MGMT 451 Bootstrapping

What are the decisions that lead to the development of a successful website for a startup business?

-If you decide to spend time working on organic placement. -Search engine optimization lead to successful websites

What are the four key steps that can be taken to help build and sustain a bootstrap culture?

1) Recruiting for a bootstrap culture 2) Rewarding for bootstrapping actions 3) Communicate a consistent message about bootstrapping 4) Actions Speak Loudly

Describe the role of leadership in creating and sustaining a bootstrap culture.

Leaders need to have intense focus on growth and bootstrapping. Each decision and initiative should explicitly be made withing consideration of bootstrapping. Leaders shape the behavior of managers, who in term bootstrap more. Leaders need to lead by example.

What are the benefits of reducing the time to breakeven?

Less external funding, shorter time until the entrepreneur can draw a salary, more cash

Discuss the various means to bootstrap the cost of furnishings and equipment, communication, transportation, and business insurance?

Used Furnishings, Clearly understand what is needed and when, Used Vehicles, Change, Insurers, Increase Deductibles, Changes Agent or Broker, Change business operations to reduce claims risk (safety policies)

Discuss the challenges of using credit cards in an entrepreneurial venture.

he ease of securing debt through credit cards can lead to entrepreneurs bypassing important opportunity assessments and business planning, increasing the chance of failure. Only borrow what you know you can pay back to avoid getting buried in debt and turning credit card use into abuse.

Why is it important to keep bootstrapping as a business grows?

helps a business avoid external financing keeps 100% of the ownership increases the income that the business can generate. Enables companies to give fair prices

In what ways can bootstrapping decrease the time it takes to reach break even?

lower overhead, lower operating costs, increased sales volume, less funding and easier credit, higher margins lead to higher valuation

What are the most common sources of funding for an entrepreneurial venture?

¾ entrepreneurs start their businesses with money they have available from personal sources of funding. Sources include: Savings, Personal credit (second mortgage, stocks, student loans) Family, Friends, Professional investors, personally known investors.

How can an entrepreneur effectively use word of mouth to market a new venture?

-By being great in customer service to help promote a venture. -Create incentives to encourage word of mouth. -Create a "buzz campaign"

The indirect costs of having employees associated with employee training and payroll expenses offer opportunities to bootstrap. Explain using specific examples.

-For employee training, entrepreneurs can make their new employees take online classes instead of in-house training programs. -For payroll expenses, entrepreneurs tend to process their own payrolls because it provides flexibility with timing. For example, if cash flow is tight, small businesses delay checks.

Describe how the various categories of non salary employee compensation and benefits can be bootstrapped?

-Performance based Profit -employee discounts -Set paid vacation hours -Check annually for new health insurance.

What are the specific requirements for subcontracting as defined by the IRS?

-To be an independent contractor, you must: 1) Make a significant investment in their work 2) Are not directly reimbursed for expenses 3) Have the ability to make a profit or loss on their work 4) Receive no benefits from the company, such as health insurance and paid vacation.

Discuss how the changes taking place in the economy have changed the nature of marketing for growing ventures. How does bootstrapping relate to business and market planning?

-With a global boom of entrepreneurial-ism, marketing now has a need to become more personalmarket planning are extremely important, it is paramount the entrepreneur continue to bootstrap in a growing venture.

Describe the three values and beliefs common in a bootstrap culture.

1) Frugality: Achieve results with fewest resources possible 2) Creative Solutions 3) "Cash is King!": The cash in a business is its most precious resource 4) Stewardship: A sense of obligation to make the best possible use of the resources made available to the business from its stakeholders.

List and describe the 9 reasons that entrepreneurs bootstrap. List possible examples for each.

1) No available funding for the venture from bankers or investors. 2) Limited sources of external funding for start-ups 3) A desire on the entrepreneur's part to delay external funding for the venture 4) A desire to keep 100 percent of the ownership 5) As a means of minimizing exposure to risk 6) Creating a more effective business 7) the need to look big to compete for customers 8) to increase income and wealth for the venture and entrepreneur 9) the values of prudence and stewardship

How does outsourcing help bootstrap a business? List some of the steps to ensure success with their outsourcing initiatives.

1) Outsourcing leads to less overhead expenses such as equipment and inventory. 2) Contracting with a company allows an entrepreneur to obtain lower per unit prices. 3) Lower economic conditions may create lower cost structures.

Explain the four challenges to sustaining a bootstrap culture in a growing venture.

1) The Growth Myth: More businesses fail due to their inability to successfully manage the growth of their company than for probably any other reason. 2) Resource Crises: Growing requires a lot of resources. This makes companies often rely on outside funding and pay less attention to bootstrapping. 3) Cultural Drift: Culture drifts from initial vision as the business grows. Each new employee brings their own culture that they acquired from previous employers. These new employees might have different values and goals. Culture needs to actively be managed as the organization grows. 4) Leadership: The entrepreneur must provide leadership for the business as it transitions through the technical aspects of growth such as planning for resource needs and taking steps to sustain bootstrap culture. Must lead by example

What are the four basic rules to bootstrapping a business?

