Guy Kawasaki -entrepreneur, venture capitalist and blogger- writes a funny article about how entrepreneurs usually approach venture funding, compared to a new way to start up your company, what Guy calls “Plan B for Fund Raising” and others call bootstrapping.
To summarize Guy’s article, he tells the typical story of a start-up getting a round of financing after another, only to end up being sold by the venture capitalists when customer projections delay (as usual) and the VC lose patient after a few millions were burnt. Guy’s suggest a Plan B: Do not leave your day job at Microsoft. Leave with your parents. Target a niche market (“Rather than trying to boil the ocean […], you boil a tea kettle“). Build a prototype and use Internet and the blogosphere to promote it. Then raise capital if needed to expand your business (rather than to create it).
Read the full post from Guy. It is quite funny.
Indeed, Internet makes bootstrapping easier than ever by providing great tools:
1) Test the market. Even before you build your product, you can start advertising and selling it on-line. Build a site to sell your “product”, set your price, spend $1000 in AdWords and see if you get enough customer to place orders. If you see that demand exists in numbers to make your case fly, you go and build your product.
2) Outsourcing. Internet simplifies working as a virtual company. You should aim at orchestrating a zero-employees company (except you). With sites such as elance.com you can get manpower to build your prototype, and use manufacturing companies to produce it. You can also outsource customer care, order administration and your secretary or Virtual Assistant with YMII or Brickwork.
3) Cloud Computing. If your product/service is an on-line application, cloud computing is your solution to avoid investing capital in a server farm to cope with your traffic dreams. Instead you buy capacity as the demand grows from Google App Engine and Amazon Web Services.
When we say Internet is a true engine of innovation, it is not only for the new ways of sharing and accessing information, the new on-line applications or how it has changed the way we buy and sell things. Internet is also the best tool for innovators to start-up a business.