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FREE FOR 2 WEEKS ONLY THROUGH DECEMBER 30TH ChangeThis Save to disk Y 2 Hide/Show menus THE BOOTSTRAPPER’S BIBLE There’s never been a better time to start a business with no money. And this manifesto — available for free for a limited time — will show you how. continued by Seth Godin iss. 6.01 i U X + Not using Adobe Acrobat? Please go to http://changethis.com/content/reader ChangeThis SECTION This manifesto is based on The Bootstrapper’s Bible, a book I wrote a few years ago. What I’ve done is divided it into 1 short sections, so you can find the little kernel of insight you need, when you need it. (I hope) The Joy of Small What’s a Bootstrapper? Well, since you bought this manifesto, chances are that you qualify For me, a bootstrapper isnʼt a particular demographic or even a certain financial situation. Instead, itʼs a state of mind. Bootstrappers run billion-dollar companies, nonprofit organizations, and start-ups in their basements. A bootstrapper is determined to build a business that pays for itself every day. In many ways, itʼs easiest to define a bootstrapper by what she isnʼt: a money-raising bureaucrat who specializes in using other peopleʼs money to take big risks in growing a business. Not that thereʼs anything wrong with that… You can use the information in this manifesto to make any company more focused, more ef- ficient, and more grassroots. Throughout this manifesto, though, Iʼll be primarily addressing the classic bootstrapper: entrepreneurs who are working their butts off to start a great busi- ness from scratch with no (or almost no) money. 2/103 iss. 6.01 i U X + ChangeThis At last count, there were several million bootstrappers in this country, with another few mil- lion wannabes, just waiting for the opportunity. My goal is to give you enough insight and confidence that youʼll get off the bench and make it happen. The Bootstrapper’s Manifesto TAPE THIS TO YOUR BATHROOM MIRROR AND READ IT OUT LOUD EVERY NIGHT BEFORE YOU GO TO BED: I am a bootstrapper. I have initiative and insight and guts, but not much money. I will succeed because my efforts and my focus will defeat bigger and better-funded competitors. I am fearless. I keep my focus on growing the business—not on politics, career advancement, or other wasteful distractions. I will leverage my skills to become the key to every department of my company, yet realize that hiring experts can be the secret to my success. I will be a fervent and intelligent user of technology, to conserve my two most precious assets: time and money. My secret weapon is knowing how to cut through bureaucracy. My size makes me faster and more nimble than any company could ever be. I am a laser beam. Opportunities will try to cloud my focus, but I will not waver from my stated goal and plan—until I change it. And I know that plans were made to be changed. I’m in it for the long haul. Building a business that will last separates me from the opportunist, and is an investment in my brand and my future. Surviving is succeeding, and each day that goes by makes it easier still for me to reach my goals. 3/103 iss. 6.01 i U X + ChangeThis I pledge to know more about my field than anyone else. I will read and learn and teach. My greatest asset is the value I can add to my clients through my efforts. I realize that treating people well on the way up will make it nicer for me on the way back down. I will be scrupulously honest and overt in my dealings, and won’t use my position as a fearless bootstrapper to gain unfair advantage. My reputation will follow me wherever I go, and I will invest in it daily and protect it fiercely. I am the underdog. I realize that others are rooting for me to succeed, and I will gratefully accept their help when offered. I also understand the power of favors, and will offer them and grant them whenever I can. I have less to lose than most a fact I can turn into a significant competitive advantage. I am a salesperson. Sooner or later, my income will depend on sales, and those sales can be made only by me, not by an emissary, not by a rep. I will sell by helping others get what they want, by identifying needs and filling them. I am a guerrilla. I will be persistent, consistent, and willing to invest in the marketing of myself and my business. I will measure what I do, and won’t lie about it to myself or my spouse. I will set strict financial goals and honestly evaluate my performance. I’ll set limits on time and money and won’t exceed either. Most of all, I’ll remember that the journey is the reward. I will learn and grow and enjoy every single day. 4/103 iss. 6.01 i U X + ChangeThis TRUE STORY 1: I AM A LASER BEAM The big call came just a few months after Michael Joaquin Grey and Matthew Brown had started up their toy company. Would the two San