Bootstrapper’s bible

Every employee who gets reprimanded by his/her boss thinks of only one thing… ” I should quit and start my own company…then I will show my boss that he is wrong…” Most of these thoughts remain thoughts and they never actually become an entrepreneur(I googled and found the right spelling… in rest of the article the spelling may be wrong…) entrepreneurs are of 3 types. I read it in an article..but I do not remember the name of each type. So the names Forced,Serial and Generational are my names. The explanations are correct though ūüôā The 3 kinds of entrepreneur are –

1) Forced¬†– These people are forced to start their own business either because of lack of employment opportunities¬†or because they love the freedom they get when they are their own bosses. Forced entrepreneurship is the most common kind in India. Most of these businesses are set up to provide income to the entrepreneur’s family. They are not meant to last beyond the current generation. ex:- local grocery stores, freelancing of any type etc.

2) Serial – these people get a high on starting a new business, see to it that grows to a considerable size and then selling it for a profit. They do not have emotional attachment towards their enterprise and can quickly move on to start another new business.

3) Generational¬†– These people have an emotional attachment towards the business they start. They start and build a company from scratch. Also,they build up the systems and management so that the company lasts beyond the current generation. These people form the core of any country’s industry. ex:- Tata,Birla,Ambani et etc.

Since our typical disgruntled employee falls under the first category, I shall explain some parts of Seth Godin’s Bootstrapper’s¬†bible here. Bootstrapping in business means to start a business without external help with respect to capital. Bootstrapper¬†manages to run the business with his/her own capital and with the use of utmost caution while spending. I have not read the complete book, but the manifesto itself was very informative. I will definitely¬†read the full book some time in the future. Most of us believe that we have an entrepreneurial¬†nature in us, but we believe that we are just waiting for that one brilliant idea before we start our own business. The first thing Seth Godin says is that most businesses are not based on brilliant idea. In fact, he claims that more brilliant the idea, less chances¬†of it succeeding. He says most businesses are boring. Most successful entrepreneurs copy an existing business plan and execute it better than competitors. Some of the tips the book gives are –

1) Never mix personal and business money. Always keep separate accounts so that if a business goes down, it does not impact your personal financial situation too hard. This is the mistake most of the people to in India. Even Amitabh Bachan mixed his personal finances with ABCL corp and faced bankruptcy. Thankfully, for him, he had enough charisma and acting talent to make a successful comeback and saved his family from ruin. He has started the company again, but this time he has vowed never to mix his personal money with the company.

2) Start a company and then look for business. Most of us are waiting for the brilliant idea. Seth Godin says, you should start a company and see how to make the company profitable. He says most preconceived ideas fail. He gives the example of 3M. Their original business plan was to buy a corundum mine and use the stones for grinding industry. In fact 3M stands for Minnestota Mining and Manufacturing. However, they were duped into buying a anorthosite mine.After their initial business failed they innovated and started manufacturing waterproof sand paper with the stones from the mine. The rest is history. They now have 55000 products(source: wikipedia) with sales of 25 billion and net profit of 3.5 billion dollars.

3) Never offer equal partnership РMost of us will not have the complete skill set to implement the idea we have. ex:- I have a brilliant idea for a product in telecom domain. However, I do not have enough domain knowledge. My friend works in Huawei. Since, he is a friend, I offer 50% stake in my idea for him to give domain knowledge. Seth Godin says this approach is wrong. Since the only job of my friend is to provide domain knowledge, he should be given a lesser stake. 50% should be offered only for equal partners.i.e if my friend is willing to spend as much time as me in building,testing and marketing the product only then should he get 50%. I was watching the movie Rocket singh yesterday and this point came rushing to my mind. The hero offered equal partnership to all new partners. His stake in the company quickly dropped from 100% to 20% even though he does most of the work. Even the guy who just assembles PCs( you can hire a guy for 10000Rs/month to do this) gets 20% of the company!!

4) Partnership – Always look for partners who can offer complementary skills to yourself.Never start partnership just because you are friends. Analyze critically what you and all your friends can bring to the table. If you are really close friends you will know what each one can offer the team. See if they are complementary and then only start a partnership.

Though Bootstrapper’s¬†bible is meant for an entrepreneur¬†trying to set up his own business, I think several points that the author raises can be used by us,working in a corporate environment.¬†If any of the ideas require one of the following, then the idea is not a good one as the established or big companies have an advantage over¬†small company like ours(CDC Software)¬†–
1) Capital – If your business idea requires an investment of hundreds of crores of rupees, then there is no hope for a startup or small companies. This is because a company like Reliance or Tata can easily get a loan of 100 crores to help them build a new line of products while a startup would have to struggle to get the same.
2)Brand Recall¬†– There are a few products out in the market that sell purely because of the branding. ex: colas sold by Coca-Cola¬†and pepsi. Would you buy a cola manufactured by an unknown company? It’s best to¬†avoid such markets as a new business can never match the established brands without the access to capital for advertising.
3)Scale – If your business plan requires sales of millions of units to be profitable, then it will probably not workout. Because established companies have access to capital and can easily scale up and become profitable quicker than you can. Since they also have access to capital, they can then apply pricing pressure by lowering the price of the product. Bisleri¬†is a good example. They had the best brand recall for mineral water. In fact, when someone asks for “bisleri” they are in fact¬†asking for water. However, the big internationals came and now I can see only aquafina¬†or kinley in all the stores.
If your idea possesses one of the qualities below, then it is a good idea and worth looking into further.
1) New technology – Quite often established companies are too busy fighting each other in the market that they fail to notice a new technology with its growing market share. These technologies, inherently are not very attractive to the established companies. These technologies are called disruptive technologies. I have already blogged about this in one of my previous posts. Please read it if you want to know more.
2) Find a niche РBig companies need big revenues to survive. Small companies like ours need smaller amounts to survive.  Pivotal has been successfully exploiting its niche market of highly flexible solutions for companies with complex business processes and products. Does your idea cater to some niche that no one thought of?
3) Rapid R&D – Studies have shown that a small set of engineers are more productive than large groups. If an idea requires a quick development cycle,then chances are that small company can be the first to the market and continue to maintain the lead over established rivals. In fact Larry Ellison of oracle was often guilty of promising features in oracle database that were not even in the product. He was confident that his engineers would develop them after he promised them to the customers!! Ofcourse, this was when oracle was a small company and it is not a recommended mode of operation ūüôā
4) The underdog РEveryone loves an under dog. Thats why people support google against Microsoft. Thats why people support apple against Microsoft. In fact, people support any one who is competing against Microsoft. Can your idea make use of the underdog status to make decent profits?

1 Comment

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One response to “Bootstrapper’s bible

  1. vasanth achar

    Nice read. These days in India there is a lot if buzz about entrepreneurship. In fact, in rediff I get to read about at least one such success story (mostly rags to riches). Whenever I read those stories, I fantasize how it would be one day to own my business (mainly because of the thought that I could be my own boss!). Those articles are very inspiring.

    Your article is very informative. Quite a few points to which I haven’t given much thought earlier – hence food for thought for me. Let me digest this, and then I might have a discussion with you. ūüôā

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