Can you become an entrepreneur and start your business, and fulfill your dream, in an age when the world is tumbling down the slippery slope of recession, when banks refuse to lend to huge stable long-time customers (let alone small businesses), when the VC pipeline is dry because those who invest in VC’s have stopped…?

The answer is yes, of course. This is precisely the best time of all to start a business and become independent, because so few people are even thinking of doing this, and because it is very hard to find a promising job with learning potential, as companies downsize and lay workers off. 

But how?

Bootstrap! Self-fund your business by financing it with cash flow and with your own savings. It may take you longer, but you will retain control and there are huge advantages to that.  

Here are the 12 rules of bootstrapping, by Guy Kawasaki, legendary Apple co-founder and successful venture capitalist. Follow them carefully and, above all, do not give up your dream just because the world is temporarily screwed up. Kawasaki says: 

I could build a case that too much money is worse than too little for most organizations—not that I wouldn’t like to run a Super Bowl commercial someday. Until that day comes, the key to success is bootstrapping. The term comes from the German legend of Baron Münchhausen pulling himself out of the sea by pulling on his own bootstraps.  

Here is the art of bootstrapping.  

  • Focus on cash flow, not profitability. The theory is that profits are the key to survival. If you could pay the bills with theories, this would be fine. The reality is that you pay bills with cash, so focus on cash flow. 
  • Build around boostrapping. If you know you are going to bootstrap, you should start a business with a small up-front capital requirement, short sales cycles, short payment terms, and recurring revenue. It means passing up the big sale that take twelve months to close, deliver, and collect. Cash is not only king, it’s queen and prince too for a bootstrapper. Manage by cash flow, not P&L – you probably should do this anyway, for any business.
  • Forecast from the bottom up. Most entrepreneurs do a top-down forecast: “There are 150 million cars in America. It sure seems reasonable that we can get a mere 1% of car owners to install our satellite radio systems. That’s 1.5 million systems in the first year.” The bottom-up forecast goes like this: “We can open up ten installation facilities in the first year. On an average day, they can install ten systems. So our first year sales will be 10 facilities x 10 systems x 240 days = 24,000 satellite radio systems. 24,000 is a long way from the conservative 1.5 million systems in the top-down approach. Guess which number is more likely to happen.
  • Ship, then test. I can feel the comments coming in already: How can you recommend shipping stuff that isn’t perfect? Blah blah blah. ”Perfect“ is the enemy of ”good enough.“ When your product or service is ”good enough,“ get it out because cash flows when you start shipping.
  • Forget the ”proven“ team. Proven teams are over-rated–especially when most people define proven teams as people who worked for a billion dollar company for the past ten years. Hire young, cheap, and hungry people. People with fast chips, but not necessarily a fully functional instruction set.
  • Start as a service business.  
  • Focus on function, not form. The function is computing, getting from point A to point B, skating, shooting, and knowing the time of day. These functions do not require the  expensive form…  
  • Pick your battles. Bootstrappers pick their battles. They don’t fight on all fronts because they cannot afford to fight on all fronts.  
  • Understaff. Many entrepreneurs staff up for what could happen, best case. Bootstrappers understaff knowing that all hell might break loose. But this would be, as we say in Silicon Valley, a “high quality problem.” Trust me, every venture capitalist fantasizes about an entrepreneur calling up and asking for additional capital because sales are exploding. Also trust me when I tell you that fantasies are fantasies because they seldom happen. 
  • Go direct. The optimal number of mouths (or hands) between a bootstrapper and her customer is zero. 
  • Position against the leader. Don’t have the money to explain your story starting from scratch? Then don’t try. Instead position against the leader.  
  • Take the “red pill.” This refers to the choice that Neo made in The Matrix. The red pill led to learning the whole truth. The blue pill meant waking up wondering if you had a bad dream. Bootstrappers don’t have the luxury to take the blue pill. They take the red pill–everyday–to find out how deep the rabbit hole really is. And the deepest rabbit hole for a bootstrapper is a simple calculation: Amount of cash divided by cash burn per month because this will tell you how much longer you can live. And as my friend Craig Johnson likes to say, “The leading cause of failure of startups is death, and death happens when you run out of money.” As long as you have money, you’re still in the game. 

Guy Kawasaki