Bootstrapping a business comes with its challenges. Take it from entrepreneur, author, and CEO Jaclyn Johnson, who has self-funded two multimillion-dollar companies and landed on Forbes' "30 Under 30" list in 2015.
Before she founded Create & Cultivate, a media and event hub for professional women, Johnson had some skin in the entrepreneurial game. In 2010, she founded a marketing agency, (No Subject), then sold it to Small Girls PR for an undisclosed amount.
Johnson started her next business with $300,000 of her own funds. This would mark her second time bootstrapping a business and she knew what she was getting into. "I was lucky enough to have been an entrepreneur for seven years, so nothing really shocked or surprised me going into this," she told Business Insider.
She spoke with Business Insider about the reasons she decided to remain self-funded and what entrepreneurs should consider before they bootstrap a business.
Don't raise money unless you know exactly how you'll use it
Funding may not be the best route for your business if your startup plan requires only a few resources. The key to starting some service-based businesses, such as a marketing agency or media site, can be as simple as an idea and a laptop.
This was one of the main reasons Johnson self-funded Create & Cultivate, which she launched as an online community that didn't require a lot of capital up front. "It was a combination of not really knowing what we would even do with money, besides get a nicer office, get a bigger staff," she said.
Create & Cultivate branched into events and now hosts 50 to 60 per year, including conferences featuring celebrities like Kim Kardashian West and entrepreneurs like Lisa Price and Stacy London. Events can be expensive, but Johnson's team keeps costs down by doing everything in-house. "You can produce events that look really amazing and don't break the bank," she said.
Johnson advised entrepreneurs not to raise money unless you know exactly how you'll use it. "I have many friends who've raised millions of dollars that, in retrospect, are like, I wish we didn't raise that much or, you know, we didn't need to," she said.
When going it alone is fundamental to your mission
Another motivating factor for Johnson was the lack of diversity among investors, who she said at the time were mostly white men. Her purpose starting Create & Cultivate was to build resources for female entrepreneurs — she doubted a room full of men looking for tech companies would understand that mission.
"We were going against the grain building a reverse media company, in an industry that investors were very much not into at the time, so we decided to do it on our own," she said.
Be conservative with the budget when scaling
Scaling is the biggest obstacle of bootstrapping, Johnson said.
"We have to be super scrappy all the time, but I think that's what makes us really good business owners and people," she said.
Create & Cultivate grew faster than she expected. "By year two, year three, we were almost at the $5 million mark in terms of revenue, and we were hoping for maybe $2 million," she said.
To keep up with a pace that exceeded her expectations year-over-year, Johnson diversified revenue and kept staff minimal. Until last year, she had eight employees and relied heavily on freelancers. Now she has a team of 30 and the company made just under $10 million in 2018.
When you're scaling on a budget, you have to be strategic to keep up with the demand and pace of growth, Johnson said. "You don't want to over hire and then have a ton of salaries and be bleeding cash on the back end," she said.
But don't be too stringent in hiring either. Johnson said it's important to get senior leadership in the door early on. "People that are experienced and seasoned, that can take those things off your plate, so you're not the only one that really is trying to move things forward," she said.
Built-in profitability from the start
Many companies overlook the importance of profitability. But Johnson said she built it into her business model from the beginning.
"A lot of the companies that we see and know and love, whether it's Doordash, Uber, WeWork, they never built profitability in their model," she said. As we've has seen with WeWork's failed IPO, a high valuation isn't always saving grace for unprofitability, and now investors are taking a harder look at financials.
By planning out how you'll reach profitability within a couple years, you don't need to bank on the high-valuation exit model or hastily winning over investors who may not be the best fit for your company. Johnson advises bootstrapping entrepreneurs be prepared to get their hands dirty and make less money than they did in their previous jobs. "You really do invest everything back into the company as much as you can until you don't have to anymore," she said.
Bootstrapping: resilience required
Whether you're self- or venture-funded, starting a business is more often a bumpy road than a quick launch to success. "Everything looks like an overnight success online," Johnson said. "When you really dig beneath the surface, you find that most people have been at this for a really long time."
That's why entrepreneurs need resilience. "You have to be able to make really difficult decisions, go through really difficult times and be able to recover, for yourself and for your team," she said.