Francisco bootstrappers like their product included in the movie marketing blitz for The Lost World? Nope, said Grey and Brown, who preferred to stick with their vision of gradually building a market for Zoob, their plastic DNA- like building toy. What the bootstrappers feared was a loss of identity. If they hooked up with the celluloid dinosaurs, theyʼd be seen as just another Jurassic spinoff. On their own, they could create a separate brand and not only avoid extinction but create their own world. Eventually, the two even hope to have their own Zoob movies. TRUE STORY 2: THE BOOTSTRAPPER IS HERE FOR THE LONG HAUL Jheri Redding started not one, but four companies. And when the renowned bootstrapper died at 91 in 1998, all four—including the first, Jheri Redding Products, begun in 1956—were still in operation. Howʼd he do it? Redding created lasting businesses through the combination of a gift for spotting long-term opportunity and his relentless drive to create significant competitive advantages in product features and distribution clout. The Illinois farm boy became a cosmetologist during the Great Depression because he saw hairdressers prospering and farmers failing. He soon began experimenting with shampoo formulas and showed remarkable flair for innovation. 5/103 iss. 6.01 i U X + ChangeThis Redding was the first to add vitamins and minerals to shampoos, the first to balance the acidity of the formulas, and the first to urge hairdressers to supplement their haircutting income by selling his products on the slow days of Monday, Tuesday, and Wednesday. The first? Yes, and also the last. There arenʼt many like Jheri Redding, who also founded Redken (1960), Jhirmack (1976), and Nexxus Products (1979). Redding was…the first to urge hairdressers to supplement their haircutting income by selling his products on the slow days. TRUE STORY 3: I WILL KNOW MORE ABOUT MY FIELD THAN ANYONE ELSE When Yves Chouinard starting scaling mountains, rock climbers used soft cast-iron pitons that had to be discarded after a single use. Chouinard, who was as passionate about climb- ing peaks as he was about his work as a blacksmith, designed a new piton of aircraft-quality chrome-molybdenum steel. The tougher, reusable piton met climbersʼ needs much better and became an instant success. As piton sales climbed, Chouinard himself kept climbing too, as much or more than ever. He recalls, “Every time I returned from the mountains, my head was spinning with ideas for im- proving the carabiners, crampons, ice axes, and other tools of climbing.” Itʼs been 40 years since the blacksmith-climber hammered out his first steel piton. Since then, it and his many other designs have become the foundation for Patagonia Inc., a 100 6/103 iss. 6.01 i U X + ChangeThis million outdoor apparel company based in Ventura, California. Although heʼs now a highly successful businessman, Chouinard still climbs regularly, testing his companyʼs new products while honing its most important tool: his own matchless knowledge of climbersʼ needs. TRUE STORY 4: I AM A SALESPERSON Shereé Thomas had a personal question in mind when she called the customer service line of the company that makes Breathe Right nasal strips. But when she found herself talking to the companyʼs medical director, she went beyond her question and revved up a sales pitch for a liquid she had invented that neutralizes the smell of cigarette smoke on clothes and hair. A couple of switchboard clicks later, Thomas was on the line with the companyʼs president. And three weeks after that, the company had signed a licensing agreement to invest 4 million to manufacture, market, and distribute Banish, the product Thomas mixed up in her chemist-grandfatherʼs garage. Through the licensing deal, this Cedar Park, Texas, bootstrap- per will rack up around six figures in annual royalty payments. Her investment in the sale: a phone call to the companyʼs toll-free line—and a personal commitment never to stop selling. TRUE STORY 5: THE JOURNEY IS THE REWARD Charles Foley was 18 when he told his mother he expected to invent things that would be used everywhere. At 67, the inventor has 130 patents to his credit, including one for the venerable party game Twister, which he invented in the 1960s and still sells today. But Foley, of Charlotte, North Carolina, is still at the inventing game. He recently revived a 7/103 iss. 6.01 i U X + ChangeThis discovery of his from the 1960s, an adhesive-removing liquid, and sold the rights to make and market it to a company headed by his son. Heʼs also working on new designs for fishing floats and a home security system. Driven to search for success? Hardly. Foleyʼs just following his bootstrapping nature on a journey thatʼs lasted a lifetime. “I was born with a gift,” he shrugs. “Ideas pop into my head.” WHAT’S A BIG COMPANY GOT