MGT 340 - Chapter 12: Bootstrapping and Crowdfunding PDF

Chapter 12: Bootstrapping and Crowdfunding for Resources Dr. Kipp A. Krukowski MGT 340 – Fundamentals of Entrepreneurship What is needed to start a business? • The three ways most people think of to get money to start a business are: – Bank loans – Venture Capitalists – Angel investors •...

Chapter 12: Bootstrapping and Crowdfunding for Resources Dr. Kipp A. Krukowski MGT 340 – Fundamentals of Entrepreneurship What is needed to start a business? • The three ways most people think of to get money to start a business are: – Bank loans – Venture Capitalists – Angel investors • All of these are very hard to obtain • Liability of Newness - lack legitimacy at this time What is Bootstrapping? • Bootstrapping - Process of building or starting a business with very little funding or capital or virtually nothing at all – Expression “pull yourself up by your bootstraps” which are the small fingerholds used to pull on the entire boot rocking back and forth • 98% of startup businesses begin with no formal investment - bootstrapping • Research reports 1/3 companies begin with less than $5,000 • Entrepreneurs often turn to the 3Fs (friends, family, and fools) – be careful Why Bootstrap? • • Bootstrapping Advantages – More autonomy over financial decisions – Avoid the legal hurdles with capital funding – More informal option for raising money than visiting a bank (or other source) External Financing Advantages – Advice and guidance from financial experts – Building more permanent relationships – Usually you can receive larger chunks of money Let’s Prove Ourselves! • • Ironically, potential investors like to see bootstrapping – Strong level of commitment – “Skin the game” – Indicates a primitive product has demand Bootstrapping requires: – Being creative and using resources – Being mindful of amount of cash you have and cashflow for survival Common Bootstrapping Strategies Crowdfunding • Process of raising capital for a new venture from a large audience, typically through the internet • Those who use crowdfunding to raise $ are known as crowdfunders and those who contribute are backers • Usually a small contribution from a large number of people • Unlike receiving from formal investors crowdfunding has minimal rules. Example: Kickstarter – Receive a % of money raised – To keep the money, an entrepreneur must raise the full amount Advantages of Crowdfunding – Have 3 basic rules • Saves money on marketing • Projects must create something to share with others • Build relationships with customers • Projects must be honest and clearly presented • Committed customers: Spread the word • Projects can’t fund-raise for charity, offer financial incentives, or involve prohibited items • Make new contacts Four Contexts for Crowdfunding Patronage Model: Lending Model: • • Funds are looked at as loans to be repaid • Usually in the form of interest • Financial support given by backers without any expectation “Goodness out of your heart” Four Contexts for Crowdfunding Reward-Based Model: The Investor Model: • Gifts or experiences given to backers as thanks for their funding support • This gives backers the opportunity to become shareholders in a company early on • Usually, unique product samples or limitedtime experiences • Investment in exchange for either ownership shares or a share of future revenue or profit • Most popular because it refrains from giving away equity or a large share of profits Guide to Successful Crowdfunding 1. Make sure your product or service solves a real problem - Convince online world they need your product! - Communicate within two sentences 2. Test and refine your idea - Never present an idea that is half-baked - Test, refine, plan Guide to Successful Crowdfunding 3. Be prepared! - Don’t fail to plan on delivering your product to customers - Prepare in advance suppliers, distributors, warehouses 4. Seek and accept advice - Ask the people who have done this before you Guide to Successful Crowdfunding 5. Get your campaign started— Now! - Use social media and other outlets to release drawings/photos - Build customer base and spread the word 6. Money matters 7. Focus on the pitch - Try have some sort of cash/credit beforehand - Make a video to increase odds - Set funding goal carefully - Earn the consumers’ trust - Do financial homework - Be totally transparent about your idea - Make high quality video Guide to Successful Crowdfunding 8. Make the most of crowdfunding opportunities -Get feedback from backers -Receive press coverage 9. Commit to your campaign -Reply to lots of emails -Continue the dialogue after the campaign is over for further opportunities 10. Avoid the crowdfunding curse! -Avoid delays in delivery -Follow through on promised rewards -Disappointed backers can ruin reputation -Be honest with backers about any situations or setbacks 3 Key Points • Based on the numbers, bootstrapping will likely be your source for funding. There is nothing stopping you but yourself from starting your business! • Bootstrapping allows for autonomy - the number one reason that individuals start their own companies! • Crowdfunding can be an alternative way to raise funds. Realize that there are different models based on your preferences. Make sure that you consult with someone experienced in crowdfunding success. Questions? Dr. Kipp A. Krukowski MGT 340 – Fundamentals of Entrepreneurship