Editor’s Note: This post is Guest Authored by Chris Sonjeow, a cofounder of LoveBook. Based outside of Detroit in Royal Oak, MI., LoveBook (founded in 2007) has, as of this year, crossed over the million-dollar-revenue mark. You can follow Chris on Twitter @lovebookonline.
This is a little embarrassing. I will freely admit that I did not know what the term “bootstrapping” meant until a few years after co-founding my startup, LoveBookOnline.com. The entire idea of funding, VC’s, and angels was entirely unknown to me at the time. In the beginning, I had always thought that starting a business meant coming up with a product or service, creating a business system, then selling the product. That was it. I had no idea that “help” was an option.
Maybe this is why we successfully launched our startup completely bootstrapped with no funding…we didn’t know there was a choice.
Before I get into the details, here is the short story of our company. My name is Chris Sonjeow and I’m one of the original co-founders of LoveBook, LLC. We developed LoveBookOnline.com, a web site that allows users to create custom gift books that list all the reasons why they love someone. Sure, it’s a little on the mushy side, but that’s who we are and we’re proud to make a product that puts smiles on peoples faces.
Since coming out of beta in 2010 we’ve managed to be featured on CNN, The Today Show, Good Morning America, and a number of local news outlets/blogs . With over 125,000 registered users we’ve managed to turn a part-time project into a full time business.
During the first year in development of LoveBookOnline.com, we knew one thing for certain; we needed to build a web site and nothing more. We spent almost two years frequenting our local bars and restaurants (with good wi-fi) every day after work. We would stay til 9 or 10 just working and tweaking the system.
In April of 2010, we were fortunate enough to demo the LoveBook application for Jay Adelson, former CEO of Digg.com and Co-Founder of Revision3. He liked our concept and took the time to help guide us. When the discussion of getting VC money came up, he asked us one simple question, “Are you turning a profit?”
“Yes, but not quite enough for everyone to quit the day job.” I said. Jay continued, “If you’re company is growing, you may regret giving part of it away so soon. Be patient. It will happen.”
To hear this from someone who lives and breathes this industry, it was the green light we needed to continue focusing on the product and revenue, not chasing the funding.
Creating a business without funding can be difficult but it is far from impossible. Here are the six most important factors that played a role in getting LoveBookOnline.com off the ground without funding:
- Do It Yourself – When it came time to develop, there were a few things we didn’t know. Certain programming languages had to be learned, basic user interface ideas had to be conceived, and marketing plans needed to be developed. Our team learned most of these things because we couldn’t afford to hire it out and they were a necessity. Going this route turned out to be the best decision for our business because we learned our system inside and out. If something breaks, we can fix it. Not only that, we didn’t have to spend much money.
- Find The Formula – Understanding the formula for profit will save you in the long run. Be strict with your money and how it’s made. Account for EVERTHING. When you develop your revenue stream, don’t just look at current expenses, look at future expenses as well. When we develop our budget plans we look at how many new hires will we need in the future, what computers need to be upgraded, do we want to give ourselves raises? Each of these expenses are rolled into a price per unit formula.In our example, we take the cost of materials, labor, marketing, rent, utilities, maintenance, services and even the coffee we buy for the office. Well, maybe not the coffee, but you get what I’m saying. Everything costs and you have to understand where it’s going.
Build The Team – This is probably the most critical part of the whole equation. Building a rock star team is the difference between giving up in 3 months or succeeding. At the beginning of the project, each player on your team wear many hats, they need learn and adapt new things quickly. Each team member was a specialist in their respective fields. We had a programmer, an engineer, a database programmer and a marketer. Even though we were all different, we all had some knowledge of each others categories. There is no better feeling in the world than to run into a new challenge, only to have another teammate say, “Oh, that’s no problem. Done.” Most importantly they have to believe in the product. Everyone who is a part of LoveBook has used the product and stands by it as one of the most thoughtful gifts ever.
- Keep the Day Job – When you don’t have funding, cash flow becomes the most important part of your business. It keeps your vendors and employees (if you have them) paid. Your revenue will be your only source of income so making the transition out of the day job can be tricky but not impossible. Don’t rely on others if you don’t have to. In most cases, you will not be eligible for a small business loan because you have no track record. This may require you to keep that day job until the cash flow from one business will allow you to make the lateral move. It may require you to take a step backwards even just to give the business enough attention it needs to grow. It’s a scary but necessary step.If you’re reading this, you know that being an entrepreneur requires hard work and risk. Bootstrapping entrepreneurs believe in their product and will do whatever it takes to bring it to life.
- Measure Everything – That’s the beauty of the web. Everything is a number and can be measured. At the beginning of your startup, it can be difficult to spend money on things like marketing due to the fact that there isn’t a whole lot to go around. The wrong kind of marketing can also be super costly. Starting out, you should assume that many of your attempts will be incorrect. That’s where measuring becomes so important. For instance, before we built our own ROI tools, we didn’t know how much we were spending on CPC advertising. In one case, we found that we had spent over $10,000 on a CPC banner that only generated a few thousand dollars in sales. A few months of that and a business can be out of cash and out of business.With our new ROI tools, we can measure the effectiveness of each marketing campaign. If a campaign is not working, it gets pulled that day. Maybe we will come back to visit it later and try new things, but it’s better to just leave the bad few behind and focus on finding the good ones.
- Now Is The Time – Many people ask us, “How can I start a business in such a weak economy?” My answer to this is that now is probably the best time. To survive in this environment you have to be smart, work hard and stay lean. We’ve taught ourselves to survive in harsh environments so when things start to turn around, it will be that much easier. I truly feel that businesses that start when things are good often struggle during economic down-turns because they’re bloated and unprepared to make the changes necessary for survival.
If I can only get across one message it is this: If you are really serious about making it in the crazy entrepreneurial world without funding, you must realize that there are many roads to success. Each road comes with consequences.
Sure, you can take the funding and hire outsourced companies to develop your site, monitor your PR and create your marketing. You may be wildly successful. Just remember that you will lose a few things in the process that you may regret later on. You will most likely lose some control of the company, but more importantly, you will lose the educational experience that the development process offers you. It’s priceless and it will carry you into the next business venture.