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Bootstrapping is a term that refers to starting a business on a limited budget, or one’s ability to stretch a limited amount of resources to grow a business, and to conserve capital while generating revenue. Bootstrapping is common for many small start-ups that have been started on a shoestring budget. It is important for anyone considering starting a business at some point to understand what bootstrapping is, and various ways to go about bootstrapping one’s own business. Various bootstrapping methods include bartering, equity trades, leasing, creative marketing, and conducting your own research (Sullivan, 2015). In this essay we will examine these various bootstrapping methods from the perspective of a new restaurant start-up.
One common method used when bootstrapping a business is bartering. Bartering involves the trading of goods or services between parties, without exchanging any actual cash value. For instance a restaurateur might be willing to exchange meals for the expertise of someone else, for this example we will say legal advice. This can work in the favour of your business in a number of ways. First you may be able to get the expertise that you are seeking at a discount by using this method. Say you trade 20 meals which retail for $10 according to the restaurant menu in exchange for 1 hour of legal time which we’ll say typically cost $300/hr. Although the retail value of said meals is $200, the actual cost to the restaurateur will be far less, in addition to this you will have saved $100 off of what the lawyer typically charges. This method is also advantageous because the business does not need to use any of its cash to get what it needs.
Similar to bartering is equity trading. Whereas with bartering you are exchanging goods and services between parties, with equity trading you would instead trade equity in your business to acquire the goods or services that you are seeking. Although this is a great method to use in the initial phases of start-up because it does not force you to use any cash, it can be a costly decision in the long run as it may cost you more in long term profits than you receive upfront. So let’s say that for your restaurant you need an accountant to keep track of all your numbers, but simply do not have money in your labor budget for cover such an expense, you could offer 5% equity in your company in exchange for someone’s accounting services. This saves you from have any overhead costs from an accounting position on your payroll, but in the long run you will lose 5% of your profits.
The next bootstrapping method that is fairly common in business is leasing. Leasing is a means of acquiring an asset by essentially renting it for a period of time rather than purchasing the item upfront. For example for a restaurant to operate they will need to have an industrial deep fryer. Depending on the size a deep fryer can run upwards of $4,000 brand new. Such amount of money upfront is often times not feasible for a business, as that money maybe better spent on marketing or sales. So in order to avoid having to spend $4,000 upfront a restaurateur may opt to lease the equipment for a period of time. Rather than having to spend $4,000, the entrepreneur may lease the item at a cost of $100 a month for a period 1 year. This would cost the business $1200 over the course of the year rather than $4,000 immediately, and allow the business to spend the cash on things that will help generate revenue for the company.
One of the most important aspects of starting any business is marketing. Marketing can also be a very expensive undertaking for a business, but a business cannot succeed without it. Therefore for a business that is bootstrapping it is important to utilize creative and inexpensive means of marketing to spread the word about your company. For a restaurant it would be ideal to advertise on TV or radio, but this is simply far too expensive for a new restaurant start-up, so instead they will have to utilize creative means of marketing. For instance for a restaurant I would propose utilizing the running suit guy. The running suit guy is gentleman than runs marathons in a full suit, and sells advertising on the suit. This may sounds ridiculous, but for under $500 you would get exposure to a crowd of over 2 million people at the New York Marathon (Welcome to The running Suit Guy). These are the kinds of creative marketing techniques that companies need to seek when bootstrapping a business.
The final method of bootstrapping is conducting your own market research. Market research is a critical aspect of getting a business off the ground as it allows the business to clearly define its market and competition, but with such importance also comes a high cost through an agency or consultant. For a company that is bootstrapping the entrepreneur might consider conducting their own research. For a business as common as a restaurant there are endless amounts of secondary data available online or often times from local chambers of commerce. Primary data is when you conduct your own market research, but by using data acquired through secondary means you can get it for far less.
Bootstrapping is a critical component for many small businesses to succeed. There are an endless amount of methods that can be used to bootstrap a small business. For a restaurant I believe the 5 methods discussed within this essay would be the most effective in the early stages of launch. These methods include bartering, equity trades, leasing, creative marketing, and conducting one’s own market research.
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