Suppose you�re launching a new start-up and you couldn�t be more
excited. You know you�ve got a winning idea and you�re certain
customers will love it. There�s just one problem and it�s a biggie �
lack of funding. Yes, even in the best of times it can be hard for
cash-strapped entrepreneurs to pay for what they need. But now, with
a sluggish economy and tough restrictions on who can get credit,
your frustration is threatening to overwhelm your passion. More and
more you�re starting to wonder: Should I just cut my losses and
throw in the towel now?
so fast, says Michael Houlihan. While you do need some money to get
started, you can seriously reduce the amount if you take advantage
of some key bootstrapping strategies. It was the use of these very
strategies that enabled him and his business partner, Bonnie Harvey,
to found and grow Barefoot Cellars, the company that helped
transform the image of American wine from staid and unimaginative to
fun, lighthearted, and hip.
�Trust me, I know what it�s like to try to start a business when
you�re basically broke,� says Houlihan, coauthor along with Harvey
of The Barefoot Spirit: How Hardship, Hustle, and Heart Built a
Bestselling Wine (coming in February 2013 from Evolve
Publishing). �Bonnie and I were originally so strapped for cash that
when we began making our wine in the mid-�80s, our administrative
office was the laundry room of a rented farmhouse in Sonoma County,
California. But despite our humble surroundings and shallow bank
account, we were determined to find a way to make our dream a
Over the next two decades, Houlihan and Harvey learned how much they
didn�t know about wine � making it, bottling it, selling it,
marketing it, and competing against other labels � and Barefoot
Cellars came close to producing its last bottle many times during
�Even if you�re very familiar with your industry, you face an uphill
battle when you start a company,� reflects Houlihan. �But
ultimately, being undercapitalized was a great thing for Barefoot.
It forced us to think creatively and to be resourceful every step of
the way. In order to survive, Bonnie and I had to develop processes
and procedures that worked; that succeeded solely on their own
merits � not because we were constantly throwing money at every
problem that cropped up.�
Barefoot Cellars turned out to be a big success and it was sold to
E&J Gallo in 2005. Now, Houlihan is passionate about sharing with
other entrepreneurs what he and Harvey learned the hard way.
following cost-saving measures that helped Barefoot Wine survive and
grow might also be lifesavers for your start-up:
Start out in a rent-free place.
Unless your company needs to operate in a specific type of space,
wait until you have gained more momentum to start writing rent
checks. Whether it�s an attic, a garage, a spare bedroom, or even
the kitchen table, go anywhere that won�t make a dent in your bank
mentioned earlier, Barefoot�s first office was a laundry room,�
reminds Houlihan. �It wasn�t glamorous. It certainly didn�t scream:
�The people who work here are a force to be reckoned with!� But it
held our files and a make-shift desk, but most importantly, it
allowed us to get the job done without spending any extra money.�
Ask your family to help with the work-load.
The same people who cheered for you at Little League games and came
to your annual piano recitals when you were a kid haven�t changed
the way they feel about you. As long as you are humble and
appreciative, you might find that they would like nothing more than
to help your start-up succeed. So even if you have to swallow some
pride in order to admit that you can�t do it all by yourself, ask
family members to stuff envelopes, put together e-mail lists, file
paperwork, catalog inventory, and more.
�Retired grandmas, aunts, and uncles would love to make a difference
in your life, and they�ll probably be thrilled to do something new
and help the family business get started,� confirms Houlihan.
�Remember, each relative who offers to help out takes the place of
an employee you�d otherwise have to pay. And who knows, they may do
a lot more for your start-up than just add manpower.
�Family members can also provide objective opinions and commonsense
insight,� he adds. �In our case, Bonnie�s mom came up with the term
�Barefoot Bubbly� for our champagne � and it was a huge hit.�
Assume someone else�s excess inventory.
Who says you have to start from scratch when it comes to producing
your product? If it�s feasible in your industry and for your
particular product, try to acquire another company�s unsold
merchandise. If you can repurpose it, improve it, or otherwise
incorporate it into your product, you�ve just saved yourself time,
effort, manpower, and money.
Barefoot, we bought bulk wine in tanks, juice from grapes before it
was fermented, and grapes themselves,� explains Houlihan. �We would
do whatever was needed to make each batch into a wine that fit the
Barefoot specifications. Sometimes, we would even contract with
other wineries to make wine to our specifications! Since we did not
rely on owning and maintaining our own vineyards, we saved a ton of
money, which is one reason that Barefoot became known as an
affordable, yet quality, wine.
you go this route, just be sure that you never, ever compromise on
quality when working with someone else�s inventory,� he adds.
