sector. The report identifies six industries tipped to experience a “short fuse, big bang” in the way of digital disruption, highlighting opportunities for forward-thinking start-ups.

To my surprise I was disappointed to see the “transport & post” industry was in the “long fuse, big bang” quadrant. Industries in this quadrant have the potential for significant disruption in the distant future and hence a greater opportunity for incumbents to plan their response to this disruption. Where does this leave goParcel? Have we underestimated the time to disrupt? Do we have the stamina and runway to last? Are we too small to compete against the almighty Australia Post, DHL, TNT, Toll?

Taras and I presented at Sydstart last week and during question time we were asked “what stops larger competitors copying what you are doing and throwing money at the problem you are trying to solve”? I gave an answer about our competitors’ structure inhibiting their ability to provide a customer focused service and the technical risk involved in building a mobile app like ours.

Since on stage, I have been thinking that my response was naïve and the opposite could be true. Our competitors’ cannibalising their existing business isn’t actually a barrier and having existing customers might be the key to success of any new courier service.

The courier industry is a complex and broad offering of intertwined services; express, next day, letters, parcels, heavy freight, local, intrastate, interstate, international etc. Customers tend to choose a provider for a particular service and use them for all other services, even if they aren’t the cheapest, fastest or most reliable. This is called ‘stickiness’ and is mentioned in an IBIS industry report regarding new competitors and services.

To address this concern I have been actively seeking out an industry partner to leverage. I am happy to announce we now have one in Temando – Australia’s largest e-commerce logistic platform (think the Webjet of parcels). In integrating with Temando we were able to immediately reach out to their customers and offer our service in a marketplace where customer loyalty and ‘stickiness’ is lower. This is due to the consumer having the ability to choose the most appropriate service based on need and price.

What I now realise is that this relationship actually allows us to address the question proposed at Sydstart. Integrating with Temando provides us with a platform to better compete against our rivals and decreases the need to create defensive barriers.

I’ve learnt some valuable lessons over the past month. That sometimes it doesn’t need to be one big struggle and every so often the cards are dealt in your favour as a start-up. Temando is that hand of cards.

Getting your service to market is only the trailer to the main event. I can’t provide any clues on how to launch a start-up successfully, but what I can say is putting your product in the market isn’t enough. Stay tuned as I come up with a plan for what I will be doing in the hours, days and following weeks before and after the new ‘official’ launch.

Continue to follow the trials and tribulations of these young entrepreneurs every month. Discover next month how they bootstrapped goParcel to first revenue in six months and for less than $6,000.

Month 3: Building A Business Relationship Is Not Like A One Night Stand.

I am part of a secret start-up in stealth mode and our idea is so awesome it will revolutionise the way we live. I can’t tell you anymore because we don’t want anyone to ‘steal’ our idea. Stealth mode is commonly used when chasing your start up dream, however I question how much validation, insight and brand awareness one misses out by keeping it to themselves?

Knowing little about our chosen space and having not been around the start-up scene, we were concerned about our idea being ‘stolen’. We feared being beaten to market by a competitor throwing money at the problem once they had seen our potential solution. However a lack of industry experience soon turned into our strength as it forced us to ask for help. The key to getting this help was to talk to anyone that would listen and three months later our fears have proven to be unfound.

The networking and the introductions that followed allowed us to build relationships that facilitated getting goParcel off the ground. We found the more we talked about goParcel, the faster the wave of momentum we were creating grew. I believe it is this momentum and the public ‘wins’ that create a launching platform and barrier for copycats. This public awareness is a true competitive advantage compared to any head start you may have achieved as
 a secretive start-up
.

I am continually analysing and trying to learn from other start-ups as they come to market. Over the last six months, I watched two start-ups take completely opposite positions. One built six months of brand awareness before launching their service through pitching competitions, press releases and doing the angel circuit, while the other built their offering quietly and launched a beta service to little fanfare.

Both start-ups had copycats follow them into the market within three months. The difference was the first start-up let everyone know they were first to market and created enough noise about their service to drown out the follower even with their significant marketing budget. While the second start-up was still in beta when its’ copycat launched hard with a great promotion about being first to market. This second start-up now finds itself in a position where it can’t find funding because it is perceived as a copycat that has missed the boat.

I now believe many start-ups underestimate the time it takes to break through the noise and gain the attention of customers, journalists, investors and industry. I have come to realise that everyone’s time is valuable; that they are busy and listening to my pitch isn’t a priority. As we launch the goParcel service this month, I look at the significant milestones that we have achieved by talking, networking and selling the goParcel story while still developing our product and ask myself is it enough to launch successfully?