1) overhead 2) Employee expenses are usually the highest 3) Minimize operating costs 4) Marketing matters, know your customers

Stewardship of resources secured for a venture is an important ethical consideration. Explain how this applies to self-funding, money from family and friends, and funding from outside professional investors.

Bootstrapping helps the entrepreneur become both more efficient and effective with resources available to the venture. Recognizing the responsibility associated with this trust with those who have financially supported the venture helps assure that the entrepreneur is more likely to act ethically with the resources.

How is bootstrapping related to the break even point?

Bootstrapping reduces the time it takes to reach break-even point.

What are some steps that manufacturing ventures can take to bootstrap their operations?

Buying equipment from auctions or businesses that have outgrown their equipment.

How can an entrepreneur bootstrap the costs that is associated with existing employees?

Carefully limiting the hours Employee stretching Timing of hiring

Bootstrapping can be a strong ethical approach to managing a venture, but can also be used in unethical ways. Explain.

Entrepreneurs who "bootstrap" use delaying techniques such as delaying payment of bills and paychecks.

There are various ways to bootstrap professional legal and accounting services. Develop a plan for how you will hire a professional to provide these services and how you will manage them once engaged. Describe how each part of the plan will help to bootstrap.

Establish Relationships, Get referrals, Personality fit, Industry knowledge

What is the definition of boot strapping? How does it relate to the general definition of entrepreneurship?

Finding creative ways to exploit opportunities to launch and grow businesses with limited resources available to most start-up ventures. It relates to entrepreneurship because entrepreneurs start their own businesses from scratch with limited resources.

What are the various methods an entrepreneur can use to bootstrap the facilities costs for a venture?

Home-based businesses, Virtual offices, Free use of space (using unused space of growing companies), Barter (work for space), Incubators, Negotiate Rent, Finding the most effective space to lease

Why do entrepreneurs bootstrap their businesses? Can you identify reasons to bootstrap that go beyond those associated with the limited financial resources available to most startups?

Sometimes they have no other choice because of limited resources. Other reasons are that they want to improve their business or save money.

What are the common forms of advertising a growing business? How can bootstrapping relate to each of these?

TV: local, specific group of people. Remnant ads (blocks that do not get sold in advance) Newspaper, Mags, Ezine: focusing on who reads what; age, gender Radio: Remnant ads are cheaper; if you know the age and socioeconomic status of a customer, then advertising can be targeted and bootstrapped.

How does inventory management allow for bootstrapping opportunities? Explain by using the formula for inventory turnover. List three stages to bootstrapping inventories.

The higher the inventory turnover ratio, the less cash tied up in inventory. Formula = cost of goods sold/Average inventory. 1) Just-in-time method 2) Keeping inventory as simple as possible 3) Sense and Respond

List and discuss the ways the Internet has expanded the power of bootstrap marketing.

The internet has allowed people to market virally through websites, blogs, word of mouth,

How has the Internet created a new distribution strategy for businesses? Develop an internet based distribution strategy for your business or one you are interested in launching in the future.

The internet has created opportunities for businesses to both shorten and widen the distribution channels with minor added costs. Use E-commerce to distribute my products globally.

Explain how even high-growth ventures need to use bootstrapping.

To be able to satisfy angel and venture capitalist - multiple rounds of financing. No guarantee that next round is secured. Properly managing tight cash flows in between investment rounds.

Describe the philosophy of bootstrap marketing.

To reach customers by using the least amount of cash as possible.

Discuss how the use of virtual teams, temporary employees, and student interns can help bootstrap the costs.

Virtual teams allow an entrepreneur to engage with people that they need when needed. Temporary employees are seasonal and are there for a limited amount of time. Most student interns work for free

Discuss the potential challenges of receiving funding from family and friends. What are specific steps that the entrepreneur can take to manage the relationship of family and friend investors?

You need to keep business and family matters separate. 1) Set up an arm's length transaction-structured as it would be with a complete stranger. 2) Go over a formal business plan with family and friends interested in providing funding so they understand the risks involved. 3) Formal loan agreement defining interest rates and payment terms. 4) Encourage family to get consultations with outside sources (attorneys, CPA's) so they know the risks. 5) Communicate good and bad news regularly.

Develop a plan to develop a direct marketing campaign for a new business, or if you have one, your own business.

a) Do Windshield Market Research- Continuously gather information about customers and competitors in action b) Use Everyone is a market researcher in the company- find trends in the regulatory arena, tech., economy, society and culture. c) Create a video of the market, not a picture: constantly changing nature of the relationship with the customer

What are the common sources of cash flow problems in an entrepreneurial venture? Discuss various techniques that can be employed to address cash flow challenges.

cash flow and revenue aren't the same: sometimes invoices cause businesses to wait for payment to arrive-they might not be paid for weeks, months, or not at all. you can create a system to document invoices sent and payments made, Monitor system to see who's paying and when. Act on the information from accounts receivable reports. Use it contact customers that are behind on payments.

What types of expenses comprise the administrative overhead of a business?

rent, utilities, equipment, office supplies, communication, transportation, insurance, legal, accounting, consultants, non-salary marketing