Startup Q&A #6: Bootstrapping vs. Investment, Networking, Banks, Industry Changes, Exit Strategy

Hey, everybody. Matthew Paulson here. Today we are going to talk about bootstrapping your business, personal networking, finding a good bank, business exit strategies, and keeping up on industry trends. Let's do this. This is officially episode 6 of Startup Q and A, the online video show that helps startup founders, small business owners, and entrepreneurs grow their businesses faster and achieve their dreams of financial freedom. So whether you're just getting started or you have 100 employees, startup Q and A will give you actionable ideas and advice that you can implement in your own business. So before we dive into the questions, I wanted to share with you a tip in a segment that I refer to as the growth Hack of the week, where I provide you a tip or strategy that you can use to grow your business faster. So the growth hack of the week this week is to put a Facebook pixel on your website. So inside of Facebook ads, there is an option to put a retargeting pixel on your website or a tracking pixel. And what this tracking pixel is is a small snippet of code that you place on your website that allows a company like Facebook or Google or somebody like that to gather information about the people on your website. So why would you want to put this tracking pixel on your website and let Facebook track your users? There are actually a couple of very good reasons to do this. First, you can actually go back later and create an advertising campaign that targets people that were on your website. This is known as retargeting. Retargeting ads targeting people with ads that have already been on your website. These types of campaigns are incredibly effective, and you might not want to do a retargeting ad campaign today, but if you do decide to create an ad campaign like this in the future, it's incredibly useful to already have had that pixel in place so that you can start targeting people that were on your website, say two months ago or three months ago. You don't have to start from scratch on day one. The other benefit of having a Facebook pixel on your website is you get access to a tool called Audience Insights from Facebook. And what this is is a service that will connect people's Facebook data and give you aggregate information about the people that are on your website. So you can know a ton of different stuff about people that are on your website through the Facebook audience insights. So some of the things you can get are their age, gender, interest, relationship, status, educational level, job title, what pages they like, their income, whether or not they own a home, and just a ton of different stuff like that that you can use to Identify who your audience really is. So if you have ever really wanted to figure out who your people are, what are the characteristics of the people that buy from me? Facebook audience insights through that Facebook tracking Pixel is just a really great tool to do that. So that is the growth hack of the week. Let's dive into the questions. So every week we take five questions that are submitted through Facebook or through our website. So if you would like to have your question answered on an upcoming episode of this show, go to StartupQ and A Co and then under the Startup Q and A show on the menu on my website there is a link that says ask a question. So you click that link, you fill out the form, I'll get an email and I will try to answer your question on an upcoming episode of the show. So the first question this week comes from Robert Maling. And Robert asks, how can you tell if you should bootstrap your startup or seek outside investment? So whether or not you bootstrap your business or you raise money, it's really a question of what are the financial people, Software, technology, equipment, what are those resources that you need to execute on your business idea? So if your idea is going to take a lot of money, equipment and people, you probably are going to need raise money, you're probably going to need to raise money for your business. You know, if it's something that you can just kind of grind through in your basement at your computer, or you don't need a lot of money, it's just a lot of sweat equity, then, you know, you probably don't need to raise money. So when I first developed MarketBeat, most of the initial aspects of the business, the website, all the content, the newsletter, some of the initial marketing things, they didn't cost a lot of money, cost a lot of money from me to do. They were just really a lot of things that I had to put a lot of time in, write a lot of code for, do some research on, figure out how to tackle those problems. It was a big investment of my time, but it wasn't a big investment from my pocketbook. Out of everything I did with MarketBeat, including buying the, buying a name brand, buying a domain, all that stuff that was probably less than $20,000 all in and I had that money, so I just paid for it. There wasn't a good reason for me to do fundraising. The same is kind of true for us. Golf TV and Go Go photo contest. These aren't heavy labor. Money, equipment, businesses, there's no physical goods involved. So there just really isn't a strong need for these businesses to raise money. But there are other types of businesses that require research, product development, people, time, equipment. When those costs go up, you know, that's