These required relationships aren’t too dissimilar to a traditional professional network. The only problem for an entrepreneur is that you don’t have an employer or brand to leverage off and that you needed to have built the relationships yesterday. So where does an entrepreneur start to network?

The first thing is to realise there are many successful entrepreneurs, investors and industry professionals who are willing to help newbies, but the scene is in its infancy and very informal. The best place to start is by leveraging collaborative co-working spaces for entrepreneurs and to participate in the many start-ups events which often double as networking events; pitching competitions, hack-a-thons etc. So Google ‘2012 start-up events’, register and start a conversation at one of these events today.

One piece of advice I would give about business networks is don’t treat them like family or friends. You will find quickly there is no unconditional love in business. A business relationship is an asset that needs to be invested in and is a two way street. When you receive a referral it is important to acknowledge the referral and let them know how the meeting went. The other networking tip I have learnt is if you want your network to flourish it is as important to give referrals as it is to receive them. Also remember your business reputation will precede you and directly affect your ability to form relationships in the future.

So over the last 30 days I have learnt not to let my fears control my decision making and to ask for help. There are many people out there who want to share their knowledge, experience and relationships and wish to see others succeed. Hence it is very important that I continue to develop my business network to build on this valuable resource.

Continue to follow the trials and tribulations of these young entrepreneurs every month. Discover next month the answer to the big question, did they manage to successfully launch and find a paying customer?

Month 2 – Being Comfortable with Rejection

Business strategy, you either love it or hate it! For an entrepreneur it tends to be something you’re told you have to do before you can get started, while in the corporate world strategic planning is seen as the pointy end of management.

We have all heard the stories of a good team securing angel investment based on their idea and elevator pitch. However, I found that since the GFC and the bursting of the dot-com bubble, the reality is Australian investors are risk adverse and capital is scarce. It seems to me only the very best start-ups are able to raise seed capital based on their idea alone. The days of an entrepreneur spending years burning through someone else’s money while figuring out their strategy and revenue model are long gone.

Spending the last two months doing market research and completing the business plan, it was now time to shop our idea around town. Excited, we ran around Sydney spruiking the merits of goParcel: “a simple and convenient website to book and pay for local parcel deliveries based on our mobile application”.

I don’t regret the time spent on goParcel’s business plan and strategy, as I now understand my industry, competition and opportunity well. However a concise business blueprint like the one page business model The Lean Canvas would have sufficed for what was to come.

This road show didn’t end with a swap of equity for cash and the closing of our seed round. Instead there were two common themes; “great idea but let’s talk when you have some traction” and “you have a very clever business model, now seeking an application”.

I later came across a VC funding article highlighting that start-ups generally fail not because they can’t build the product they set out to build (technical risk), but because they waste a lot of money and time building, marketing and selling the wrong product before realising who the actual customer is and the real problem that needs to be solved. Put simply, investors run out of patience and then the start-up runs out of money.

As part of this journey, I am continuingly learning and now realise that the start-up odds of success suggest we are more likely to fail than succeed. It is hard to convince an angel investor to give you a significant amount of money and then wait patiently for 18 months to find out if you have built, marketed and found customers willing to pay for your product or service.

I strongly recommend anyone starting out to read the book, The Lean Startup by Eric Ries. This book brings the principles of Lean Manufacturing to the start-up scene. It is about how one can innovate and learn quickly in order to waste less money and time creating the wrong product or service. One week reading this book will save you months, if not years in product development.

Failing to raise upfront financing for goParcel, we have adopted parts of Ries’ principles by shortening the original nine month product development cycle to three months. We will now offer a scaled down version of our original product (Minimum Viable Product, MVP) and bring our service to market within a third of the time.

It is expected that the benefits from this approach will be that we validate the idea earlier, gain traction and garner real customer feedback. It is hoped that this approach will allow for customer driven product development and in turn create a highly investable team, product and business.

This implementation method is better aligned to our shoestring budget and more exciting from an entrepreneurial perspective. The Lean Startup approach is still a management strategy, just an adaptive approach that reflects the many unknown variables and assumptions start-ups are required to make. From a personal perspective it is exciting to know that we will be in the market within three months and providing a product and service to our customers so quickly.

