Last week a group of students interviewed me, as part of a class project, looking for secrets and keys to success. They were asking me because after 22 years of bootstrapping, my wife Vange and I own a business that has 45 employees now, multimillion dollar sales, market leadership in its segment, no outside investors, and no debt. And a second generation is running it now.
Frankly, during that interview I felt bad for not having better answers. Like the classic cobbler’s children example, I analyze lots of other businesses, but not so much my own. As I stumbled through my answers, most of what I was saying sounded trite and self serving, like “giving value to customers” and “treating employees fairly,” things that everybody always says.
I wasn’t happy with platitudes and generalizations, so I went home that day and talked to Vange about it. Together, we came up with these 10 lessons.
And it’s important to us that we’re not saying our way is the right way to do anything in business; all businesses are unique, and what we did might not apply to anybody else. But it worked for us.
1. We made lots of mistakes
Not that we liked it. At one point, about midway through this journey, Vange looked at me and said: “I’m sick of learning by experience. Let’s just do things right.” And we tried, but we still made lots of mistakes. We’d fuss about them, analyze them, label them and categorize them and save them somewhere to be referred to as necessary. You put them away where you can find them in your mind when you need them again.
2. We built it around ourselves
Our business was and is a reflection of us, what we like to do, what we do well. It didn’t come off of a list of hot businesses.
3. We offered something other people wanted …
… and in many cases needed, even more than wanted. You don’t just follow your passion unless your passion produces something other people will pay for. In our case it was business planning software.
4. We planned.
We kept a business plan alive and at our fingertips, never finishing it, often changing it, never forgetting it.
5. We spent our own money. We never spent money we didn’t have.
We hate debt. We never got into debt on purpose, and we didn’t go looking for other people’s money until we didn’t need it (in 2000 we took in a minority investment from Silicon Valley venture capitalists; we bought them out again in 2002). We never purposely spent money we didn’t have to make money. (And in this one I have to admit: that was the theory, at least, but not always the practice. We did have three mortgages at one point, and $65,000 in credit card debt at another. Do as we say, not as we did.)
6. We used service revenues to invest in products.
In the formative years, we lived on about half of what I collected as fees for business plan consulting, and invested the other half on the product business.
7. We minded cash flow first, before growth.
This was critical, and we always understood it, and we were always on the same page. See lesson number 5, above. We rejected ways we might have spurred growth by spending first to generate sales later.
8. We put growth ahead of profits
Profitability wasn’t really the goal. We traded profits for growth, investing in product quality and branding and marketing, when possible, although always as long as the cash flow came first.
9. We hired people slowly and carefully.
We did everything ourselves in the beginning, then hired people to take tasks off of our plate. We hired a bookkeeper who gave us back the time we spent bookkeeping. A technical support person gave us back the time we spent on the phone explaining software products to customers. And so on.
10. We did for employees’ families as we did for ourselves.
Family members — not just our own family, but employee family members too — have always been welcome as long as they’re qualified and they do the work. At different times, aside from our own family members, we’ve had two brother-sister combinations, an aunt and her niece, father and daughter, and husband and wife.
And in conclusion…
Bootstrapping is underrated. It took us longer than it might have, but after having reached critical mass, it’s really good to own your own business outright. It might have taken longer, and maybe it was harder — although who knows if we could have done it with investors as partners — but it seems like a good ending.
Family business is underrated. There are some special problems, but there are also special advantages too.
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About the Author: Tim Berry is president and founder of Palo Alto Software, founder of bplans.com, and co-founder of Borland International. He is also the author of books and software on business planning including Business Plan Pro and The Plan-as-You-Go Business Plan; and a Stanford MBA. His main blog is Planning Startups Stories. He’s on twitter as timberry.
This is good stuff. It is important to learn by trial and error. Entrepreneurs that are looking to start a business get a much better read of things by actually doing than wasting too much time talking and planning.
I agree with all 10 points, but I would emphasize a couple principles that I feel are underrated.
First, managing cash flow and not spending money you don’t have. This is the type of fiscal responsibility the government and individuals could use more effectively.
