BusinessLean

Bootstrapping a Company that Can’t Fail

One of my earliest memories is of me being at my childhood home, in my garage, pretending to be a shop owner. I’d gather a bunch of rocks or some old plastic toys and set up them and pretend to sell them to others. As strange as that sounds I really enjoyed it.

There was something about the idea of buying an item for a certain price and then selling it a bit higher that intrigued me. Even today I still get excited when I think about it. After having retired at 38 years old due to my frugalistic ways I knew that I wanted to start a business, which one I wasn’t sure of at first. I am a software developer by trade so I figured that might make sense. The problem with that its that it’s a pretty involved business.

So I decided to cast that aside and instead focus on what I really love, saving money! This isn’t the first business I’ve started but for the most part I’ve just been a worker bee. I had good reason to actually. I was earning more than many small businesses make as a software contractor heading out to whatever company would pay the highest dollar.

After discovering the FIRE movement though I realized that I could actually fulfill my bigger dream and not have to work anymore. I had to reduce my expenses greatly but I was at that point where it just wasn’t necessary. I could easily earn more than enough passive income to pay my bills, and not have to work (I did reduce my expenses by 80% to actually make that happen however).

Having done that for a better part of a year it was time to do what I’ve always wanted to do, start my own business. This time though things were different. This time I can’t fail. I’m not trying to say that there’s pressure on me and I have to succeed, I mean, that there is literally no way I can go out of business unless I quit.

Two Options All Companies Have

To dive in deeper on this lets think about why companies actually fail. For the most part there is only one reason. They have lower income than expenses. And once that process gets going, watch out. If you think of all the recent failures in business from old players like Sears to the hilariously poorly managed streaming service Quibi, the reason is always the same. Their expenses were greater than their income.

Sure there are underlying causes that get in the way, Sears is a unpopular legacy store from a bygone era with enormous debt that is unable to compete with Amazon, and Quibi just couldn’t find the right market fit… At the end of the day though the reasons are the same. Income was less than expenses.

That same problem plagues small businesses just the same as it does the large ones, even more so because they typically don’t have the same access to cash that larger companies have. There is are only two ways to fix that issue.

The first option is to grow revenue. That’s always the popular choice, eat the entire world, own the market, it’s a landgrab, dominate your opponents… Yes, the age-old business adages are relevant here. Obviously, every company wants to grow. It’s a grow or die type of world, right?

Obviously, every company wants to grow, but the reality is that it’s not always a linear move up the ladder. There are many ups and downs and for a long time revenue might not grow, or could potentially fall.

The second option is to cut expenses. This is many times viewed as a sign of weakness, but I’d argue that in fact, it’s the most important thing a company can do. This is doubly true for startups.

It’s all about the Benjamin, baby. (Not a typo)

That brings me back to our good old friend Benjamin Franklin who said the famous saying:

A penny saved is a penny earned

When Franklin said that a penny might have actually been worth something, but let’s change it to “a dollar saved is a dollar earned“. For startups keeping costs low is far more important than growing revenue. That is a blanket statement that of course won’t apply to every startup, but for bootstrapped companies, it’s dead on the money.

Recently I’ve been watching some YouTube videos about starting a lawn care business. You know the type, mowing, hedging, trimming, and all that. I’m not quite sure how I got there, I think I was looking to buy a lawnmower and down the rabbit hole I went. One guy in particular said something I thought was pretty interesting, at least to the frugalist in me.

He said, “The first year was really stressful, I almost had to declare bankruptcy, I made $20,000 but my expenses were $45,000“. As someone who lives comfortably on less than $10,000 a year for my base expenses, that really stuck out. Why were his expenses so high? Turns out most of his expenses were just his high cost of living. He had two car payments in addition to his truck, he had a house that was probably somewhat bigger than he needed and spent money on a lot of unnecessary items.

The reason this really stuck out to me is that this would be a very easy business for me to compete in. If I made $20,000 I would be profitable from the very first year. Why? Because my expenses are so low, in my case they are completely covered by passive income I have. So in that business I literally could not fail at. Even if I had no customers I couldn’t fail.

Now, think about how this would work

Continuing with our example for a second, think of the competitive advantage this gives me. I can offer special deals, initial low rates to get a base group of customers. Because I have such low expenses, Just a mower and some hedge trimmers to start with, I can offer great rates and take my time learning the business. And the best benefit is that I have no stress while doing it.

Meanwhile, all I have is upside. Unless I’m a complete schmuck I’m going to get more customers month after month, especially as I get better at what I’m doing. With each customer I can up my rate as I go.

How to build an impossible-to-fail business

First, your personal financial health needs to be in order. How low are your expenses? Maybe you can’t get down to $1,000 a month but for certain you can greatly reduce whatever costs you have already. As I said before I reduced my personal living expenses by 80%. I stopped eating out, I cut my internet to the lowest plan they had, I moved to a much lower cost of living area. If you haven’t done those things you most certainly can. Just check out some of my other posts for inspiration.

If you manage your money properly you too can have a business that you can’t fail at, and the best part is that you have very low downside risk but unlimited upside, who knows how big it will grow, all without having money woes.

Summary
  1. Get your expenses to “Dirt Cheap”, levels, ideally as where you are financially independent and don’t need the money. It’s easier than you think.
  2. Start small, don’t buy the biggest mower, keep your expenses low until you know you can justify the costs. Borrow one, buy a used one, doesn’t matter.
  3. Use variable cost items rather than fixed cost items. In the beginning, rent bigger tools rather than buy them yourself. If you were starting out shooting videos for clients, should you buy a $50,000 camera or rent one for $1,000? Definitely rent at first until you know you need it.
  4. Do the work yourself. If you need to do marketing don’t hire a big firm. Print out fliers, go on Craigslists, knock on some doors, create a Facebook group. If your expenses are low enough you won’t want to worry about your time and you’ll learn a lot in the process.
  5. Don’t get greedy and then become highly leveraged. Is your lawn care business exploding? Great, should you buy 5 new mowers that you can barely afford? Probably not. That’s what gets people in trouble. They want to grow too fast and then end up where they are just paying for things that they didn’t realize they couldn’t afford. As an anecdote, I saw a YouTuber who successfully ran his own long-haul freight company. He bought his own truck and was making $15,000 a month profit. Did he grow conservatively? Nope, he bought an enormous house, a few automobile toys, etc. Then things in his niche dried up extremely quickly and he actually went bankrupt. If he was smart he would have just saved the cash.

If you care to see if I can practice what I preach, I am going to be releasing a summary of how my business is going every week on this platform. So tune in.

What's your reaction?

Excited
0
Happy
0
In Love
0
Not Sure
0
Silly
0

You may also like

More in:Business

Leave a reply

Your email address will not be published. Required fields are marked *