In today’s competitive start-up environment, it has become increasingly difficult to secure external seed funding and convince investors that a specific venture will be one of the few that won’t fail. In 2014, only one per cent of US start-ups were funded through venture capital and a similar sentiment has been echoed here in Australia – 66 per cent of Australian start-ups never raise venture capital funding, and another 18 per cent have tried but failed.
Many start-ups are now learning to rely on their own resources. While some may choose to reject external funding of their own accord, many are leaning towards this option simply because there is no other option. Regardless of whether it’s by choice or necessity, the entrepreneurial community are becoming more inclined to support self-funded endeavors – and this is proving to be increasingly beneficial.
While many entrepreneurs try to raise capital through crowdsourcing, angel investment, IPO’s or financial backing from family and friends, funding a venture with money out of your own pocket requires considerable talent, discipline and self-belief. Not surprisingly, entrepreneurs who have bootstrapped their way to success are often rare to come by.
A lesson from my own experience
When I established Abakus Apps – a smartphone app that streamlines the property tax management process – I essentially became my own boss and decided to take on the risk myself. While I may have been able to seed fund, this was not the right fit for me and I believe more and more start-ups are feeling the same way.
With investors, there are usually strings attached when taking money and these can be unattractive to an entrepreneur who wants to retain a relative amount of control over their business. I’m also a strong champion for entrepreneurs having freedom to follow their unique vision. Isn’t this why entrepreneurs become entrepreneurs?
In my experience, I wanted to develop and launch a groundbreaking and intuitive product, build the company and product value, and then look for investors that might be interested in the product. I didn’t want to sell part of my company without building its value and proving its potential.
Is being a self-funded entrepreneur a stressful gig?
Be prepared to embrace an exciting, yet challenging, learning adventure. For me, I had to learn how to manage business finances and expenses for the first time – out of pure survival – but I’ve developed economical practices that’s put me well ahead of where I thought I would be financially.
I also had to acquire skills I never thought I would need, like corporate negotiation, graphic design and customer service. I’ve learnt to wear many hats and become self-sufficient and this is something I suggest every entrepreneur learns – after all, it’s the cornerstone to building any successful business. I’ve also learnt to trust myself and become less afraid at taking risks.
If you choose self-funding, be prepared to work a full-time job in the early days to pay the bills, as well as work long hours – I regularly work late at night finalising products and constantly adjusting financial spending. It’s a juggling act, but it’s worth it. I even sold one of my own properties to finance Abakus Apps, but seeing your vision and business develop in front of you is very rewarding and life changing.
How to become a self-funded entrepreneur
Here are my top five tips for aspiring entrepreneurs considering self-funding:
1. Trust in your idea and its contribution
Being able to have total trust in your concept requires a whole lot of self-reflection and critical thinking. Receiving negative feedback at some stage is to be expected, but don’t take it personally – use this feedback as an opportunity to make adjustments to your offering or service. In order to have faith in your idea entirely, you need to ask yourself the hard questions, identifying the strengths and weaknesses of your venture and adjust them accordingly.
2. Utilise government incentives and programs
As Australia places more of a much needed focus on the start-up sector, a helping hand is being extended to entrepreneurs. The National Innovation & Science Agenda offers a range of support strategies to help start-ups raise more funding, attract new talent, and provide assistance for startups to grow.
3. Get a grip on budget
Sometimes the hardest thing to deal with as an entrepreneur is inconsistent income. This increases tenfold when you start a new venture out of your own pocket. Firstly, separate your business and personal bank accounts, then develop a twelve month budget, five year prediction, and an analysis of ambitious and worst case scenarios. Determine what money is available to be spent and hold yourself accountable for money coming in and going out. Spending money on a quality business financial advisor and accountant is also a wise investment every startup should consider.
4. Take advantage of social media
If advertising and marketing are outside of your budget, get creative with social media and develop a simple content sharing strategy. Facebook and Instagram are great platforms to target consumers, whilst LinkedIn and Twitter are core platforms to target businesses. It’s best to choose one platform and build a solid, supportive presence on here before delving into other platforms. When in doubt, look to other brands social media channels to find inspiration on how to develop and position your business pages and the types of content to post.
5. Develop strategic partnerships
In recent years, successful startups have utilised strategic partnerships to overcome business challenges. Spend time researching, identifying and collaborating with businesses where mutual gains and exchange of services can be made. Team up with larger companies that share a similar market as your own and learn as much as you can… but, don’t be afraid to walk away if the benefits for you aren’t measurable in return.
Brenton Tidow is the Founder and Managing Director, Abakus Apps