Bootstrapping: “The art of learning to do more with less.”

Gary Rushin

Gary Rushin – Turnaround Specialist

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

  • Receive payments in advance
  • Obtain advance payments
  • Increase invoicing
  • Select customers that pay on time

•    Delay payment

  • Negotiate payment conditions
  • Barter for goods and services
  • Lease rather than purchase

•    Owner related

  • Change salary payment period from weekly to bi-monthly
  • Use personal credit cards
  • Cross-subsidize with other businesses or employment
  • Fund through friends and family

•    Joint use

  • Borrow equipment from other companies
  • Use temperate employees or contractors
  • Share equipment, premises and employees

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.

For entrepreneurs that want to learn how to raising money for their business, go to http://GaryRushin.com to sign up for a free video training course. The course is offered for free for a limited time. Sign up Now!!

Gary Rushin, CPA/CIRA (GaryRushin.com)

Gary Rushin, a licensed Certified Public Accountant and is a Certified Insolvency and Restructuring Advisor mentors entrepreneurs and business executives on business strategy and corporate renewal. Gary Rushin taught executive level business students in the U.S., India, and China and has advised donor agencies and a central bank on prudential underwriting and supervision.

Sign up at http://garyrushin.com to follow the series.

 

Sources:

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.

Fostering Diversity

Diversity

Working effectively with all.

Diversity has a serious and direct impact on business results. Successful organizations are able to tap into the brainpower of talented and diverse workforces in order to serve a diversity of customers. Innovative thinking and problem solving is more likely to come from teams comprised of people with different cultural and demographic backgrounds, i.e. people with different points of view. Organizations need to optimize the use of talent at all levels with behaviors that reflect that talent comes in different packages, i.e. color, sex, age, etc.

Fostering Diversity is closely related to three other competencies – Global Perspective, Fostering Teamwork and Interpersonal Awareness.

Competency Definition: Working effectively with all races, nationalities, cultures, disabilities, ages and sexes. Promoting equal and fair treatment and opportunity for all.

An employee demonstrating this competency:

a) Proactively seeks information from others who have different personalities,backgrounds, and styles. Includes them in decision-making and problem solving.

b) Communicates and cooperates with others who havea diversity of cultural and demographic backgrounds.

c) Makes it easy for others to feel valuable regardless of diversity in personality, culture, or background.

d) Includes in conversations people with diverse cultural backgrounds, and invites them to be part of informal work-related activities, such as going to lunch or attending company social events.

e) For a manager or team leader, hires and develops people with a diversity of cultural and demographic backgrounds. For an employee, helps recruit and orient employees with a diversity of cultural and demographic backgrounds.

Ember Carriers is proud to offer competency based organizational development services using the Workitect model.  For more information, call one of our senior consultants  at (513) 984-9333 for a free strategy session to learn how build a stronger company culture.

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Studying Business Failure to Achieve Business Success

Knowing Business Failure has Resulted in Business Success

Study Business Failure to achieve Business Success

Study Business Failure to achieve Business Success

We can write about business success, however we need to learn from business failure.  Once I mentioned at a business forum that I study “failure”. The look I received was of shock and puzzlement.  Why would you want to study failure and not the successes of entrepreneurs like Steve Jobs?  Obviously they missed the point.  Yes, studying the successes of Steve Jobs is important, but equally important is to study failures of start-ups and mature companies to identify missteps, symptoms, causes, and the reasons companies came and went.  Remember Steve Jobs studied the business failure of Apples’ previous management upon his return to the company.  Think of the company he left us with.

Think about it, NASA studied its mistakes to make corrections with the space shuttle program. Pharmaceutical companies and financial services companies study product design failures to make improvements, and hospitals study their service offering to improve the quality of healthcare service. Successful companies create value for shareholders, customers, and other constituents from learning from business failure.

Knowing how value was destroyed will make you a better business owner, investor, and stakeholder.  Studying the phenomenon of entrepreneurial failure can create value, a return of investment, by understanding the fundamental causes behind business breakdown.  Studying business failure should be performed because starting the business strategy process.