THAT YOU HAVEN’T GOT? Most of the companies you deal with every day, read about in the media, or learn about in school are companies with hundreds or thousands of employees. They have an ongoing cash flow and a proven business model. (Iʼll explain what that is in the next chapter.) Because this is the way youʼve always seen business done, itʼs easy to imagine that the only way to run a business is with secretaries and annual reports and lawyers and fancy offices. Of course, this isnʼt true, but itʼs worth taking a look at the important distinctions between what they do and what you do. Just as playing table tennis is very different from playing Wimbledon tennis, bootstrapping your own business is a world apart from running IBM. You need to understand the differ- ences, and you need to understand how you can use your size to your advantage. Traditional companies succeed for a number of reasons, but there are five key leverage points that many of them capitalize on. 8/103 iss. 6.01 i U X + ChangeThis DISTRIBUTION. How is it that Random House publishes so many best-selling books, or Warner 1 Music so many hit records? Distribution is at the heart of how most businesses that sell to consumers succeed. In a nutshell, if you canʼt get it in the store, it wonʼt sell. Companies with a lot of different products can afford to hire a lot of salespeople. They can spread their advertising across numerous products and they can offer retailers an efficient way to fill their stores with goods. Traditional retailers want the companies that sell them products to take risks. They want guarantees that the products will sell. They want national advertising to drive consumers into the store. They insist on co-op money, in which the manufacturer pays them to advertise the product locally. Thatʼs why Kelloggʼs cereals are consistently at the top of the market share list. Lots of small- er companies can make a better cereal, and they can certainly sell it for less. But Kelloggʼs is willing to pay a bribe (called a “shelving allowance”) to get plenty of space at the super- market. Kelloggʼs airs commercials during Saturday morning TV shows. And Kelloggʼs has hundreds of sales reps wandering the aisles of grocery stores around the country. Kelloggʼs wins the market share battle in mass-market cereals because it succeeds at the last and most important step: getting the product in front of the consumer. ACCESS TO CAPITAL. The big guys can borrow money. Lots of it. Itʼs no big deal for a car 2 company to raise 200 million to pay for a new line of cars. In industries where the expenses for machinery, tooling, research and development, and marketing are high, big companies with cheap money often prevail. Microsoft, for example, took six or more years to turn Windows from a lame excuse of a product into the market-busting operating system it is now. Year after year after year, it lost 9/103 iss. 6.01 i U X + ChangeThis money marketing lousy versions of Windows. How could it afford to do this? By raising money from the stock market at very low cost and hanging in. Big companies have access to capital that a little guy canʼt hope to match. A hot company like Yahoo is able to raise money from the stock market with no personal guarantees, no interest payments, no downside risk. And it can raise a lot. More established companies can issue bonds or get lines of credit for billions of dollars. The banks and investors that back these companies arenʼt looking for a monthly or even a yearly return on their investment. Instead, theyʼre focusing on building profits a de- cade from now. A bootstrapper could never afford to compete with this approach. If a market can be bought with cash, a big company will do it. BRAND EQUITY. Why would you be more likely to try a new line of clothes from Nike 3 than from Joeʼs Sporting Goods Store? Because Nike has invested billions of dollars in building a brand name, and youʼve learned to trust that name. Nike can leverage its name when introducing new products. Donʼt underestimate the power of the brand Financial World magazine estimates that the Marlboro name and logo are worth more than 2 billion. Any tobacco manufacturer can make a similar cigarette. But only Phillip Morris gets to extract the profit that comes from having more than 50 percent market share. If the consumer of the product is likely to buy from an established brand name, the big company has a huge advantage. CUSTOMER RELATIONSHIPS. Especially for companies that sell in the business-to-busi- 4 ness world, access to customers is a tremendous advantage. Time Warner collects nearly one-third of all the advertising dollars spent on magazines in this country every year. 10/103 iss. 6.01 i U X + ChangeThis When Time launches a new magazine, it has a tremendous advantage in selling the ad space. A fledgling