Outsource everything except quality.
Yes, you�re passionate about your business, and it�s natural for you
to want to control and oversee every aspect of it from day one. But
look at it this way � until your financial situation is more stable,
what little money you have will be best spent on marketing your
product so that you can make money, develop a customer base, and
build momentum. Then you can start funding a production facility if
you so desire. Just remember that oversight is critical and anything
you outsource will ultimately bear your company�s name, so never
compromise on quality.
�With outsourcing, you usually pay only when the product is
produced. And produced to your quality specs,� confirms Houlihan.
�Our laundry room was only an office � a command center, if you
will. Bonnie and I outsourced wine production, bottling, and
manufacturing the label that went on the bottles. If we�d had to pay
for all of that space, equipment, and manpower up-front, we would
never have gotten off the ground.�
Use �worthy cause marketing� to advertise your product or service.
No matter how unique or useful or amazing your product is, your
company cannot succeed unless potential customers know you exist. In
other words, you need to advertise. This is one area in which
Houlihan and Harvey stumbled into a stroke of genius. Since they
didn�t have the budget for traditional marketing, they spread the
word about their wines by partnering with nonprofit organizations (NPOs).
�Specifically, we sought out organizations that believed in causes
close to our own hearts � environmentalism, civil rights, education,
the arts and others,� explains Houlihan. �In this way we gained
access to huge numbers of potential customers, giving them an added
social reason to buy Barefoot wine.
�When Barefoot Wine was starting out, Bonnie and I donated wine and
manpower at our partner NPOs� events,� he recalls. �We were able to
help the NPOs, talk up our product, and conduct market research by
talking to attendees. We also recognized the NPOs on our website and
publications, and vice versa. It was very much a grassroots effort,
and because we worked hard, had fun and believed in what we were
doing, it paid off for us and those partners.
�Consider adopting this strategy for yourself,� he suggests. �Start
by seeking out NPOs � small, local ones are best � that resonate
with you and your product.�
Trade the goods and services you have for goods and services you
need. If you
think that bartering is a thing of the past, think again! When you
look in the right places, you�ll find that there are still many
entrepreneurs and companies that are willing to accept goods and/or
services in lieu of a cash payment. Many start-ups besides yours,
especially in their early days, will actually prefer this option to
spending cash, just the way you do.
�Find other start-ups that have what you need and need what you
have,� recommends Houlihan. �Specifically, a good place to start
might be any suppliers that are also start-ups. They are
cash-strapped like you and probably need to spend money they don�t
have. Find out what they need and see if it�s something you can
provide. Perhaps your product is something their supplier needs.
your own inquiries don�t yield any results, there are many
third-party barter companies (business trade exchanges) that
specialize in these kind of trades,� he adds. �The main thing is to
remember that your product can be valuable to someone who is willing
to trade to get it. Just be sure that any trade you make is legal,
and realize that there can be tax consequences.�
Forge strategic growth alliances with suppliers.
This one comes down to plain old common sense � there are no
drawbacks and many advantages to having a good relationship with
your suppliers. Remember that as your company grows, you�ll become
an increasingly bigger customer, which in turn will help your
supplier to succeed.
never hurts to remind your suppliers of this fact,� points out
Houlihan. �And when you�re on good footing with them, you�ll find
that they�re willing to help you by providing special discounts and
extending your credit because they like the way you pay your bills.
Barefoot�s relationship in the early days with our bottle supplier,
stands out to me in particular.
�They extended highly unbank-like credit extensions to us many
times. I explained that I could either pay what we owed now and not
have any money left over to grow, or I could wait a bit to pay and
continue to grow. The glass company recognized that everyone would
benefit more in the long term if Barefoot was allowed to grow now,
and they always extended the credit we needed.
�One last thought, make sure to never give your suppliers a reason
to doubt your goodwill or integrity,� he adds. �Call them as soon as
you know you will be unable to pay on time, and give them a workable
payment plan. They have bills to pay too, and will appreciate a
timely heads up. As a matter of fact, that�s exactly the kind of
customer they want long term.�
Give discounts for cash and large volume purchases.
This strategy, according to Houlihan, is another win-win
proposition. Start by offering retailers a discount if they�ll pay
cash for your product, or if they purchase a large quantity. Right
off the bat, they can chalk up a win because they�ve saved money,
and you profit too because you�re ahead of your bills.