My experiences over the last 30 days have only reiterated what I learnt last month; it’s hard to be an entrepreneur, don’t rush in, seek advice and do your research. To this previous statement I would add; think lots but do not build an over engineered product, business plan or procrastinate the launch. As for goParcel it is time to quickly prove that there is a market and customer willing to pay for our service. I now know their isn’t an investor who is willing to pay me to find this out.

Key Points

• If your start-up is destined to fail, do it in the quickest possible time.
• As an entrepreneur you need to be adaptive and learn from rejection.
• The lack of financing isn’t a hindrance; – from another perspective, it is an opportunity.

Continue to follow the trials and tribulations of the goParcel entrepreneurs every month at Shoestring Startup. Discover where they found a wealth of free start-up knowledge as they discuss networking, mentors and advisory boards.

Information Resources
www.theleanstartup.com
http://leancanvas.com

Month 1: Great ideas are many, but it’s the execution that counts.

That eureka moment has subsided and over time that great idea hasn’t faded away. You make the leap and decide you are going to turn your idea into a multi-million dollar start-up and won’t be one saying “I thought of that”. Quickly you realise your actions over the next 12 months will determine if you truly have what it takes to become a successful entrepreneur. You dread the thought of having to return to the daily penguin march.

In making this leap, I wished I really could have made a dollar for every time I heard “great ideas are many, but it’s the execution that counts” as I wouldn’t be writing this article now. Annoying as this statement is to hear, it prompted me to make the conscious decision to resist diving in head first. I quelled my excitement, stopped thinking about how ‘cool’ my brand and product was going to be and instead concentrated on the business of getting the business off the ground.

While searching the web for information about starting a business, I come across www.business.gov.au. This site is a great source of free business information with templates covering all aspects of starting a business. Three weeks of market research and a quarter of a business plan later, I was starting to lose all focus and my motivation had greatly diminished.

During the research period, I subscribed to various start-up and small business websites. Through these websites, I heard about an incubator in Sydney called Fishburners. Fishburners is a collaborative space for tech start-ups and I decided to drop in one Friday afternoon. My motivation was about to return.

Coincidentally, Jonathan Barouch from Fastflowers and Romaz was giving a presentation regarding his story as a successful entrepreneur. At its conclusion I was reinvigorated to continue on my journey. I walked out realising I am not alone, that it is difficult to be an entrepreneur and these feelings are normal.

Inspired I decided to address some of the problems with my business plan. I had noted in the SWOT analysis that my greatest weakness was myself. I have an MBA and come from a business development and production background in the FMCG industry but what I lack is the technological and coding skills to get a tech start-up off the ground, let alone create the actual product.

Immersing myself in the Sydney start-up scene over the next few weeks, I realised this was a common problem in many start-ups. Start-up founders often lack the industry knowledge, technical skills or business acumen to see their idea come to fruition.

During this time I meet Ryan Wardell from Project Power Up who was organising a co-founder speed dating event. The penny dropped at this meeting as I realised I was searching for a technical co-founder and I might find them while speed dating.

The speed dating was interesting to say the least. A roomful of 20 IT geeks is not my idea of a social encounter. After the first few awkward introductions, next was Taras Dikaw who laughed as I told him the idea. The reason he laughed was he had done something similar in another industry a few years back.

In five minutes I realised I had meet my business “soul” mate. Taras has a skill set which complements mine, he is a gifted programmer and has IT project management experience. More importantly we are strongly aligned in terms of values, principles and character.

A co-founder was the missing ingredient in my business plan. Bringing a technical co-founder on board turned a weakness into a strength. There are few individuals who have the skill set, experience, drive, perspective, finance and time to get a start-up off the ground by themselves. Additionally a co-founder keeps you honest and accountable.

So over the last 30 days it appears all I have learnt is what everyone tells you for free; it’s ridiculously hard to be an entrepreneur, don’t rush in, seek advice and do your research.

Key Points

• As an entrepreneur you aren’t alone, so immerse yourself in your local start-up scene.
• There is a lot of free information and resources on the web to help you start a business.
• Investigate partnering with a co-founder and look beyond the obvious family, friends and work colleagues.

Follow the trials and tribulations of these young entrepreneur every month. Discover their ‘great idea’ and business name next month as they discuss our business plan, market research and strategy.

Information Resources

www.business.gov.au

www.asic.gov.au

Shared Work Spaces for Start-ups

Melbourne – York Butter Factory

Sydney – Fishburners

Queensland – River City Labs

Tasmania – Startup Tasmania HQ

Perth – Spacecubed

Start-Up Social Scene

Silicon Beach

Unconvention