competitor, on the other hand, has to start from scratch. It’s easy to imagine that the only way to run a business is with secretaries and annual reports… Of course, this isn’t true. Last year, Costco sold more than 30 million worth of shrimp in its giant warehouse stores. The company can choose from hundreds of different shrimp suppliers (it all comes from the same ocean), but it deals with only three firms. Why? Because the shrimp buyer at Costco doesnʼt have time to sift through every possible supplier every time she makes a new pur- chase. So she works with companies she trusts, companies sheʼs worked with before. In established markets, customer relationships are a huge advantage. GREAT EMPLOYEES. Big companies are filled with turkeys, lifers, incompetents, and political 5 operators. But there, among the bureaucrats, are some exceptional people. Great inventors, designers, marketers, salespeople, customer service wizards, and manufacturers. These great people are drawn to a company that has a great reputation, offers stability, and pays well. Smart companies like Disney leverage these people to the hilt. During a meeting with someone at Disney, I saw a stack of paper on the corner of his desk. “Whatʼs that?” I asked. He replied that they were resumes. More than 200 of them, all from extraordinarily qualified people, one with a gorgeous watercolor on it. All of them had come from one tiny classified ad in the LA paper. Big companies attract powerfully talented people. 11/103 iss. 6.01 i U X + ChangeThis Whatʼs a bootstrapper to do? Big companies have better distribution, access to money whenever itʼs needed, a brand that customers trust, access to the people who buy, and great employees. Theyʼve got lots of competition, big and small, and theyʼve sharpened their axes for battle. Kellogg’s is willing to pay a bribe… to get plenty of space at the supermarket. Do you have a chance to succeed? No. Not if you try to compete head to head in these five areas. Not if you try to be just like a big company, but smaller. If you try to steal the giantʼs lunch, the giant is likely to eat you for lunch. Inventing a new computer game and trying to sell it in retail outlets would be crazy— Electronic Arts and Brøderbund will cream you. Introducing a new line of sneakers to com- pete head to head with Nike at the core of its market would be suicidal. You have to go where the other guys canʼt. Take advantage of what you have so that you can beat the competition with what they donʼt. Many bootstrappers miss this lesson. They believe that great ideas and lots of energy will always triumph, so they waste countless dollars and years fighting the bad guys on their own turf. 12/103 iss. 6.01 i U X + ChangeThis Thatʼs why the gourmet food business bugs me so much. Every year, another 2,000 gourmet items—jams, jellies, nuts, spreads, chips—are introduced. And every year, 1,900 of them fail. Why? Because the bootstrappers behind them are in love with an idea, not a business. Successful bootstrappers know that just because they can make a product doesnʼt mean they should. Making kettle-fried potato chips from your grandmotherʼs recipe may sound appeal- ing, but that doesnʼt mean that you can grow the idea into a real business. Big companies have access to capital that a little guy can’t hope to match. Given the choice between building a thriving, profitable business with a niche and a really boring product and putting your life savings into an intensely competitive business where youʼre likely to fail but the product is cool, the experienced bootstrapper will pick the former every time. If you find an industry filled with wannabe entrepreneurs with a dollar and a dream, run away and look for something else Now letʼs take a look at the good news. You have plenty of things that the big guys donʼt, things that can give you tremendous advantages in launching a new business. NOTHING TO LOSE. This is huge. Your biggest advantage. Big, established companies are in 1 love with old, established ways. They have employees with a huge stake in maintaining the status quo. How many of the great railroad companies got into the airline business? Zero. Even though they could have completely owned this new mode of transport, they were too busy protecting their old turf to grab new turf. 13/103 iss. 6.01 i U X + ChangeThis Whenever a market or a technology changes, thereʼs a huge opportunity for new businesses. The number-one Web site on the Internet isnʼt run by Ziff Davis or Microsoft. Itʼs run by an upstart bootstrapper named Jerry Yang (Yahoo). Don’t underestimate the power of the brand Fifteen years ago, I met with Jim Levy. At the time, he was running the fastest-growing company in the history of the world. Activision had exploded on the scene, introducing one videogame after another, capturing a huge