kind of the point when you really do have to start thinking about raising money for your business. So I'm aware of a company called Inanovate. My friend Rob Nelson works there. They pitched the Angel Fund and they are working on a screening tool for recurrent breast cancer that's better than doing mammograms after the fact, which happened kind of too late sometimes. So they've come up with this test with some kind of patent that Sanford has. And theoretically this screening tool will allow them to detect breast cancer in women that have had breast cancer before, earlier, and have better outcomes. So it's a really great idea. But with anything medical like that, there are going to be multiple rounds of tests of people that have had breast cancer to kind of prove that the technology actually works. And all these tests cost money. There's stuff with the fda, there's stuff with technology. They need people, they need scientists, they're going to need several million dollars to kind of prove out their idea and see if it works before they get any customers for their business. If they can prove all those things out and the test works like they think it does, they're going to have a lot of money down the line from people that have had breast cancer and hospitals that need to do that screening for people that have had breast cancer. But in order to get there, there's just a ton of work, ton of money, ton of equipment, ton of people, ton of research. And you know, most people don't have 3 to 5 million or whatever. It's going to be in the bank to fund all those things. So really it's, you know, that's the type of thing they're just going to have to raise money on. There's not really a discussion on that matter. So for them, you know, obviously they need to raise money. For my business, I didn't need to raise money. So it's, you know, I think I have a good cutoff point to determine whether or not you need to raise money. If you can think, or if you think that you can get your business off the ground and get your first initial customers for less than, say $100,000 all in on people, equipment, software, web hosting, all the stuff like that, then I would probably not raise money. Just go get a part time job. If you don't have enough money to pay for these things, deliver pizzas on Weekends, do whatever you have to to raise that money. Because giving up equity in your company can be very expensive later on if you're successful. So you don't want to give up 50% of your company today at a really low valuation, only for it to be really successful and then be worth their really low valuation becomes a very large valuation, and then they get a very big piece of your business for a relatively small upfront investment. So, you know, I'm a big believer that you should hold on to your equity if you can, but there's just some cases where you can't do that. So you do have to go raise money. But if your business costs less than $100,000 to get off the ground, go ahead, find that money from somewhere, dig it out of your savings account or whatever, or go get a part time job to make that money and bootstrap it yourself so that you can hold on to that equity, which will become much more valuable if your business is successful. So the next question comes from Shannon Ward, and she asks, what are your keys to personal networking and how do you follow up with those that you meet? So it might not be immediately obvious, but I'm actually a pretty introverted person. I don't like talking to people I don't know. I'm much more comfortable at home or in my little downtown office working, not talking to anybody, than I am going to a networking event with a whole bunch of people. In fact, if I'm in a room full of strangers, you know, I'd much rather go hide in a corner and hope that nobody notices me than rather having to start a conversation with a bunch of people that I don't know. I. I'm really shy to approach people that I don't know. It takes me, you know, if I go to a coffee shop, it takes me weeks before I'll even ask the barista her name. Just because I'm not good at talking to people that I don't know. Unless there's some kind of mutually existing topic or something like that that can get that conversation rolling. So I'm more introverted than most and I kind of have to work around this. I don't want to say deficiency, but that's kind of part of my personality and I recognize that. So I have to say, okay, this is who I am. Given that reality, how do I network with other people? I kind of recognized a few years ago that I'm a much better conversationalist on kind of a one on one basis. So meeting somebody for coffee, meeting somebody for lunch. I can do that all day, every day, no problem at all. So if I'm going to meet 20 people, I'd rather much rather have 20 coffee meetings with people than meet 20 people at one networking event. So because I know I'm better at this, I just schedule a lot of lunch and coffee meetings. Rarely a day that goes by where I'm not, you know, having lunch with somebody outside the house. You know, often it's my wife, but often, you know, it's people that I do business with or people that are acquaintances or people that are business friends. You know, we talk about business, how to encourage each other, give each other ideas. I take lots of those meetings and they're particularly valuable. I think it's just easier to build a relationship with somebody, you know, through that one on