Business failure does not end in bankruptcy liquidation.  In the event a company declines in value and is considered worthless, the enterprise failed from the perspective of the owner.  However, the business or the assets of the business in the hands of others may result in the re-creation of value, jobs, and new business in the eyes of customers, suppliers, and employees.

When discussing business failure, I mean that the business has fallen short of its goals, thus failing to satisfy investors’ expectations.   Business failure involves the loss of capital and the inability to make the business successful.  With the fall in revenues and/ or the rise of expenses, the company cannot continue to operate under existing ownership and/or management.

Learning from Business Failure

Learning from business failure can be viewed from different perspectives.

  • First: Reviewing the business loss from a financial and emotional cost perspective.
  • Second: Studying the process of learning outcomes
  • Third: Grieve /understand reality/ reflection
  • Four: Journey to Business Failure

The Business Life Cycle and Stages of a Distress Business

We can start at looking at business ecology from the business life cycle perspective.  Although the business life cycle has various definitions and stages, fundamentally the business life cycle can be viewed from birth (startup), growth (emerging), maturity (stable), decline (distress), and either failure (insolvency) as well as revival (renewal).   Different causes of business failure depends generally where the organization is located on the business life cycle.

A failed business rarely moves from prosperity to bankruptcy in one step.  Each step has diagnostic value.   Business operators, adviser, directors, investor will learn from studying failure.

Early Stage—In the early stage of business failure, companies operate with inefficiencies that show a lack of synergies in production and distribution.  Customers complain about quality of products and services.  Both revenues erode and margins suffer.

Intermediate Stage—In the intermediate Stage of business failure, the trouble in production and distribution are severe.  For manufacturing companies, inventory build up or material shortages are quite noticeable.  Employee morale is low.  Rumors about the company’s problem spreads.  Top employees begin leaving as “the cream” search for green pastures.

Late Stage—In the Late Stage of Business Failure, both management and reporting systems breakdown.  Vendors are requesting cash for delivery.

Business Failure: Why Start-ups and Young Companies Fail!

Speaking about startups and young companies, start-up and young companies face different issues than older mature companies.  The primary causes of start-up company failure are lack of resources, competence, and inexperience.

Financial resources–The inability to obtain financial resources necessary to develop or maintain an operational synergy is a problem. For young companies the lack of financial endowment tends to be the number one cause of business failure.  The deficiency on financial resources prevents the company from developing the operational infrastructure (systems, processes, and people) and applying an adequate strategy to succeed because of the lack of sufficient working capital either in the form of internal cash or line of credit.   To create a sale, an organization needs working capital to pay for the revenue generating process (payments to vendors, employees, overhead, etc.) until cash is received from the sale.   And there is a point where bootstrapping is no longer sufficient to execute the strategy.

Business competence and management–Subject matter experts tend to establish new companies on the belief that making an entrepreneur endeavor work is not as hard as people think.  Such beliefs are furthest from the truth.   The inexperience and lack of business acumen is the principle factor of young company failure.  Studies have shown that the deficiencies in the competence of management negatively influenced the direction of young companies toward business failure.  Many subject matter experts lack the acumen about the complexity of business.   Both not understanding marketing and finance contribute to the business demise.

Business Failure: Why Mature Companies Fail!

For mature companies, business failure generally is traced to the inability to adapt to the changes of the environment.  The company ignores changes in economic conditions, changes in competitive conditions, changes in technology conditions, and changes in societal conditions.   When the company is in decline, in large part management tends to be “in a state of denial”.

After the financial crisis and the current government budget problems, economic conditions shifted for the entire business landscape.  As an example with the U.S. federal government, the largest buyer of goods and services, cutting back on contracts, large defense contractors and other government service providers is forced to reduce employment and expenditures.   Companies that primarily depend on government contracts the cutbacks are starting to impact the bottom-line.

