Bootstrapping… bootstrapping… bootstrapping, it can be said that the purest form of entrepreneurship is bootstrapping. During the prelaunch phase of a company and at times when access to business capital is difficult, bootstrapping is the way to go. To compete with existing businesses entrepreneurial firms face two major disadvantages: the burden of smallness and the disadvantage of newness. The reality means that the majority of start-up businesses and small businesses lack available resources to effectively compete (Winborg, 2009). Access to capital is a major issue for entrepreneurs. Inexperience of many entrepreneurs has made it extremely difficult to obtain debt and equity when lack of a track record, reputation, or collateral for loans exists. Starting with personal savings, followed by funding through family and friends, have been the main sources of finance for the vast majority of entrepreneurs. Engaging in “bootstrapping activities” is the way to go in operating the business.
Do not be discouraged with the thought of bootstrapping. There exist many great American bootstrapping success stories. A snippet include (Sherman, 2005):
Apple Computer. In 1976, Steve Jobs and Steve Wozniak sold a Hewlett-Packard programmable calculator and a Volkswagen van to raise $1,350. Through bootstrapping, the partners built the first Apple I personal computer in Job’s garage.
Hewlett-Packard Co. Starting with $538 in 1938, Hewlett-Packards first client was fellow bootstrapper Walt Disney, who required sound equipment for the production of Fantasia in 1940.
Microsoft Company. With is high school sidekick (Paul Allan) and dropping out of Harvard University, Bill Gates moved into an Albuquerque hotel room in 1975 to start the company and write the programming language for the first commercially available microcomputer.
Nike Inc. William Bowerman and Philip Knight in the early 1960s sold imported Japanese sneakers from the trunk of a station wagon with startup costs of $1,000.
Lillian Vernon Corp. With her brainstorming idea of selling monogrammed purses and belts through the mail, Lillian Vernon established a mail-order company in 1951. As a recent bride and four months pregnant, Lillian needed to earn extra money to support her new family. Society in the 1950s dictated that she stay at home for the duration of the pregnancy. A home-based business was her answer. Lillian took $2,000 that her husband and she received as wedding gifts and designed a bag and belt set targeted at high school girls. She manufactured the set through her father’s leather goods company. Than placing a $495, one-six-of-a-page ad in the September 1951 issue of magazine Seventeen the company generated $32,000 in orders by the end of the year.
The use of bootstrapping requires imaginative and parsimonious strategies for marshaling and controlling necessary resources. Think of bootstrapping from two perspectives:
1. Raising money without the use of banks or investors.
2. Gaining access to resources without the need for money.
First, entrepreneurs can raise money through the use of personal credit cards, cross-subsidizing from other businesses owned or through employment, reducing the time for invoicing seeking advanced payments and loans from friends and family. Entrepreneurs can hire temporary employees, share premises and/or employees with other entities, share or borrow the use of equipment, and obtain emotional support, skills, and knowledge from friends and family.
A key question that should be asked, “Do I need it or want it?” In the event the entrepreneur needs a resource, try to use a bootstrapping technique to get it. If the entrepreneur wants a resource, defer the purchase. Preservation of cash is important. This means controlling cost too.
Based on the writing of Oswald Jones and Dilani Jayawarna (2010) some bootstrapping techniques include:
• Customer related
• Delay payment
• Owner related
• Joint use
Simply put, bootstrapping is “entrepreneurship in its purest form” (Salimath & Jone, 2011). Overcoming resource constraints enables business operations to continue with the aid of external financial resources. Bootstrapping transforms human capital into financial capital also known as sweat equity that converts into bankable equity. It is about creating value that includes the idea of “meeting the need for resources without depending on long-term financing (debt or equity). Bootstrapping is the strategy of necessity for entrepreneurs and not of choice.
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Jones, O., & Jayanwarna, D. (2010). Resourcing new businesses: social networks, bootstrapping and firm performance. Venture Capital , 12 (2), 127-157.
Salimath, M. S., & Jone, R. J. (2011). Scientific entrepreneurial management: bricolage, bootstrapping, and the quest for efficiencies (Vol. 17). Orange, CA: Journal of Business & Management.
Sherman, A. J. (2005). Raising Capital (Vol. 2). New York, NY: AMCOM, 2. 30-33.
Winborg, J. (2009). Use of financial bootstrapping in new businesses: A question of last resort? Venture Capital, 11 (1), 71-83.
Niche marketing is about focusing your marketing efforts on a particular market segment, or niche and creating a product and/or service that speaks directly to that niche. Niches must be a part of your competitive strategy. As an Entrepreneur, niche marketing is a must.
For example, the pet market is quite large. It includes all types of animals from mammals to amphibians. So, a segment of the pet market might be horses. But a niche takes it one step further. A niche would be something more specific, like polo ponies or riding ponies.