one meeting than, you know, talking to them at various networking events. It's just easier to get to the point, learn about them, how you might be able to help them and stuff like that. So I do just a ton of coffee and lunch meetings. And then for people that you know, I think of as like an important business contact. For example, there is a gentleman that runs a little venture capital firm here in town. I'm an angel investor. I think that person is a very good strategic relationship for me to have. I just make it a point every two or three months to send that person an email and say, hey, it's been a while, let's go grab lunch or coffee. Then we'll negotiate calendars, find a date that works and then catch up, talk about business, whatever. Is there anything we can work on together? Then two or three months later, I just put a note in my calendar and do that same thing over and over again. So it's kind of a good way to keep touching base with the people that are in business and really in life too. Just make sure you're keeping up to date with them. The other strategy that I use to kind of do personal networking and branding is to make sure that people kind of know who I am before I walk into the room. The way that you do this is you create content and you publish it for the world to see. So in the Internet business space, I obviously do this show. I write a lot of blog content, I publish several books, I do interviews. So I really make an effort to put myself out there so that when I walk into a room, somebody knows who I am. And secretly that's just so I have somebody to talk to and I don't have to talk to strangers. So I think Having a lot of stuff out there, that's a really good way to network. That way people will start coming to you and you don't have to go to them. And obviously, if more people know who you are, it's easier to get the attention of somebody that you might really want to talk to that is otherwise kind of hard to get a hold of. One thing that I did really well at a conference I recently attended. So there was a conference called Freedom Fast Lane Live. And I just published a book on dividend investing called Automatic Income. So I gave a copy of that book to everybody that attended. So There was about 500 people there. Copy of the book cost about 2 bucks. So I spent $1,000 to give everybody at that conference a copy of my book. I had no shortage of people to talk to about investing. I made some valuable business contacts because of that stunt and just had some really good conversations there and had some really good ideas given to me. And I think in large part that, you know, a lot of that happened because everybody got a copy of my book on the first day and kind of knew who I was because of that little stunt. I also go to a lot of networking events locally, but I do try to make sure there's a couple people there that I know so that if there's nobody else for me to talk to, I can at least talk to people that I know at networking events. You know, that way, if it's me and a bunch of old bankers or lawyers or somebody who just really not that interested in talking to, I can at least talk to the one or two people I know. So I'll look up networking events on Facebook and say, okay, I see that. Say these two people I know are going so well. I know if there's no one else to talk to there, I can at least talk to these people so it'll be alright. So Facebook events I always look at like what my friends are going to see, what's going on. That's a great way to keep track of just networking and entrepreneurship events, like all the chamber stuff. Usually there's a Facebook event for or all the stuff at the bakery, which is the local co working space in Sioux follows. There's an event for that stuff on Facebook, you know, mowing cups. Every week there's a Facebook event. So anything like that, I can usually keep track of it on Facebook. I find the event put on my calendar. I attend, find some people to talk to. I try to meet, you know, one or two new people every week or at every event. I attend just to see if I can help them or they can help me in any way like that. And then if I do make a contact with somebody at a networking event, I'll send them an email, say, hey, thanks for your time. It's a great meeting with you, whatever. And if there's something that I want to work on with them, I'll say, hey, can we schedule a call or a coffee or a lunch to talk about whatever topic that is kind of further down the line? And, you know, if they don't respond right away, I use a tool called Boomerang, Boomerang for Gmail. And that will just put their email back in my inbox if they don't respond after three or four days. That way I can follow up with them at that point. So Boomerang is just a really valuable tool to follow up with people that you're trying to network with. And maybe they aren't the best about responding to email. You can always use that tool to remind you to follow up with them in the future. So those are kind of the personal networking strategies I use. Lots of coffee meetings, lots of lunch meetings. I create lots of content, podcasts, blog posts, books. You don't have to go to the length that I do, but just having something out there is better than nothing. And then I go to events as well. And then when I do make an important contact, I make sure to follow up by email. So the next question comes from Amanda Dixon, and she asks, what should an entrepreneur look