�This strategy continues to pay off over time,� promises Houlihan.
�Say a buyer has just received a large shipment of your product.
Chances are that the person will want to run a special on your
items, thus advertising them to move them faster. Because after all,
until the products are sold, they�re just taking up valuable
warehouse space. It�s easy to see how this is equally beneficial,
your product becomes more visible and (hopefully) draws in new
repeat customers and the retailer makes money from the sales. Now
that you and the customer are smiling, you can start the process
Sell your product overseas.
with your product is another good way to make cold, hard cash that
you can then reinvest into your business. Giving credit to overseas
buyers is particularly risky due to legal challenges, so most
international transactions are cash sales based on a signed
ocean-going bill of lading through a letter of credit. It�s similar
to an escrow account, where you get paid when the buyer takes
�Admittedly, this strategy will take a significant amount of
research and preparation up-front,� says Houlihan. �But if you
determine that selling your product overseas is a viable option,
your work can pay off big time. Remember, the trick to juggling
payables and receivables is timing. If you have negotiated longer
terms with your suppliers, you can actually get paid through
international sales before you have to pay your own bills. And if
you can negotiate it, you can then pay the supplier earlier for a
Produce just-in-time inventory.
Just-in-time inventory is (as the name suggests) a product that is
produced just in time for the sale, rather than one that is produced
ahead of time and stored in a warehouse. The advantages of this
strategy are obvious. First, you don�t have to spend as much money
up-front creating a product stockpile. Second, if you play your
cards right, you won�t have to spend money renting or buying storage
Third, if you are able to get a purchase order from your customers
up-front, you can manufacture only the amount of product that will
be sold, thus keeping you from wasting money on excess production.
If an up-front purchase order isn�t practical, operate with the
minimum inventory you need to satisfy your customers � additionally
assuming a reasonable growth factor that you reassess every month.
Barefoot,� explains Houlihan, �we bottled our wine just before it
was shipped so that we didn�t have numerous cases waiting for orders
and racking up storage costs. By the time the wine was bottled, we
knew it would be both paid for and shipped quickly.�
Ask a lot of questions.
When you�re starting a business with a tight budget, you literally
cannot afford to make mistakes � and that means there�s no such
thing as a dumb question. Before making any kind of commitment that
will cost you money, ask lots of questions (and then ask some more)
ahead of time until you�re sure you�re moving in the right
direction. You�ll save money because you aren�t guessing or making
instance, Houlihan and Harvey asked many questions so basic that
many in the industry had stopped thinking about them, such as: Which
demographic buys the most wine? How do you sell it? How does this
work? The answers allowed them to get a fuller picture of the wine
industry than many longtime professionals had, according to Houlihan.
He and Harvey learned that it would be smart to aim for supermarket
customers who wanted a solid, reliable wine, but who were put off by
fancy labels and French terminology.
asked questions on a more granular level, too,� he says. �I�ll never
forget asking one supermarket chain�s gruff wine buyer what our logo
should look like. He told me, �Don�t make it a hill or a leap or a
run or a valley or a creek. Don�t put a flower on it. And for
heaven-sakes, don�t make it a chateau. Make the logo the same as the
name � and whatever you do, put it in plain English and make it
visible from four-feet away. The shoppers have to be able to see it
when pushing their cart down the aisle. Now get out of here. I got
work to do.�
�Turns out, that advice was solid gold, and I didn�t have to pay a
dime for it,� adds Houlihan. �All I had to do was ask a question.�
�Ultimately, launching and growing a successful business isn�t so
much about how much money you have as it is about identifying the
resources you have and using them as effectively as possible,�
concludes Houlihan. �And once you begin building momentum, the
cost-saving measures and innovations that helped you to survive the
early days will help your company to continue operating as
efficiently and effectively as possible.�
Michael Houlihan and Bonnie Harvey, authors of
Barefoot Spirit: How Hardship, Hustle, and Heart Built a Bestselling
Wine, started the Barefoot Wine brand in their laundry room in
1986, made it a nationwide bestseller, and successfully sold the
brand to E&J Gallo in 2005. As pioneers in �worthy cause� marketing
and performance-based compensation, they held a comprehensive view
of customer service resulting in the National Hot Brand Award for
outstanding sales growth in 2003 and 2004. They now share their
experience and innovative approach to business as consultants,
speakers and workshop leaders.
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