Getting Ready To Bootstrap Year 1: How Long Is Your Financial Runway?
Harvard Social Enterprise Conference March 29-30, 2014
Shana Dressler Social Innovators Collective
@sic_org
BOOTSTRAPPING
• An individual is said to be bootstrapping when he or she attempts to found and build a company from personal finances or from the operating revenues of the new company
• Being creative and efficient when assembling resources
• Stretching resources – both financial and otherwise – as far as you can
• Bootstrapping means less money has to be borrowed
REALITY CHECK - 565,000 startups are launched in the U.S. each month. That’s 6.78 million startups launched each year. How many of them succeed? - 80% of entrepreneurs fail within the first 18 months. - 55% of businesses fail within the first five years. - From Funding Your Startup Social Enterprise by Lauren Abele, which forms part of the Social Good Guides series.
Money.
It can’t buy you love, but it can buy your startup, nonprofit or social enterprise a future.
So… let’s talk about money
How much money do you need to get your startup off the ground?
If I gave you
$100,000 how would you spend it?
How long is your financial runway?
If you don’t know what your first year is going to cost you what are the consequences?
YM vs.
OPM
YOUR MONEY
57% of startups are funded by personal savings and credit.
OTHER PEOPLE’S MONEY
- 38% of startups receive friends + family financing - .91% of startups get funded by angel investors - .05% of startups are funded by VCs
Nonprofit Funding Possibilities
• Personal income • Personal savings • Personal debt – NOT RECOMMENDED (i.e. credit cards - Visa 12.65% American Express 15.24%) • Friends and family • Accelerator, incubator and fellowship money • Crowdfunding • Events • Online fundraising through a 3rd party online platform • Online fundraising through your organization’s website • Patient capital • Sale of a product • Tax deductible donations passed through a fiscal sponsor • Tax deductible donations [you need to be a 501(c)(3)] • Venture philanthropy
Nonprofit Funding Possibilities
For-Profit Funding Possibilities
Social Enterprise Seed Capital
• Personal income • Personal savings • Personal debt – NOT RECOMMENDED (i.e. credit cards - Visa 12.65% American Express 15.24%) • Friends and family – donation • Friends and family – equity investment • Accelerator, incubator and fellowship money • Crowdfunding • Investment crowdfunding • Loans from personal contacts • Loans from bank • Prize money from competitions • Revenue from sale of a product or service
EVENTS: MERCHANDISE
Chocolate Tasting 2009
Chocolate Tasting 2010 Chocolate Tasting 2010
Nonprofit Bootstrapping Funding Possibilities
Various • Personal Savings • Personal Income • Personal Debt (not suggested) • Non-Deductible Donations (before 501c3) • Tax Deductible Donations Passed Through a Fiscal Sponsor • Loans from Personal Contacts*** • Loans from Professionals*** • Direct mail • Matching gifts and corporate giving • The sale of a product (if not related to mission of company this is taxable income) • Online fundraising through an organization’s website • Online fundraising through a 3rd party online platform (globalgiving.org; causes.com) • Crowdfunding (causevox.com)
Chocolate Tasting 2011
2009 – 2011 Chocolate Tastings Money Raised
Go to Excel
2009
Made $3722.64 for the nonprofit and cost me: $891.47
2010
Made ? and cost me: $106.40
2011
Ticket sales from Eventbrite: $2665.00 Event listed as a 2011 expense: $5136.79
Nonprofit Funding Possibilities
• Personal income • Personal savings • Personal debt – NOT RECOMMENDED (i.e. credit cards - Visa 12.65% American Express 15.24%) • Friends and family • Accelerator, incubator and fellowship money • Crowdfunding • Events • Online fundraising through a 3rd party online platform • Online fundraising through your organization’s website • Patient capital • Sale of a product • Tax deductible donations passed through a fiscal sponsor • Tax deductible donations [you need to be a 501(c)(3)] • Venture philanthropy
Nonprofit Funding Possibilities
For-Profit Funding Possibilities
Social Enterprise Seed Capital
• Personal income • Personal savings • Personal debt – NOT RECOMMENDED (i.e. credit cards - Visa 12.65% American Express 15.24%) • Friends and family – donation • Friends and family – equity investment • Accelerator, incubator and fellowship money • Crowdfunding • Investment crowdfunding • Loans from personal contacts • Loans from bank • Prize money from competitions • Revenue from sale of a product or service
Business Plan Competitions
Accelerator Programs
Accelerator Programs: Dreamit Ventures
HOW DOES S/HE DO IT?