for in a bank? I chose one that was free, but I can't do international wire transfers to pay manufacturers in China. So when it comes to banks, I think that bigger is not always better for my business. MarketBeat. All of our banking stuff is done through Wells Fargo. They've got a great website, they've got branches everywhere, but I don't have a single contact there that I can email and get help with stuff. Whenever I need help, I have to go into a branch or call their 800 number. And it's always hard to get consistently good help from Wells Fargo. They also ding me with a lot of random fees, which they don't amount to a lot in the big order of things in my business. But it is kind of annoying to get hit with a $10 a month fee to see what my checks actually look like on their website. It's annoying that those fees come through. So if I were doing this over again, I'd probably move to a smaller bank where I've got somebody that works at the bank that I know a business bank or somebody like that that I can email, text, phone call whenever I need to and get help with a problem without having to navigate an 800 number or just walking into a branch hoping that you get somebody that's confident. So actually just recently had to open a bank account for a million cups here in Sioux Falls. We needed a place to deposit checks and pay for our rent out of that. So I knew a business banker at a local bank, First Premier Bank. The guy's name is Chris Wagner. Great guy. So I said, I just sent Kris an email saying, hey, I need a checking account with my name on it, John's name's on it and Addie's name on it. Four million cups, not going to be a high volume thing, but can you help me out with this? He said, sure. So he said, here are your options. You can do this, this or this. I said, let's do this. He did all the paperwork for me based off the information from my other account with them, set it up, said, here's the paperwork, give me signatures, give me a check and you're good to go. So it was just because I had that contact, it was really a smooth process. I never had to walk into a branch and talk with a stranger to set this up. And I know now that he's kind of my contact. So if there's ever a problem with that account, I can send him a quick email. I can call him and say, hey, whatever's just happened, can you fix this for me? And he'll probably be able to. It is a smaller kind of local region of Sioux Falls kind of South Dakota area bank. They don't have. They've got policies and procedures and all that stuff, but they probably have more flexibility than a big national bank would to fix somebody's problem, which is really nice. And it also helps that the president of that bank is not so far removed that his office is in the same building as the business banker I work with. I met the guy a couple times. So it's like if I ever really have a problem, I know where the president is. I can go find him and say, hey, this isn't right. You need to fix it. So that's kind of cool. I'm really a big fan of more of a local regional bank than I am a big of the big foreign national mega banks. The real exception to this is your business credit card. I think you can do really well with points by getting a credit card with Chase or American Express. These credit cards tend to just have much better rewards than kind of the credit cards from a local or regional bank. For my business right now I've got the Chase Inc. Plus, I think they just changed the name to the Chase Inc. Preferred. But I get five, five points back on every dollar on web hosting. So the thousand dollars a month I pay for web hosting and Cloudflare and all the other things that get labeled as web hosting, Amazon, stuff that turns into 5,000 points, which actually turns into like, you know, seven. Well, it's, I guess it's a thousand points or it's a thousand dollars that turns into, I think it works out to be effectively 7.5 cents back in every dollar for that category. And I think, you know, like the Chase Inks plus the Amex Gold, some of these cards, Capital One has a couple good ones where it's, you know, 2 cents back on every dollar. You know, these are probably just going to be better than what you can get at your local bank. So for the most part, I recommend staying away from the big banks. But in terms of, like your business credit card, you're usually better off going to one of those big banks just for the points. You mentioned doing international wire transfers. That's probably an edge case for a lot of businesses. But I think if you're going to have unique requirement like that, I would just kind of think about that stuff ahead of time saying, okay, what's my business going to do with banking that maybe not everybody's business is going to do? For me, it's probably, you know, I need to do wire transfers to pay affiliates internationally and domestically. That's an issue. I've got to do payroll with my employees. So I need a way to do achievements. If you can just think about that stuff ahead of time, you can tell that to the business banker and they can make sure that you are able to do the types of things that you need to do. So the next question comes from Lisa Gruen. And Lisa asks, how do you stay abreast of changes in your industry? That's a great question. And first, I think you really have to understand what industry you're actually in. Because sometimes the industry that you think you're in and the industry you're actually