share of the Atari 2600 marketplace. After just one year, the company had transformed itself from bootstrapper to fat, happy bureaucracy. As a freshly minted, slightly arrogant MBA, I decided it was my job to tell him what to do next. So I handed him an article from the Harvard Business Review and explained that he ought to start using some of the huge profits that Activision was earning to take over the brand-new software market. By making software for IBM PC and Apple Macintosh, he could leverage his early lead and his cash and own even more markets. But Jim had something to lose. His investors and his employees wanted more years like the one theyʼd just finished. They didnʼt want to hear about investing in new markets. They want- ed to hear about profits. So Activision did more of the same. A few years later, they were bought for, like, 4.34. HAPPY WITH SMALL FISH. In the ocean, the first animals to die are the big fish. Thatʼs because 2 they need to eat a lot to be happy. The small guys, the plankton, can make do with crumbs. Same is true with you. Disney canʼt be happy with a movie that earns less than 40 million at the box office. Compare this to the entrepreneur in Vermont who made a kidsʼ video in 1990 14/103 iss. 6.01 i U X + ChangeThis called Road Construction Ahead. He was just delighted when he made more than 100,000. Think about the orders of magnitude at work here: 40 million at the box office is 400 times 100,000. Just imagine all the room there is for a small business that operates under the radar of the giant. Find a niche, not a nation. Costco can choose from hundreds of different shrimp suppliers (it all comes from the same ocean), but it deals with only three firms. PRESIDENTIAL INPUT. In many companies, the president has no trouble getting things done. 3 When Jack Welch at General Electric wanted the ice maker on the new fridge to be quieter, you can bet people in the engineering department paid attention. And when Jack wants to have a meeting with some key customers in Detroit, odds are that theyʼll make time for him—hey, heʼs the president of the whole company. But in big companies, the president is far removed from the action. GE has tens of thousands of employees and only one Jack Welch. Heʼs surrounded by people with their own agendas. He rarely gets to change the whole company. The other day, one of my employees flew to Detroit. He had a special fare ticket and knew that his travel options might be restricted, but he got to the airport four hours early for his flight back. Another flight, virtually empty, was leaving in 15 minutes. 15/103 iss. 6.01 i U X + ChangeThis Jerry asked if he could fly standby. After all, the plane was flying back to New York anyway, it was empty, and it would cost the airline exactly zero to fly him back now, instead of four hours from now. For companies that sell in the business-to-business world, access to customers is a tremendous advantage. The gate agent said no. Do you think the president of the airline would have made the same decision? Do you think he would have wanted a valuable customer to spend four hours seething about the airline when he could have walked right onto a plane? Do you think the president would have wanted to see his valuable brand equity wasted in such a stupid way? I doubt it. But the president wasnʼt there. A gate agent having a bad day was there instead. You, on the other hand, are the president of your company, and you have a lot of interaction with your customers. You make policy, so youʼll never lose someone over a stupid rule. You can use this power and flexibility to make yourself irresistible to demanding customers. RAPID R&D. They say you canʼt hire nine women to work really hard as a team and produce 4 one baby in one month. Teamwork doesnʼt always make things faster—it can even slow them down. Engineering studies have shown time and time again that small, focused teams are always faster than big, bureaucratic ones. Obviously, itʼs harder to pick a team of four great people than it is to assign two dozen randomly selected people to a project. And itʼs riskier too. So most companies donʼt do very well when it comes to inventing breakthrough products. When theyʼve got a problem at IBM, they assign a squadron to it. A squadron that sometimes creates bad ideas, like the PCjr. Barnes & Noble didnʼt invent Amazon.com. One smart guy 16/103 iss. 6.01 i U X + ChangeThis named Jeff Bezos did. Microsoft and IBM didnʼt invent the supercool Palm Pilot. A much small- er company called US Robotics bought an even smaller company that developed it. Motorola and GE didnʼt invent the modern radar detector. Cincinnati Microwave did. Big companies will almost always try to reduce invention risk by assigning a bureaucracy. You, on the other hand, can do it yourself. Or hire one person to do it. Thatʼs