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BootStrapping Your Startup
In this article Domain Registration and Hosting Company is used as an industry related example only.
Some of us who wish to start a business are not fortunate enough to have a successful track record in creating start-ups to be able to attract financing. Even Bill Gates was new in business at one point in his life, yet banks don’t like to take chances on people without a track record. This is where it may be necessary for you to bootstrap your new business venture. This term basically just means you’ll be doing it without external capital raised from traditional sources such as a bank business loan or venture capital investors. You’ll have to be that stereotypical start-up that finances the launch of their business with a chunk of their savings and perhaps a couple personal credit cards.
How to Manage Bootstrapping a New Business
The first thing to do when you are low on start-up capital is to see what you need to pay for now to get your business off the ground and what can wait. It may not be a smart thing to immediately lease an office space and start outfitting it with desks and chairs if an internet connection and a space at a public storage company may be enough to get you going. This frees up money in this critical phase of getting your business off the ground for those products or services you really need from the beginning. Cutting personal expenses to the bone and watching cash like a hawk will both also help in keeping the maximum amount of money going where it needs to go in the beginning.
Starting a Domain Registration and Hosting Company
One example of a business today that could be started at a minimal cost is selling domains and perhaps web hosting as an add-on service. Striking out on your own from the beginning can be very expensive. There is an organization called the Internet Corporation for Assigned Names and Numbers or ICANN. People who are starting out as brand new domain registrars must pay them a few thousand dollar fee before they are allowed to sell a single domain. You would also need to buy all the computers and servers to have the technical infrastructure to be able to offer the hosting.
Starting Out As a Reseller to Dramatically Cut Costs
There are actually businesses, some of which are fairly big names in domain registering and web hosting themselves, that enable people to become resellers. ResellerClub and GoDaddy are a couple such companies. They have already paid the ICANN fees that enable them to offer domain registration services, and then you subcontract to offer these services. Even though you are linked to an already established player in the industry, you are able to resell domains and hosting services under your own brand. There are those that have no setup fees and that allow you to set up others as sub-resellers under you. The power in this is that you are able to start building your own brand right from the outset but at practically no expense except whatever it costs you to market your services.
It May Be Wise to Start Small and Then Branch Out When Ready
It pays to start small when beginning a new business. It’s possible that you may find out you didn’t know as much as you thought about the promoting, marketing or just plain running the business. If it ends up tanking, then minimizing your losses by having started on a shoestring budget is something you’ll be thankful for later. There’s nothing worse than having to pay back large bank business loans and not having the money to do so.
Starting Big Can Be Smart if You Know What You’re Doing
The aforementioned example of minimizing your losses by starting small can be smart, but there is a curious psychological phenomenon at play. The less you have vested in something, the less you tend to value it. Put another way, if someone has tens of thousands of dollars sunk into a new business and they have themselves in debt up to their ears getting that money, you had better believe they will pay very close attention to this business venture and do everything they can to make it succeed. This approach is risky, however, and should probably only be done by someone who has experience in the industry in which they would be starting a business. Nothing focuses the mind quite like having a lot riding on your decisions.
To Bootstrap or Not?
Sometimes the decision to start from internal cash resources alone or needing capital from elsewhere is determined by the industry you are planning to operate in. If you are planning to start a car dealership, for example, you had better either have a wealthy uncle or a friend who’s a banker on your speed dial or forget about it. That business requires plenty of start-up capital for the lot and building and employees and god only knows what else depending on each state’s rules and regulations.
In the case of the domain registration business, however, the decision would depend on your experience with the industry. Also, if you present a business plan to a banker and they are willing to provide financing, this is a pretty strong indication that it is a sound business plan and should succeed. It may make sense in that scenario to be more aggressive, and start out with more money to get the business to a highly profitable condition in a less time. The decision will depend on the industry, your experience, other individual circumstances, and of course, whether outside financing is even an option.