Lessons in Organic Bootstrapping – Growing Your Business

Have you heard that 50% of small businesses fail in the first year and 95% fail in the first five years? Let me tell you why.

Most small businesses fail becuase they can’t handle debt, get buried by rent, or get pushed into risky decisions by impatient investors.

I’ve seen a lot of business fail taking the “Big Bang” approach to small business start up. They put together a fancy business plan and they execute it perfectly. They take out a bunch of SBA loans, have trendy digs, hire talented people with a proven record, maybe even build a building or two. Sometimes this approach works, with dramatic success, but more often than not, it fails.

The problems are:

  1. They never tested the market, so when the sales don’t materialize immediately, they are under capitalized, and go bankrupt in a few years.
  2. They spent too much on fluff. In the quest to look professional or hip, they overspend.
  3. Instead of adding employees once demand is established, they add them before the first dollar is earned, banking on potential sales to pay the wages, and burn through too much capital too quickly.

Making mistakes is the secret to learning. You learn what you need to know about business through your pain and failures. Organic bootstrapping allows you to learn as you go without going broke, the “big bang” approach does not.

Christine and I are pushing hard this summer to grow Christine’s Books. We’re moving her store out of our house.

It needs to move because:

It’s taking over the kids play areas

And is creeping into every other area of the house

To expand, we need employees, and our house wouldn’t be a good place for others to work.

In 2003 when she first started selling books on the internet, she invested $500.00 in inventory, and kept it on a 6 ft table. By 2004 we had run out of space in our house, and bought a new house that was triple the size. That gave us five more years. Now we plan to lease a showroom and warehouse space that is as big as our entire house. We are hoping that will last 3-5 years and allow us to quadruple sales and add several jobs to the local economy.

While looking for the right location, I’ve had the chance to meet a few entrepreneurs who have grown the same way we have, by organic bootstrapping. Roger at Business Systems International sells refurbished phones. He started in his garage and now owns multiple commercial properties, and has branched out into the software business. Opportunity begets opportunity and success begets success. Roger said, “Every time I moved to a larger location my revenues doubled.”

I talked with Brian at Sunlite Windows and Doors and he had a similar story. He started in his garage, then built a bigger garage with the profits, then leased a shop and warehouse. He said, “When we rented our first shop, I said, we’ll never use all this space. Three years later it was time to move. Now I have triple the space and we own 50% of the window market in this area.”

If you are interested in how small businesses start and grow organically, you’ll be interested in the coming series of posts.

Next post: we’ll talk about finding the right location at the right price.

9 thoughts on “Lessons in Organic Bootstrapping – Growing Your Business”

  1. Steve, this is exactly right. My parents started a ceramic supply business in our two car garage when I was ten years old. When I was twelve, my parents were parking their two cars in the street so they moved half the inventory to a store-it-yourself, but that last for six months. At thirteen, my parents purchased a retail store front. Unfortunately, they never expanded past that store front, but could have. My mother was ultra-conservative and didn’t want to make the leap to a warehouse-office set up.

    They eventually retired and sold the business for a pretty-penny and never had one drop of debt. My dad always talked about what could have been. My mother always talked about how happy she was every day that they didn’t owe anybody anything—that was the worst sin. In the end, the business allowed us, eventually, to move to a nice neighborhood, attend private school, obtain a college educations for two kids, and law degrees for both kids. Although my dad died 18 years ago, my mother is still living comfortably on the sale proceeds.

    I can’t wait to read your next posts. So far, this, Steve, is the best articulated explanation on how to make it in business I’ve read. Thanks!

  2. Marc,
    This comment means a lot to me. I sometimes wonder who’s still out there reading, and if they are soaking it up. You clearly understand the message already, but there is nothing better than hearing of your parents success story. We work 7 days a week doing what we love, avoiding debt, so we can give our kids the education we know will allow them to grow. We forgo fancy vacations so we can build this business. We work on what we love, which means we love to work.

    I am truly grateful to have readers like you, who are willing to take the time to share their stories here too.

  3. That’s nice to say. I read a lot of blogs—a lot. It’s you that gets it. I wish the whole Internet knew that . . . . maybe some day. But you get it. If 9 of 10 entrepreneurs read and followed your advice, there would be a lot of people out there succeeding or, at least, not losing their shirt in business. I’m an attorney in Michigan. I advise businesses, specializing in taxation, and have done so for 30+ years. You and your wife have always reminded me of my parents and, to me, my father is still the smartest business man I’ve met. It takes times like these (since September, 2008), times like 1987-89, times like the 70s, and times like the late 60s to remind me why the advice you give is so sound.

  4. I came across this blog post through a Google alert I had setup and I’m glad I did. I’m also an online bookseller and have been for about a year now. I’m enjoying some pretty good success but we are actually looking at a bigger house tomorrow just for the same reason you got another house; just to have room for more books! I’ve also started a blog showing others how to do the same but have ran into some ridicule from other sellers because I’m “introducing more competition into the marketplace”. I’d love to hear more about your bookstore endeavors as I think I’m the same as you guys only a few years behind.

  5. Adam,
    I checked out your blog. You have a nice blog. Don’t let the naysayers sway you from your path. Booksellers can be a sour bunch. It takes knowledge, hard work, and experience to make online bookselling profitable. A lot of people are looking for easy money, and selling books online isn’t easy money.

    We’ve branched out beyond books, to other consumer items and it helps us sell more “repeatables.” This is a constantly changing business.

    I personally don’t recommend people become online booksellers unless their passion is SELLING books. It sounds like you have the bug. Best wishes and Christine and I will be subscribing to your blog.

  6. That’s great to hear. I hope to learn from your blog as I hope you might from mine. Would you mind linking to me? I’d love to do the same.

  7. Great Post – amazing how you grew the business. I am also an online bookseller but have not scaled my business past 2500 books or so because of space. Next step would be to move the biz out of my house. It looks like most of your books are remainders and overstock – has that been profitable? I too also have a blog – specific to bookselling at http://www.book-selling blog.com – check it out and let me know what you thinl

  8. My roommate in college and I both started businesses while living together. He started a fence company and was out installing fences whenever he wasn’t in class. After two years of class and work, his company was doing millions in revenue and he no longer had to do any manual labor himself. I started an online business that took up most of my spare time, but was able to sell it after a year and got the money to start a video production company that I’m still trying to grow, but we’ve profited so far, and have been able to invest into more equipment, and hopefully a bigger facility soon. I really liked this post, and think that anyone looking to own a business of their own can learn from it… I know I did.

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