What is Self-funding?
Self-funding means that the founders put in the initial seed capital when starting a business and then bank roll the business until sufficient revenue is achieved. As such, no external business funding is required to start up. Instead the business funds come from the founder’s savings, credit cards, bank loans, personal loans from the founders close personal network, or an ongoing ‘day job’. In the modern world of entrepreneurship, startup costs have reduced dramatically and it’s often very viable for founders to self-fund their businesses in order to get started.
7 Tips for Self-Funding Your Startup
Start a business that can be self-funded.
This might sound obvious, but seems to be missed by many. Some business ideas and business models just don’t suit self-funding. If it’s the type of business that requires a massive capital outlay, hitting large scale before revenues come in, or significantly long and expensive R&D, then it’s likely not the sort of business that can be self-funded. If you know you’ll be self-funding the startup initially and then bootstrapping it to success then look to start a business with low capital outlay, a short development cycle for the product or service, and business model that will bring in revenues soon after the start of the business. These types of business can be self-funded quite successfully.
Start lean, validate first.
This means validating your initial assumptions about the market and the take-up of your proposed product or service offering before you spend lots of money and time actually developing your product or service offering. This is vital for any startup, and a self-funded startup with limited funds should take special note of this.
Focus your launch on your core value offering.
A big part of validating a business idea is determining the core need(s) of your customers - and users/readers in the case of an indirect business model. Seek to understand these core need(s) and then focus the launch of your business on delivering value by targeting just these core need(s). This does three things: it limits wasted time and money creating additional features or offerings that the customers don’t really care about anyway, it means you’re much more likely to make something that the customers actually want and value, and the likelihood of attaining paying customers early on is significantly increased.
Keep a close eye on cash flow.
There’s a reason why experienced entrepreneurs suggest cutting your revenue projections in half, doubling your cost estimates and doubling your expected timeframe. It’s because this is much more realistic when starting a business and you should take this into account when forecasting cash flow. Cash is king. It’s the king of kings when you’re self-funded.
As a self-funded startup, you want to be particularly resourceful with the way you use your finances. It is easy to take an optimistic view of the future and overspend now. Don’t. If you’re self-funding, you need to keep your burn rate to a minimum and extend your runway as long as possible. Progression of the business is very likely slow, everything takes much longer than expected and a big part of succeeding as a self-funded startup is surviving for as long as possible.
Build connections and leverage partnerships.
When you’re self-funded resources are generally slim and often it’s only a single founder or a small team of founders building and promoting the business. It can be slow and hard going. However, one of the quickest ways to expand your available resources is to build relevant connections and bring on other businesses as partners. Now you’ve got other people promoting your business, setting up deals or customer meetings, sharing marketing costs, cross promoting products or services, making relevant introductions and much more. Suddenly, the ability to get things done is considerably increased.
Often one of the main benefits of getting experienced early stage investors on board is the mentorship that founders get. But this doesn’t mean you can’t get mentors if you’re self-funded. You should. Seek out experienced entrepreneurial mentors who can really help your business.
What does all this mean if you’re considering self-funding your startup?
Self-funding can be a very viable way of starting a business. The important points to note are:
- You should start a type of business that suits self-funding, and
- You should start a business in a way that focuses on the core value offering and reduces wasted time and money.