Another example might be the food market. A segment of that market is fruits and vegetables and a niche would be organic fruits.
The list goes on and on and once you truly understand what a niche is, you can then begin to decide which niche is right for you. Niche marketing is all about doing what you love. That’s right! You get to make money by focusing your efforts on something you enjoy. Whether it’s hiking, cooking, painting or fishing, you can create your niche marketing business on just about anything in the world.
This line of questioning will help you hone in on your likes, dislikes, and what really stands out as a topic or area of interest for you. Once you realize what that is, make that your niche! So simple…..
In business as in war, a company can be small and win or can be large but lose. The rules of success or failure depends on key variables:
The Debate—Similar or Dissimilar
A debate exists as to whether business strategy and war strategy are equivalent. The attraction of applying strategic, operational and tactical strategies of war to business is similar. Many principles and tools of war strategies can be applied to assist those in the business world. Some view business and war strategies differently and come up with a new view of how they can be applied.
One dissimilarity with business is that, within the context of past military planning and doctrine, there tended to be, generally, only one enemy and the purpose of the planning activity is to fashion the conditions for a specific, decisive act to bring defeat to the enemy. However, the nature of current warfare has transformed vastly from the days of state-to-state positional warfare and two well-defined enemies fighting within distinct geographic theaters of conflict.
For more than seventy years, war planners have been dealing with asymmetric warfare, fourth generation warfare, low intensity conflict, nonstate actors participating in various wars and skirmishes. As in business, rarely do we deal with a single enemy or a single decisive battle to end a conflict and bring about the defeat or surrender of the single enemy. The Iraq and Afghan wars of conflict are examples of this assessment.
Current Warfare Strategy
In Iraq, the US military and its allies were fighting Iraq’s the Sunni Arab community upon their toppling of Saddam Hussein’s brutal Baathist regime and subsequently these same Iraqi Arab Sunnis allied themselves with US forces to extract from communities the menace and plague of Al Qaeda. Both in Afghanistan and Pakistan, US military forces were fighting alongside of, and supporting, the national security forces of these two nations while the next minute they are combating them directly and indirectly while fighting the Taliban, fragments of Al-Qaeda and different Jihadist combatants.
Accordingly, current warfare strategy, as we know it today, and business strategy have begun to converge with more remarkable similarities than differences. In business, the competitive landscape is generally complex and dynamic. Strategy and tactical interplay are vital in business. Similarly in warfare, the multitude of different stakeholders must be considered. In Afghanistan, the US military must, at the same time, plan and manage relationships encompassing Pakistanis, the Iranians, the Russians and several Afghan clans. Some times they are treated as friends and sometimes as foes. This complex relationship is also trues in business. Look at Apple Computer and Samsung. Both are fighting in the battlefield of the courts over intellectual property rights and at the same time cooperating and collaborating on other projects.
The competition is more vague and often operates over an ill-defined territory. Consequently, modern warfare is more about politics and community action than purely military engagement and its goal is to wear down the various forces working against your army and render them ineffective and unwilling to continue fighting rather than totally eliminating them. An example is Coca Cola versus Pepsi. Both companies have waged a very expensive conflict, however none have the intention of totally destroy the opponent.
Types of Warfare
In large part, warfare strategy, at a tactical level, fosters “kill, capture, destroy” asuch of the military opponent’s capabilities as fast as possible while protecting current forces. In business strategy, parallel tactics are called upon. Types of warfare include:
Limited War—a military example is the US versus the Nicaragua Sandinistas whereas the US used overwhelming superiority to defeat. A business example is Microsoft versus smaller software producers in the 1980s and 1990s. Microsoft used patent trolling techniques and it market dominance to block competition.
Counter-Insurgency (COIN)—a military example is the US versus the Taliban. Although decisive victory probably cannot be achieved within the normal mode of warfare, a COIN strategy use the divide and rule tactic that bifurcates the existing power structure and prevent smaller power groups from linking up. The strategy is designed to fracture the connections between insurgency and the population thus weakening the enemy. A business example is the US versus Microsoft for violating the Sherman Antitrust Act. Microsoft used its WINTEL dominance to crush its competition during the browser wars with Netscape’s Navigator and Opera Software’s Opera browsers. By bundling its Internet Explore web browser into its operating systems (O/S), making it difficult to download competing browsers into the Window O/S, and forming restrictive licensing agreements with its original equipment manufacturers, Microsoft prevented smaller companies effectively from competing or gaining any traction.
Total War—a military example is the Soviet Union versus Nazi Germany. Typically a high intensity conflict of balanced opponents, such wars tend to be a victory at any price, even if truce would be advantageous for both parties during a stage of the war. An example is two of Germany’s most well known brands Volkswagen and Porsche and reclusive industrial families, the Porsches and the Piechs; both belong to the same family line. This resulted in the 2008 majority takeover by Porsche of Volkswagen. The typical strategy is total exhausting of the opponent similar to war.