• Full Time Job (own $) • Part Time Job (own $)
• Savings (own $) • Partner
• Passive income from investments • Family money
• Illicit Activities*
* Synonyms: illegal, unlawful, wrongful, unauthorized, forbidden, illegitimate
Accelerator: Dreamit Ventures
How much money do you
need to launch?
YOUR FINANCIAL RUNWAY
PERSONAL EXPENSES Rent Utilities Clothes Entertainment Exercise Food Health Insurance Personal care Weekends away/vacations Personal Expenses Total _______________ Transportation Car Taxis Subway Transport Total
BUSINESS EXPENSES Business lunches/dinners Cell Phone Computer Conferences Domain registration DSL Legal Memberships/associations Office Space Office Supplies Website Website hosting Business Expenses Total GRAND TOTAL = _______
Startup Expenses: Personal
Download files from http://bit.ly/1cQ0DR2
Startup Expenses: Business
Download files from http://bit.ly/1cQ0DR2
2009 Startup Costs
$50,000 $936.58/month
What’s your strategy for
how you’ll raise the money you
need?
STRATEGY Guide: What’s Strategy Got To Do With It The word strategy originates from the battlefield, but we now use it in the context of social innovation. Defined as “a plan of action designed to achieve a goal,” strategy could be a plan for directing troops and military operations to win a war or for figuring out a way to make your social venture succeed. “Figuring things out as they come along” is a kind of strategy, but it is not often the most effective one.
- Lee-Sean Huang, Co-Founder Foossa
Calculate your financial runway?
“Feeding The Beast”
by Andrew Greenblatt, Professor at NYU and CEO of Vendorboon
(AvailableCash)−(OnetimeExpenses)(MonthlyIncome)−(MonthlyExpenses)
Mastering the Crystal Ball Below you see what may look like just a math equation, but it is much more than that. With it you can see into your venture’s future, find where you might run into danger, and change course before you run into trouble.
= X months left
“Feeding The Beast”
6 = months before you run out of money
$20,000 - $5,000 = $15,000 $3,500 - $1,000 = $2,500
“Feeding The Beast”
(AvailableCash)−(OnetimeExpenses)(MonthlyIncome)−(MonthlyExpenses)
“Feeding The Beast”
Are you going to make it? Do you need to change something? Should you? Possible options: Cut your monthly expenses? Get a part-time job? Raise money? Find another way to get revenue flowing? Piggyback on something already built? .
WHY DO SOCIAL IMPACT ORGANIZATIONS FAIL?
10 Common Reasons for Nonprofit Failure by Matthew Klein, ED of the Blue Ridge Foundation
1. Not aware of landscape and can’t articulate differentiation
2. Confuse encouraging words with willingness to fund
3. Assume aligned funder guidelines will result in a grant
4. Founder wants to do the work, not do the fundraising for the work
5. Data to demonstrate progress is not captured consistently
6. Organization pursues activities in advance of funding
7. Organization pursues activities only because of funding
8. Activities cost more than funding provides
9. Board does not contribute meaningfully to funding
10. Organizational culture does not value measurable results
10 Mistakes That Kill Startups by Paul Graham, co-founder of Y Combinator, an incubator for tech startups, named by Forbes as one of the world’s 7 most powerful entrepreneurs
• Single Founder
• Fights Between Founders
• Obstinacy
• Hiring Bad Programmers
• Choosing the Wrong Platform
• Launching Too Early
• Spending Too Much
• Raising Too Little Money
• Raising Too Much Money
• Not Wanting to Get Your Hands Dirty
10 Mistakes That Kill Startups by Paul Graham
• Single Founder
• Fights Between Founders
• Obstinacy
• Hiring Bad Programmers
• Choosing the Wrong Platform
• Launching Too Early
• Spending Too Much
• Raising Too Little Money
• Raising Too Much Money
• Not Wanting to Get Your Hands Dirty
10 Mistakes That Kill Startups by Paul Graham
• Single Founder
• Fights Between Founders
• Obstinacy
• Hiring Bad Programmers
• Choosing the Wrong Platform
• Launching Too Early
• Spending Too Much
