I was asked the other day, how do you start a software company with no money. It’s something that happens a lot more than people might imagine, and I’ve done it a few times already.
The way to go about this is a process called “bootstrapping” which literally means picking yourself up by your bootstraps. When you’re first starting out investors are just out of the question. You’ve got no track record, no experience, no rich relatives and no money of your own. So what to do?
Having done this several times already, here are my suggestions:
You need to find people that are willing to work for free or for very little up-front money. There are many people looking for opportunities in the workplace for different reasons. Sometimes they have very little experience but lots of talent, and they just need a foot in the door. Other times, they’re looking at a career change and want to gain valuable experience in a different industry or role. You won’t know who’s available until you start to look, and you will likely be quite surprised at what’s out there.
The kind of arrangements you can have with your low cost, or volunteer team includes:
• Hiring on a casual basis so that you’re not paying salaries when the company has no income. In this way you only pay out money, when the new company has work. If there’s no work, you pay nothing. This is probably the easiest and safest way to start if you’re completely starting from zero.
• You can give them a share of profits from each contract or sales of the product. This can be a risky idea because you cannot guarantee that there will be any profits, and this might cause problems between you and the team, should things turn bad. Make sure you’ve got some good contracts in place to protect you here. You need to be careful in Australia, as in many cases, the person whom you thought you had a profit share agreement with, might come back and claim they were an employee and you would be liable for their salary expenses. You need to make sure that your paperwork is correct and that you’re following the right procedures (which is beyond the scope of this article). The truth is that most people aren’t happy to take business risks, no matter what the longer term rewards might be. This is your role as the entrepreneur. Indeed, there are people that will and if you can find them then great, but if they don’t have much business experience, this might backfire on you as the realities of running a business and making a profit hit-home. If people are relying on profits to make up their salaries and they don’t materialize you’re going to get into trouble quickly.
• The most obvious solution might be to give people a share of the business. In this way they’re not relying on any one product or project to make up their salary, but rather the overall growth of the business from year to year. The problem is that your company is a highly risky venture, and people know this. It’s a fairly good strategy of course if you have no resources and people believe in you and the company’s future. Personally, I would argue against giving away any equity (of significant value). The reasons are beyond the scope of this article, but owning and controlling your own company is very important.
Unless you’re independently wealthy, have some very wealthy friends or relatives, then you’re going to have to get money in some very creative ways.
Believe it or not, the easiest way to get money is to work for it! Well that sounds kind of stupid right, that’s obvious, but when you start a company it’s no different. The company is a legal entity in its own right, and it now has to go out into the world and earn it’s living. It’s as simple as that, and it can start straight away!
Raising money is extremely hard, takes ages and the likelihood of success for someone starting from scratch is pretty close to zero. So, where does this income come from?
You need to think laterally. There are literally thousands of things your new company can do to generate revenue. They’re not things you might like to do, or want to do initially, but they get you started and that’s how you bootstrap your business, collect quality people to work with you, pay competitive salaries, keep good people, increase your capacity in terms of your work resources, environments and tools and so on.
Really, you want to take as much work as you can wherever you find it, but some work is better than others. For example, your new company has a vision, and end goal, and some work moves you closer towards that end goal, and some work moves you away. So, even though you have very little option when you’re starting out, as time goes on you’re going to be wanting to take on the work that’s moving you towards the objectives that you’ve set for yourself.
A lot of these jobs can be tedious, boring, time consuming and pay very little money, but over time it all adds up. You’re moving towards your end goal, you’re re-structuring, learning, getting stronger, and running the business better. If you keep plugging away and never give up you will eventually reach your goals. You only fail when you stop in business, and that’s not really failure but more of a learning experience in my opinion. Maybe you just had the wrong goals from the start. In any case, you now have a business with resources and money. You’ve successfully bootstrapped your company.
The other thing to consider is government money. There’s a lot of money that you can get from the governments in Australia. The more successful your company becomes, the more access to grants you will have. Because of this, you need to just keep your company moving forwards no matter what. You need to keep taking those leaps of faith, you don’t know what opportunities are there until you start moving forwards.
When you’re staring out you’re going to have to do all these things simultaneously. Your margins are going to be much tighter in the beginning. You’re going to be doing more work than you can handle. You’re going to be doing more jobs than one person should have to do, but that’s to be expected. That’s how it’s done.
When you first come up with an idea, or you’re looking to start a company, many people first try to solve the problem of getting money. There are many other things of equal importance however. Things that you can negotiate or get for free for example are just as valuable as putting money into your business account.
So why not
• Negotiate with suppliers such as accountants, lawyers and other business professionals who are willing to give start-ups a go and work for free or for very low fees.
• Share an office with someone who wants to help you out. Work from home or use a coworking or serviced office space with reasonable terms.
• Barter for services and goods. Look for bargains everywhere. Every dollar you save, is money you’re pumping into your business.
• Trade your expertise in return for something you need or want.
4. Business Development
Business is about sales. You need a very talented and tenacious business development person to bring in the work or to make the necessary contacts in order to make the sales. Ideally this person will be you, but that’s not the only way. You need to ask yourself if this is something you enjoy doing, whether you can build the skills required, basically whether or not you’re the right person to do this crucial role. Without business development, you don’t have a business. You need someone who understands your industry intimately, you can’t just go out and find a business development person and plug him or her in, and it doesn’t work. You need someone who enjoys doing this work, who already has skill at doing it or who finds it easy, and most importantly someone that you can trust who has a vested interest in the future of your business or you could be training up a competitor. Obviously it’s better if you’re this person or can become this person, but it’s not critical.