Bootstrapping Your Business. Get Real. Get Started.

Ditch the business plan and buy a lottery ticket. That’s what I tell new entrepreneurs who seek angel or venture funding. The odds are probably better, you will save yourself a lot of time and grief and you'll get results sooner with the lottery. If you have a great idea that can change the world, then bootstrap your way until you can prove it. Funding will come just when you don't need it.

I've mentored and helped fund dozens of entrepreneurs over the past few years. There always seems to be a “catch-22” — you need seed financing but no one will give you a cent until you have a marketable product with paying customers. Ironically, raising millions of dollars is always easier than raising thousands. Why? Because venture capitalists are drawn to those who have done it in the past. If you don’t have a documented track record, it is hard to convince someone you have what it takes to be successful.

BEYOND IDEAS. A myth taught and propagated by many top business schools is that the way to build a venture is to create a comprehensive in-depth business plan, perfect your elevator pitch and then present your PowerPoint slides to venture capitalists. If that doesn't work, you knock on the door(s) of angel investors – both organized groups and high-wealth individuals - and pitch them.

Ask any entrepreneur who has called on venture capitalists, and they will likely tell you it is almost impossible to even get calls returned. If you get lucky and are invited to present your idea, the due-diligence process will drag on for many months while you mortgage your assets, ruin your marriage and survive on hope. If you do hit the jackpot, the venture capitalists will require you to trade away your first born in exchange for an investment. And, guess what, you now have a “partner” looking over your shoulder on a regular basis – more often if you do not hit your milestones.

In reality, most business plans don't deserve funding. Most business plans are poorly written, contain spelling and grammatical errors and read more like science fiction novels. Venture capitalists receive hundreds of plans every month, and few are worth the paper they are printed on. Everyone jumps on the same new trend, or the ideas are so far out that they have no chance for success.

Additionally, most entrepreneurs don’t take the time to understand what venture capitalists are looking for. Entrepreneurs don’t know that most venture capitalists are only seeking companies that can demonstrate a large market opportunity in a fast-growing sector. Plus, they want a company scale to a $100 million to $300 million revenue stream within five years. This means the market potential has to be at least $500 million or more, and eventually the company needs to achieve at least a 25 percent market share. Therefore, great ideas won’t do it; it takes an experienced, proven entrepreneur and management team, outstanding execution and a receptive market that is both large and growing. It's hard for even the best venture capitalists to separate the wheat from the chaff.

So what should an entrepreneur do?

My advice to the very few with realistic, well thought-out business plans is to bootstrap. That is, go it alone, without angel or venture capital funding. Just get going. Focus on validating your idea, building your business and always selling for survival. You need to raise enough money to get started by begging and borrowing from family and friends. And be prepared to dip into your savings and credit cards, obtain second mortgages, and perhaps look for part-time work, consulting work or customer advances. Or better yet, you may want to keep your “day job” while you launch your idea.

There is no single formula for bootstrapping a company, but there are some essential ingredients.