Correspondingly, purpose of much of the best of current business strategy is to transform the rules of the game in favor of the business. Creating unique market niches based on the first move advantage, and discovering a unique technology as well as product, and process innovation can grab an unquestionable market share based on a combination of these factors that competitors simply cannot weaken. Accordingly, warfare, whether business or military, becomes a series of battles whereby the cleverest “wins”, but where victory is more about the superiority at what you do rather than total dominance leading to a wholesale decimation of the company’s competition.
Strategic Business Warfare Tactics Series:
This it is first of a blog series on business warfare strategies. The series will discuss various war tactics that can be used as competitive strategies for family businesses, entrepreneurs, small businesses, and business executive to thrive in both good and tough market conditions. Sign up at http://garyrushin.com to follow the series.
The great recession and the recent economic turmoil did its damage on businesses. So to be prepared, how should a manager be prepared for the next economic downturn? Here are ten fundamental priorities that should be performed:
- Align the employee efforts with business needs
- Engage true dialogue between the employees and the manager, not just processing a form
- Create common frameworks and measurement criterion for all employees
- Look at results and behaviors of people to deliver high performances, it is not about measuring personality trait
- Enhance job fit and defining shared responsibilities
- Focus employees’ current job requirements and expected results
Recognize that active steps are necessary during times of economic turmoil.
For free online accounting mini course “Cracking the Accounting Code” designed for entrepreneurs go to http://AccountingMiniCourse.com
Business failure is rather common, so the challenge of strategic management is to produce above-average returns and to achieve strategic competitiveness in order to avoid becoming a statistic. Planning is critical. Planning begins with studying the past, then designing the futures, and performing a post-mortem of the past.
Strategic management is interwoven into the entire fabric of management and the operation of the organization. The challenge of strategic management is studying the past, planning the future, and conducting the post-mortem. Performing these processes are essential management tool critical to achieve the company objectives.
History tends to repeat itself. To avoid making the same mistake twice or the mistakes of others requires proper review of the past including that of the competitors. Much can be learned. Critical signs can be identified. When planned events do not happen, conducting the post-mortem allows thought and reflection because you will have studied what happened. This will increase the avoidance of making the same planning errors.
For many large and small companies, quite often planning and strategic management gets pitched aside due to increased short-term performance pressures and demands to deliver the bottle line. Failure to plan, operating haphazardly, in the long run can lead to business breakdown.
Performing post-mortems on successful projects, as well as, unsuccessful ones educates management. Surprisingly, good strategy arises unexpectedly. Good strategy has coherence, coordinated actions, policies, and resources that accomplish an end. Rather than waiting for a Harvard Business School post-mortem on the company to create a case study, which most likely will not happen for your company, management should perform its own post-mortem to create a case study on the company’s strategy.
Failure to perform the post-mortem, a review of the past, will be a lost opportunity in proper strategic management. Such a review will allow all to make informed decisions in the planning process.
Other strategic planning posts recommended: What is Strategy? It Starts with the Kernel
What do we mean by strategy? Many what answer, “Strategy is what ever you want it to mean.” Unfortunately, today it is a catchall word. Every executive use the word strategy from “service strategy”, “acquisition strategy”, “branding strategy”, “competitive strategy”, or whatever strategy one has in mind. But for those who think through the meaning of strategy, whether it is a CEO of an established firm, division president, or entrepreneur, strategy integrates an overarching concept of how the business will achieve its objectives. Accordingly, it is a coherent action supported by argument, an effective mixture of thought and action with a basic underlying structure.
Too often many draw on Porter’s Five Forces Analysis to think of strategy as a matter of selecting industries and segments within them. Others dwell in game theoretical frameworks as a set of choices about confronting with adversaries and allies. When adding in core competencies, hyper-competitiveness, value chains, and other powerful tools, what is missing is the hub…strategy. And let us not be fooled that a strategy consists of a template outlining a mission statement, a vision statement, and financial projections to make up the strategy.
Let us step back and look at strategy. The kernel of strategy, the central core, consists of three elements: a diagnosis, a guiding policy, and a set of coherent actions. You must define or explain the nature of the challenge, a diagnosis of the issues. In dealing with the challenge, an overall approach to cope with or overcome the obstacles that the diagnosis identified, must be chosen, which is designing the guiding policy. Then a set of coherent actions in carrying out the guiding policy must be made in steps that coordinate with one another to meet the objectives.
So many companies have multiple goals and initiatives that do not have a coherent approach to achieve progress, other than spending more and trying harder to ultimately fail. This was the case of Apple Computer prior to the return of Steve Jobs. Under Gil Amelio, Apple had multiple goals and initiatives through four business groups: Macintosh, printers and peripherals, information appliances, and alternative platforms. Apple was hemorrhaging cash. Steve Jobs retrenched Apple to a single goal and initiative by simplifying the company to its core competency. This was to stave off Apple from falling into bankruptcy. Apple was shrunk to scale and scope, as a niche producer, with one line of Macintosh computers. Steve Jobs had to develop the kernel first to combat the obstacles the company faced.