Gary Rushin, CPA/CIRA (GaryRushin.com)

Gary Rushin, a licensed Certified Public Accountant and is a Certified Insolvency and Restructuring Advisor mentors entrepreneurs and business executives on business strategy and corporate renewal. Gary Rushin taught executive level business students in the U.S., India, and China and has advised donor agencies and a central bank on prudential underwriting and supervision.

Sign up at http://garyrushin.com to follow the series.

How Virtual Team Leadership is Different?

Digital Connections

Using Technology to Connect with Teams

In recent years, the traditional organizational structure has changed and has given way to one where employees are more often spread geographically. Many employees are now working from home or offices miles from the company’s headquarters. Additionally, the continual merging and conglomeration of separate business entities is forcing companies to rethink their business structure and find ways for employees to collaborate effectively despite distance restraints.

Such increasing decentralization of workforces has changed the way teams within organizations work together. The days of interacting face-to-face with a consistent group of people at the office are giving way to various means of virtual collaboration. Virtual, or remote, teams are workplace teams made up of people who communicate mainly by electronic means. According to Management Issues contributor John Blackwell, by 2012, 95 percent of employee time will be spent on projects that involve collaboration with people located outside their physical workplace. In addition, an estimated 17.2 million Americans work from home or some other remote location according to Eric John Abrahamson, in his book, The New Pioneers.

One of the benefits organizations are associating with virtual teams is the ability to recruit and employ talent from various locations without the expenses associated with relocation and office space. Workers also benefit from less travel and commuting time. However, virtual teams bring challenges to team leadership and management.

Leading a team of people who are dispersed across the country or even the world is quite different than leading a team of people whom leaders see every day. Virtual teams bring the added complexities of distance between team members, including differing time zones, cultural differences, and significantly less face-to-face dialog among members. These complexities further leaders’ struggle to maintain balance between those who are remote and feeling out of the loop with those who are face-to-face and might feel less privileged than their virtual counterparts. In addition to these complexities, virtual team leadership also involves overcoming obstacles resulting from managing differing personalities, assuring clarity of expectations, enabling effective collaboration, and providing recognition based on individual and team results.

With these challenges, leaders must be willing and able to adapt to differences in communication, motivation, and recognition. “Management by walking around” is no longer applicable. Leaders of virtual teams must develop their virtual leadership strategy based on each teams’ opportunities and then create action plans that support the implementation of those strategies. It is when the unique challenges and opportunities of the virtual team are addressed head-on that the best results are realized.

What are Best Methods for Effective Management of Virtual Teams?

The challenges of managing virtual teams can be categorized into three areas: identity, integration, and intent. Each of these can have a positive effect on the successful leadership of virtual teams.

Establishing Team Identity involves creating a singular team vision that connects each member to the team’s common culture and method of operating. In order to create a successful team identity, the team’s electronic and telecommunications technology must allow members of the team to communicate, collaborate, and take action on projects. It is important that leaders establish a method for communicating in the virtual setting. Conference calls, web conferencing, live webcams and virtual portals are all tools virtual teams can use to establish the connection among members that drives team vision. Without face-to-face interaction, these technical environments become the virtual water cooler that supports a sense of unity and establishes team identity.

The virtual team must also establish ground rules for meeting either face-to-face or virtually on a regular basis in order to complete projects on time and within the planned scope. Best practices for meeting within virtual project teams vary depending on the distance, size, and timeline for the specific project but can be generalized to include bi-weekly meetings for smaller projects and weekly meetings for midsize to larger projects. Communicating regularly and understanding the tools that support the virtual team collaboration enhances positive results and team identity.

Creating Team Integration is vital to the success of virtual teams and establishes the framework needed to manage the virtual team. This framework includes the necessary administrative tasks needed to manage a virtual team and the establishment of clear, concise goals and expectations that are aligned to both the team’s identity and the company’s strategy. For example, conducting weekly team updates or team meetings of individual and team accomplishments establishes the framework that creates clear expectations and allows celebration of team success. Team integration also means overcoming the barriers associated with working remotely. For example, some members of the team may be more comfortable with technology-based tools than others. One way to overcome this barrier is by ensuring all members have been properly trained on the tools and then supporting that knowledge by creating an online repository of information necessary to the application of the virtual collaboration tools. This repository would be comprised of information including the application of the online collaboration tool, individuals’ roles, and team processes. When a team member knows how he/she fits into a larger framework and is equipped with the means to navigate the framework, he or she is able to excel and integrate his or her individual success into the success of the team. Creating the structure that is needed to run a virtual team leads to the empowerment that is needed for true team integration.