in, those can be two different things. Or you could be in multiple industries and not really even realize it. You know, let's say that you were to sell for Amway, for example. You might think you're in the consumer products industry because they sell stuff like toothpaste and shampoo and who knows what else. They sell. But you might think you're in that industry, but really you're in a sales training industry, because in order to do really well with Amory, you have to have people underneath you that you've recruited that go off and sell stuff. So, yes, you're in that consumer products industry, but you're also in the sales training and recruiting industries as well as. So the industry that you think you're in may not actually be the industry you're in, or you could be in multiple industries. At MarketBeat, it's a financial media company, so there's kind of that industry, but that industry kind of overlaps with a lot of other industries. So I actually need to know about advertising, email marketing, digital publishing, investing, software as a service, and just several different topics. So I have to stay up with all of those different things. So really the first step is probably thinking, what are those broad topics that I need to stay abreast of for my company? What industries am I actually in? What are those topics I just need to keep track of? So for me, I kind of know what industries I'm in. And then I think, okay, what are the best forms of media to keep track of all these different topics so that you can stay up to date with everything that's happening in your industry? For me, that means I subscribe to a heck of a lot of podcasts. I listen to probably about 20 different podcasts every week, so topics like Internet business, email marketing, investing, and just other topics that are tangentially related to my business. Podcasts are pretty up to date with content, so usually the hosts on the show are talking about what's going on right now, and it's just a really good way to stay up to date. I also get a few email newsletters from people in my industry. Ezoic E Z O I C E Excuse me. They have a great weekly newsletter on Friday that talks about trends in digital advertising. That's a must read for me every week because they just have really good content and it doesn't take long to scan through that email and read the articles that are most relevant to me. So I love email newsletters because you can just kind of filter. This is relevant to me. This is not. You can scan through and focus on the content that matters to you the most. I also get a lot of value out of going to conferences because people speaking on stage are usually talking about what's working for them right now. And then the other attendees, they can tell you what's working for them right now as well. So I try to go to four conferences a year, usually San Diego, Vegas, Texas, Florida, places like that. There are centers for conferences in my industry. I just try to go to one every quarter and just kind of get the buzz for what's going on, learn something, and get something actionable that I can implement in my business. I don't read a lot of books to stay up to date with my industry, because books tend to take 18 to 24 months to publish. So by the time that a book is written, edited, laid out, sent to Amazon, all that stuff, it's probably out to date a little bit. So, for example, I have a book called Online Business From Scratch coming out in February. I actually wrote most of that last July. So it's eight months later, this book is finally going to be coming out. And that's actually on the shorter side of things. I have gone through and made sure that nothing major has changed since then. But for most books, that information could be a year and a half to two years out of date. So books are probably not a good way to keep track of what's going on in your industry. So those are the strategies that work for me. Podcasts, email, newsletters, and then going to conferences, those have worked well for me. But again, that will vary depending on what industry you're in. So the last question comes from Justin Dyson. Justin asks, how far should you plan out your exit strategy for a business in a time when tech trends and new ideas are around every corner? And should you have more than one exit strategy? So, in any business, there's really only four exit strategies. The first exit strategy is your business fails and you shut it down. But we're going to assume your business is successful. So assuming it's successful, there are three things you can do to get out of your business. You can sell it to somebody else and they can run it or do whatever they want with it. You can, you sell it to somebody else. It's their thing. They give you money, you're not involved anymore. The second thing you can do is become an absentee owner, so somebody else is running your business for you, and you're just off on a beach collecting checks, and that general manager is running the show, maybe has 10% equity, who knows? But they're running the business and you're out of the picture. Then the third option is you go public and become a big publicly traded company. Regardless of which of these three exit strategies you're going to focus on, the preparation work for any of these is largely the same kind of thing. It's really not a matter of when am I going to quit and how am I going to get rid of this thing, but rather how do I set my business up in