There’s a tendency, especially in the startup world, to glamourise those who bootstrap; the depiction of a struggling founder eating noodles and working late in their garage slots in nicely next to the ‘fervent coder in a hoodie’ stereotype.
But just as the ‘startup bro’ stereotype is beginning to be wiped away, so is some of the shine associated with bootstrapping a company. Business owners are beginning to realise it’s hard as hell, isolating, stress-inducing, and, 95% of the time, a total failure.
Despite this, bootstrapping is often the only way to get a business off the ground in Australia, as our country’s business ecosystem is notoriously difficult to secure funding in, to the point of numerous inquiries being launched into access to capital for Aussie SMEs and startups.
For any aspiring business owner, this is a kick in the teeth, and there are no illusions bootstrapping a business to profitability is a walk in the park. So how can you do it successfully? This week, SmartCompany spoke with a successfully bootstrapped SME and startup to see what the experience was really like.
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It starts as an experiment
Kate Vandermeer is as about as far away from the bootstrapping founder stereotype as you can get. The thirty-something business owner with a background in fashion trends forecasting runs gift boutique and kids goods store The Super Cool with her husband David Nunez, and has done so for the past eight years.
Though now based permanently with a large retail location at the South Melbourne Markets, The Super Cool started as a business inspired by the peddlers of yore, bouncing around from pop-up location to pop-up location, frequently rotating its array of goods from small designers and other niche retailers.
“We were attracted to the idea of an old-school vintage peddler, who would go to small towns and bring wares from all over the world — the original nomadic retailers,” Vandermeer tells SmartCompany.
“People would come out from the town to see what wares they could procure, and it was a sense of the business going to the people, not the people going to the business.”
With social media on the rise, Vandermeer saw the opportunity to make a nomadic business work, spruiking wares in new locations each month and letting followers know where they could be found through Twitter and Facebook. Over the first six years, The Super Cool did more than 30 pop-up appearances, establishing its temporary stores at various markets between Sydney and Melbourne.
During this time, the store was also entirely bootstrapped, starting out of $20,000 of Vandermeer and her husband’s savings.
It was an experiment at first, says Vandermeer, with Nunez keeping his full-time job as a mining business analyst while she worked full-time on the business. The two figured that if it didn’t work out, they could just resell their stock and fittings and end up not that much worse off.
“The advantage of retail businesses is you can experiment financially, where other businesses you have to get patents and the like, so it’s much different,” she says.
Despite this, the business owner says she still called in as many favours as she could to get The Super Cool off the ground, trying to reduce as many sunk costs as possible by asking her father to help make shop fittings and being “very resourceful”.
About two months in, Vandermeer could see the business had legs. With the pop-up model still operating at the time, The Super Cool would have weeks of downtime in between market appearances, which led Vandermeer to open an online store for the business.
As things progressed, any profits from the business were poured into the online store, allowing The Super Cool to keep running as the founders flitted between various market appearances.
Then, about a year-and-a-half in, Nunez quit his job and both he and Vandermeer went full-time working on their new venture — but despite The Super Cool being ostensibly a successful business, the prospect of noodles for dinner was never far off.
“I drew a small wage at the start, but it really wasn’t until my husband got on board and business picked up could we live and not feel like we had to eat noodles to get by,” says Vandermeer.
Today, The Super Cool has been growing 17-20% year-on-year and is thriving despite a difficult retail landscape, something the founders are very proud of. Asked if she views the business as successful, Vandermeer says “definitely”, but she’s still, in parts, amazed she and her husband managed to persevere and come out the other side with a strong and stable business.
“It’s all rollercoasters”
Vandermeer’s story paints the picture of a bootstrapped small business well, starting from an idea with founders working part-time to cobble it together in the early stages, and only committing to it fully once the numbers backed up the passion.
For startups, the journey isn’t all that different. Cashrewards is a four-year-old Aussie payments business that rewards customers with a percentage of their bill back as ‘cash’ when they shop at various supported retailers.
It’s founder Andrew Clarke’s venture, and one which now turns over $9.8 million annually, thanks to a three-year growth rate of 501.9%.
That growth has made the 2017 Smart50 finalist an attractive target for investors, so much so the company received a $5.25 million capital injection earlier this year.
This was a moment of triumph for Clarke, who had until that point bootstrapped Cashrewards entirely. But the success didn’t come without sacrifice, with Clarke’s years of self-funding his startup enduring some times of significant hardship.
“Bootstrapping was the best way for us to start Cashrewards, but it’s really important to have a clear vision to profitability as bootstrapping can be very stressful. If you have a business without a clear revenue model you’re going to find it much more difficult,” Clarke tells SmartCompany.
“You bootstrap when you have to, when you have no other alternative. It’s really difficult to get funding for new businesses in Australia, even from friends and family.”
It’s those friends and family that Clarke found himself seeing less and less of as Cashrewards began to take up more of his time. He says running the business off the smell of an oily rag “certainly” took a toll on his family life, with the business taking up all his free time both in and out of the working week.
“I don’t think there’s that much glamour in bootstrapping when you can’t go to a barbeque on Sunday with your friends and family because you have to work 24/7 and you can’t afford to employ anyone,” he says.
“Your business takes over your life, and you have to focus on that vision throughout all your ups and downs. During the down times you ask yourself if you’re mad to do it, and then you get a win and you think ‘maybe I’m not so mad’.
“But then you get hit with something critical like losing a staff member. It’s all rollercoasters.”
Additionally, Clarke would only pay himself a wage “in a good week”, and he calls the early days of Cashrewards a “very hand-to-mouth existence”. He estimates it cost him around $25,000 to bootstrap Cashrewards.
Passion and perseverance
Today, Clarke views his business as a success, but remarks that success is immaterial until the business exits. Vandermeer agrees, saying she and her husband had always built The Super Cool with an exit in mind as she has “a couple thousand” other business ideas.
Both Vandermeer and Clarke say they were constantly wrangling with new ideas to stretch their dollars as far as they could reach, with Clarke taking advantage of shared office spaces, research and development grants, and a bit of sneaky self-promotion.
“Revenue was tight and we were watching every cent, so we had to come up with some snazzy ways to do PR. So, in the beginning, we used to stand on the street and give away free ‘money’ as a bit of a stunt, and we got some publicity from that,” he says.
“As an early-stage startup, you can be a bit more creative and push the envelope with that sort of stuff. These days there are all sorts of rules and regulations.”
While she was also watching every cent, Vandermeer admits she made some poor purchases early in the business that immediately became sunk costs, including a retail fit-out she says they “never really got the money back from”.
Both founders stress the importance of perseverance, vision, and passion when it comes to bootstrapping; if business owners don’t have the drive to get it done, they won’t succeed when it comes to fuelling a business off their own dime, they say.
“You really do need to be extremely passionate about what you do, and you need to be able to motivate everyone around you. Be creative when you’re small, and push the envelope, as you’ll need to get the most out of every dollar,” Clarke says.
Vandermeer warns creative types to get across their finances, work out what you need to cover expenses for the month, what the pipeline for the next six months will be, and what you can afford to live off.
“If you have the world’s best idea and you spend all your money upfront making it a reality, you’re still going to need to market it and sell it so it has long-term viability,” she says.
“I’ve seen a lot of SMEs come and go, and burn out because they haven’t planned properly for the future.”