• Raising Too Little Money
• Raising Too Much Money
• Not Wanting to Get Your Hands Dirty
10 Mistakes That Kill Startups by Paul Graham
• Single Founder
• Fights Between Founders
• Obstinacy
• Hiring Bad Programmers
• Choosing the Wrong Platform
• Launching Too Early
• Spending Too Much
• Raising Too Little Money
• Raising Too Much Money
• Not Wanting to Get Your Hands Dirty
10 Mistakes That Kill Startups by Paul Graham
• Single Founder
• Fights Between Founders
• Obstinacy
• Hiring Bad Programmers
• Choosing the Wrong Platform
• Launching Too Early
• Spending Too Much
• Raising Too Little Money
• Raising Too Much Money
• Not Wanting to Get Your Hands Dirty
10 Mistakes That Kill Startups by Paul Graham
• Single Founder
• Fights Between Founders
• Obstinacy
• Hiring Bad Programmers
• Choosing the Wrong Platform
• Launching Too Early
• Spending Too Much
• Raising Too Little Money
• Raising Too Much Money
• Not Wanting to Get Your Hands Dirty
10 Mistakes That Kill Startups by Paul Graham
• Single Founder
• Fights Between Founders
• Obstinacy
• Hiring Bad Programmers
• Choosing the Wrong Platform
• Launching Too Early
• Spending Too Much
• Raising Too Little Money
• Raising Too Much Money
• Not Wanting to Get Your Hands Dirty
10 Mistakes That Kill Startups by Paul Graham
• Single Founder
• Fights Between Founders
• Obstinacy
• Hiring Bad Programmers
• Choosing the Wrong Platform
• Launching Too Early
• Spending Too Much
• Raising Too Little Money
• Raising Too Much Money
• Not Wanting to Get Your Hands Dirty
10 Mistakes That Kill Startups by Paul Graham
• Single Founder
• Fights Between Founders
• Obstinacy
• Hiring Bad Programmers
• Choosing the Wrong Platform
• Launching Too Early
• Spending Too Much
• Raising Too Little Money
• Raising Too Much Money
• Not Wanting to Get Your Hands Dirty
10 Mistakes That Kill Startups by Paul Graham
• Single Founder
• Fights Between Founders
• Obstinacy
• Hiring Bad Programmers
• Choosing the Wrong Platform
• Launching Too Early
• Spending Too Much
• Raising Too Little Money
• Raising Too Much Money
• Not Wanting to Get Your Hands Dirty
Resources that save time + money
PLACES TO FIND COMMUNITY
SMALL BUSINESS RESOURCES
FREE MARKETING SERVICES
LOW COST LEGAL SERVICES*
* An option, but the best one is to hire an attorney with expertise in the social impact space.
ONLINE LEARING FOR DESIGN + BUSINESS SKILLS
ON DEMAND BUSINESS ADVICE FOR EXPERTS
FREE GUIDES ABOUT DIGITAL MARKETING + SOCIAL MEDIA
TOOLS TO SUPPORT SOCIAL INNOVATION
WWW.SOCIALGOODGUIDES.COM
http://www.youtube.com/watch?v=5jx0ZjAXWwQ
Inspiration "If a person has had the sense of the call-the feeling that there's an adventure for him-and if he doesn't follow that, but remains in the society because it's safe and secure, then life dries up, and then he comes to that condition in the late middle age: he's gotten to the top of the ladder and found that it's against the wrong wall. If you have the guts to follow the risk, however, life opens, opens, opens up all along the line. I'm not superstitious, but I do believe in spiritual magic, you might say. I feel that if one follows what I call one's bliss – that thing that really gets you deep in the gut and that you feel is your life – doors will open up. They do! They have in my life and they have in many lives that I know of." - Joseph Campbell "Until one is committed, there is hesitancy, the chance to draw back, always ineffectiveness. Concerning all acts of initiative (and creation), there is one elemental truth, the ignorance of which kills countless ideas and splendid plans – that the moment one definitely commits oneself, then providence moves all. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issues from the decision, raising in one's favor all manner of unforeseen incidents and meetings and material assistance which no man could have dreamed would have come his way. Whatever you can do or dream you can, begin it. Boldness has genius, power and magic in it. Begin it now." - Goethe