such a way that it is ready to be sold when I do decide that I want to sell it or get rid of it or leave or go public? How do I build my business in such a way that it's ready to be sold when I want to sell it? So really the question is not what's my exit strategy for my business, but how can I build my business in such a way that it can run without my day to day involvement? How do I build a business that runs without me? How do I do that? If that becomes the question, then when it comes time to think about an exit strategy, you can already walk away from your business because it is a business that can continue to operate without your ongoing involvement. So don't think about your exit strategy a lot. Don't spend too much time worrying about it, don't try to put a timeline on it, don't do anything like that. Just prepare your business to run without you. And if you do that, then you're going to be good to go when it comes time to sell or to walk away or do whatever that you're no longer involved with your business. So how do you do that? Really building a business that works without you? It's a matter of people and processes. So have great people on your team, then give them processes and systems and strategies to follow to do anything in your business. Like at MarketBeat, we do a lot of standard operating procedures. So any given tasks that we have to do on a weekly or monthly basis, there's a text file out in a Dropbox share that says, hey, this is how you do this. That way the work is done consistently every time and I don't have to think about it. The employee is doing that and if you can do enough that for enough parts of your business, then most of your business will just run without you because you've decided how you're going to do something a long time ago. And then whoever the employee is, or even if the employee changes, they just follow that standard operating procedure and then they know that they're doing the work how I want them to do it. So really I think if you built your business well, if the business isn't very reliant on you, you've done well and you've done what you can to prepare for an exit strategy, I really think that you should be able to go on a two week vacation from your business, not pick up your phone, not pick up your laptop, not respond to email, not respond to phone calls. You should be able to do that if you've done this outsourcing and delegation and building a team. If you've done those things right, you should be able to walk away for a couple weeks, go to Hawaii, leave your phone and have your business when you come back, be just fine and not have had any major catastrophes happen. If you can do that, you know you've done that job of removing yourself from the business. You've done that pretty well. So that's kind of the answer. Don't overthink it. Especially early on in business, don't overthink an exit strategy. Just build it in a way that it can largely run without your day to day involvement and will keep going on without you kind of running the show. This question actually leads us into the Resource of the Week and that is the final segment of the show. In the Resource of the Week, I recommend a book, a podcast or a tool that can help you grow your business better. Today's Resource of the Week is the book Built to Sell by John Warrilow. This is very relevant to the last question. The book Built to Sell is easily one of my top five favorite business books because it teaches you how to develop those systems and processes and people in your business so that it can run without your direct involvement in the day to day operations. So if you've ever read the book E Myth by Michael Gerber, there's the general idea of working on your business and working in your business where working in your business is doing the day to day work of executing and working on your businesses. It's more strategic work like what are my products going to be? How am I going to market? How am I going to grow my business? This book teaches you to have other people and processes in place to do that day to day operations so that you're freed up to work on those more bigger picture ideas. Built to Sell is just a great book that can help you get your business set up in such a way that when it comes time to sell your business, there is a business that is separate and standalone from you. This is probably the best book I've ever read on that topic. So if you want to build a business that you can actually sell someday, you should really read the book Built to Sell and follow that advice in it. So that's the resource of the week. If you would like to subscribe to Startup Q and A and get next Monday's show delivered to you automatically go to the domain startupqa Co and there are links to subscribe via email, Facebook, RSS, iTunes, YouTube, and Stitcher. You can also personally follow me on facebook@fe facebook.com MatthewPauffsempage and on Twitter I'm MatthewDP. So Matthew and D as in dog and P as in pony. Also, if you enjoyed the show, take the time to leave a review on itunes. Itunes reviews and five star ratings on itunes are a great way to spread the show and let more people know about it. So if you enjoyed this content, please take a couple minutes, leave a review on itunes and that will help us reach more people and help us help help other people grow their businesses faster and achieve their dreams of financial freedom. So that is the show today and thank you for watching.