Developing Team Intent is the most important step to ensure a virtual team’s success. Team intent is the way a team implicitly operates. This includes the ways the team works together, bonds, and builds each other up to support one another in the overall team objectives. In order to establish positive team intent, leaders of virtual teams must establish and implement a “community” based on mutual trust among all team members. Establishing consistent communication regarding team ground rules, developing and implementing virtual team etiquette, and ensuring clarity of roles and responsibilities all determine how well a leader can form a community within the virtual team that leads to the ability to work together effectively. Establishing consistent communication related to team intent means finding time to meet on a regular basis and discussing things directly related to the team mem-bers’ responsibilities, what they are effectively getting done, how they are developing as individuals, and what they can do differently to become more united as a team. The time spent doing this will ensure more effective results and build the collaboration needed for positive team intent.

Conclusion

Today’s workplace is a virtual environment where collaboration must flourish without the benefit of face-to-face interaction. Technology plays a major role in this effort as collaboration is driven by the technology that is put into place to support the virtual team. Leaders of these teams have a responsibility to ensure both the proper tools are in place to facilitate the team’s efforts, and they must embrace this new structure by effectively managing individuals and groups without seeing them regularly. Through maintaining team identity, integration, and intent, virtual teams can and will drive positive business results for organizations world-wide.

If you would like more information on to be more efficient and effective with a virtual team, contact a senior consultant with Ember Carriers at (513) 984-9333 for a no cost, no obligation strategy session to discuss your company’s needs.

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Twitter: www.twitter.com/embercarriers|LinkedIn: www.linkedin.com/in/mhladio

Strategy: Is War Strategy and Business Strategy Similar?

United (States) Parcel Service.

War Plane

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:

  • Understand to read the business landscape and act strategically
  • Understand time to attack or defend
  • Understand time to enter the field of battle or withdraw
  • Understand in what ways to isolate, outflank or even encircle the competition

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.

Conclusion

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.

Gary Rushin, CPA/CIRA (GaryRushin.com)

Gary Rushin, a licensed Certified Public Accountant and is a Certified Insolvency and Restructuring Advisor mentors entrepreneurs and business executives on business strategy and corporate renewal. Gary Rushin taught executive level business students in the U.S., India, and China and has advised donor agencies and a central bank on prudential underwriting and supervision.

 

Sign up at http://garyrushin.com to follow the series.

 

What’s your economic recovery plan?

Ember Carriers

Moving you from possibility to results

In tough times, harnessing the power of your workforce is a must. But research shows that only 22% of organizations provide training to engage and empower their people. Be sure you’re one of them.  Now is not the time to HOPE you have developed leaders who can pull your company through the recession. You need to be sure. Your company’s future depends on it.

Create an environment in which your people are passionate, determined and more importantly, equipped with the essential skills that will cement your organization’s future.

To navigate change smoothly, organizations must manage the change process in ways that boost morale and foster high levels of human satisfaction and ongoing commitment. Transformation through change depends on understanding how to maximize people’s efforts, align human resources, create a vision, and maintain customer loyalty.

You need a partner who can help you get your leaders up to speed. Fast.

With over 20 years of experience, Ember Carriers offers a trusted organizational development model and a system for creating a shared culture and language. We helped organizations around the world build a competitive advantage through the company leaders.

Call a senior consultant with Ember Carriers at (513) 984-9333 for a free strategy session to learn how build a stronger company culture.

Web: www.embercarriers.com|Facebook: www.facebook.com/EmberCarriers

Twitter: www.twitter.com/embercarriers|LinkedIn: www.linkedin.com/in/mhladio