Second, you appreciate something more if you know how hard it was to obtain. The rural lifestyle taught this so well to many of our grandparents, but it is just as true in business today.
In year 5 and still growing – albeit slowly. Good to know that running a business without debt and with a lot of work does pay off in the end.
I like #4. “We planned.” Most entrepreneurs have a hard time with planning, yet it is so vital to the success of the business.
Shirley @ Solo Business Marketing
These 10 tips are the foundation that aspiring entrepreneurs don’t see, realize, or prepare as part of their business planning.
Too many suffer from the “I’ve got to get away from my boss” syndrome, only to get themselves into a lot of debt and heartache due to lack of vision or no vision at all.
The first time I spent a significant amount of money, as talked about in No. 5, I nearly crumbled thinking about the funds, but it taught me better decision making that keeps me out of trouble today.
I certainly appreciate what you’ve shared, Tim.
I think this is the best article I have ever read because I can totally relate to the mistakes factor but I am totally in awe of your 45 employees. Thank you for sharing this, it made my day.
Thanks for great common sense tips.
Unfortunately in the hustle and bustle of business we can lose common sense and fall prey to the ‘gobble de gook’ of so called business gurus.
Sherri Garrity - Chief Corporate Fugitive
It is refreshing to hear the truth from someone who’s successful and willing to say it wasn’t ultra easy. I am a corporate fugitive with two businesses, one consulting and the other is more training and product focused. I do business and marketing planning in both businesses, and it breaks my heart to see people go into mega debt to buy what they think is a magic pill that is going to make them a ton of money, without a lot of work. All business models require work! There is no such thing as passive income etc. Thanks for the article.
I’m currently in the process of bootstraping my consulting business. I made a vow before I started the business to never spend any of my own money on it. All the money I put into the business is generated BY the business.
Along those same lines, I avoid credit like the plague. I’ve learned my lessons with credit through my personal finance mishaps and I don’t want to repeat those in business.
Very inpiraitonal story and if all businesses ran this way I doubt the economy would be in the spot it’s in now!
Wow, Tim, this is a super post. I really appreciate all the insights you’ve shared, painful ones and easy ones. You’ve inspired me to pay new attention to cash flow and managing debt. Thanks.
Wow. Perfect post Tim. It’s perfect for a bootstrapper like me. Got a real life story tips from you. I really appreciate much learning lessons not just from theories alone but with real life examples.
I worked for a family owned business for 8+ years. It was fascinating to see the interaction between the family members.
I want to talk with you regarding some business opportunities and learning experiences in the near future.
I think that your quote “We built it around ourselves” is a great one!
Excellent article. I agree, borrowing money with partners is no fun. Spending your own money and growing your business on your terms is fun.
This sounds like a great way to run your Family too! Not just your family business!
It is very important to offer something people want. Too many company’s offer so0mething they think is cool or they think people want.
Your lessons ring very true for me and probably many. It also reminds me of a great TED video I jsut saw this week about the secret to success: Delaying gratification. They used eating a masrshmellow as an example and it really hit home.
Check it out:
Great lessons! #1 is the most painful, so it is always good to learn from someone else mistakes or have a mentor to guide you.
As in my case as an entrepreneur, i find that planning is the easiest to go with, taking action is the hard part, and Action is the Foundational Key to all Success. Thanks for sharing this wonderful insight!
A great list, many thanks. I particularly agree with the principle of spending your own money, that’s something my partner and I have done with our small business and it has really helped during this downturn, not having any debt to service. One thing I would add to the list is the need for patience. It took us some years before we started to see any growth in the business, and it would have been very easy many times to call it a day, but persistence paid off in the end.
Tim Berry deserves appreciation for sharing his 22 years of experience precisely. Small entrepreneurs really gets benefited if they keep these factors in their mind.
Anthony (TAG) George
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Sandra Baptist | Int'l Assn of Women Accountants in Biz
Thanks for the great info Tim.
Our accountants have used your software to help alot of people start their own businesses and restructure their existing ones and stay focused.
Great great information.