Remult, R.P. (2011). Good Strategy Bad Strategy. Crown Business Publishing
Even the most perfect execution cannot save a bad strategy. Conflicting goals with dedicated resources to disconnected targets lead to failure. Let’s not mistake goals for strategy. A bad strategy is just a statement of desire, wishes of outcome or fluff riddled with buzzwords, and not plans to overcome obstacles. I have seen it over and over again, lack of coherent strategy that does not coordinate policies and actions. Unfortunately what we tend to see is multiple objectives that are unconnected, or worse, conflicting with one another. Not realizing the difference between strategic goals and strategy, many strategies are restatements of buzzwords or slogans that lack thought and analysis.
Strategy starts with facing the problem. This enables the company to have an approach to overcome the obstacle. It should be looked as a response to a challenge. But if the challenge is not defined, the quality of the strategy cannot be determined. So how can you accept or reject a proposed strategy? By assessing, analyzing, and therefore recognizing the problem you can make an informed decision as to whether to rejecting a bad or flawed strategy, or to overcome the obstacle or achieve an objective.
Let’s look at bad strategic objectives. Have you heard of the term, “dog’s dinner?” It is a term that connotes: a mess or muddle. The challenge of a leader is to be the architect of the company’s strategic objectives and to avoid “dog’s dinner” objectives. This is not to designing actions to accomplish specific goals, but to coordinate clear objectives or sub-goals.
According to UCLA Professor Richard Rumelt (2011), leaders design sub-goals that various pieces of the organization work toward.
“The cutting edge of any strategy is the set of strategic objective (sub-goals) it lays out.”
It is about mastering this shift from having others defining your goals to you being the architect of the organization’s objectives as these are to carve the path to overcoming the defined obstacle. Such objectives align with the company’s mission and vision.
Remult, R. (2011). Good Strategy Bad Strategy. Crown Business, New York.
Tackling the austerity created by the 2008 financial crisis and the 2011 debt crisis, leaders today must focus in on competitive strategy to leverage the new reality. A leader’s central task is developing and implementing a strategy. Whether the leader is a CEO, an entrepreneur, CEO of a Fortune 500 or a small to medium size enterprise, a church pastor, or a government leader, the leader must provide a specific and coherent response to obstacles faced my today’s enterprises and muster available resources to bear to achieve results.
Surprisingly, good strategy is unexpected. This is because most organizations do not have a strategy. In its place, these organizations have “visions” and mistake financial goals for strategy, and pursue muddling activities or “dog’s dinner” of conflicting policies and actions.
Good strategy attempts to harness and apply power where it will have the greatest effect. Strategy is a united and coordinated “set of commitments and actions planned” to exploit core competencies and gain a competitive advantage. For the leader the first challenge is to understand that good strategy’s starting point is getting clear about the challenge.
Unfortunately, most organizations that claim to “have a strategy” have nothing. They have set some financial goals, but a real coherent strategy does not exist. This is because their plans do not provide the road map as to how to achieve the goals and provides no sense as to whether achieving the goals will solve the core challenges. Five lessens of good strategy are:
Unfortunately, many attempts a instituting a strategy lack a good diagnosis. Step back. Analyze the situation. Comprehend the micro and macro picture. Then go forward with action.
The key word is Pivot! Make a pivot change in the direction of the company when you identified that the company is heading toward the wrong direction. Learn, apply, and progress by starting first with good strategy. Trust in yourself and have confidence to make things happen. Develop commitment for effectively executing change. Through good strategy will enable you to make the pivot for change that provides results.
But to begin, what is strategy. Good strategy almost always looks obviously simple. However, strategy does more than urge going forward towards a goal or vision. Developing a good strategy honestly acknowledges the challenges being faced. Good strategy develops an approach to overcome these challenges. Bad strategy tends to skip over this little detail. Surprised, this is reality.
Bad strategy builds upon mistaken foundation. Bad strategy covers up failure to provide a map through the use of showing only the broad goals, ambitions, visions, and values. Despite the fact that these areas are very important, it is not a substitute for the work of developing a comprehensive strategy.
So what is strategy? Do not confuse strategy with ambition, inspirational leadership, determination, and innovation. Zeal, drive, and excel is ambition. Motivation, building enthusiasm, gain a following is inspiration leadership. And commitment, grit, gaining purpose is determination. According to UCLA professor Richard P. Rument, a good strategy has coherence, coordinating action, policies, and resources so as to accomplish an important end. Know this before you get started. You can pivot, but try to avoid “zig-zagging”.