why you so often see great new ideas come out of tiny companies. Theyʼre faster and more focused. If you try to steal the giant’s lunch, the giant is likely to eat you for lunch. THE UNDERDOG. When Viacom or Microsoft or General Motors comes knocking, lots of smaller 5 companies smell money. They know that the person theyʼre meeting with doesnʼt own the company (that employee might be five or ten levels away from anyone with total profit re- sponsibility) so theyʼre inclined to charge more. After all, they can afford it In addition to charging big companies full retail prices, smaller businesses are used to the hassles that big companies present. Purchase orders and layers of bureaucracy. Lawyers and insurance policies and more. So in order to deal with the big guysʼ inherent inefficiencies, they have to plan ahead and build the related costs into their prices when dealing with the Viacoms, Microsofts, and GMs. Big companies donʼt treat people very well sometimes, and people respond in kind. You, on the other hand, run a small company. So you can acquire the distribution rights to a video series for no money down. Or convince Mel Gibson to appear in your documentary for union scale. Or get your lawyer to work for nothing, for a while, just because youʼre doing good things. 17/103 iss. 6.01 i U X + ChangeThis LOW OVERHEAD. You work out of your house, with a simple phone system, no business affairs 6 department, very little insurance, no company car, and volunteer labor. If you canʼt make it much more cheaply than the big guys, youʼve either picked the wrong product (hey, donʼt go into the computer chip business) Or youʼre going about it the wrong way. Use this power and flexibility to make yourself irresistible to demanding customers. Even though big companies are big in scale, they still have to turn a profit on each and every product they sell or pay the consequences sooner or later. The guy whoʼs losing money on every order shipped and trying to make it up in volume is in for a rude awakening. By leveraging your smallness, you can often undercut bigger competitors, especially if the product or service you create doesnʼt require a lot of fancy machinery. TIME. The big companies donʼt have a lot of freedom in the way they deal with time. When 7 you have to pay off the bankers every month, please the stock market, and grow according to schedule, there isnʼt always the flexibility to do things on the right schedule. Sometimes theyʼve got to rush things, and other times they hold things back. You, on the other hand, are a stealth marketer. No one is watching you. Sometimes, when it counts, youʼll be ten times faster than the big guys. But when you can make a difference by taking your time, you will—and itʼll show. 18/103 iss. 6.01 i U X + ChangeThis A REAL-LIFE EXAMPLE OF TAKING ADVANTAGE OF YOUR SIZE (Or, how id software completely redefined the computer game market and made millions.) The software company that calls itself id is a classic bootstrapper. It makes violent computer games that run on home computers. Its software is usually developed by a group of 2 to 10 people, then published by a big company like Electronic Arts. It costs a huge amount to make a new product (sometimes more than a million dollars) but amazingly little to make one more copy (as low as 50 cents). They didn’t want to hear about investing in new markets. They wanted to hear about profits. So the idea in computer game software has always been to spend whatever it takes to make a great game, then spend whatever it takes to get shelf space in the software stores, then hope and pray that you sell a lot of copies. One hit like Myst can pay all of a companyʼs bills for years to come. Id became famous for a game called Castle Wolfenstein. As an encore, the four guys who founded id decided to follow their own rules in playing against the big companies. They did it with a game called Doom. They brazenly broke the first rule of software marketing—they gave Doom away to anyone who wanted to download it. Free. Millions of people did. It quickly became the most popular 19/103 iss. 6.01 i U X + ChangeThis computer game of the year. It didnʼt cost id very much to allow someone to download the game, but the company wasnʼt receiving any income at all. Whenever a market or a technology changes, there’s a huge opportunity for new businesses. In stage two, id offered a deluxe version of Doom with more levels, more monsters, more everything. Partnering with a big guy (GT Interactive), it got the software into stores around the country. And sold it directly by mail order. With a user base of millions of people, id got to call the shots. Instead of being at the mercy of the gatekeepers of distribution, it was courted by distributors and retailers. By inventing a completely different business model, a model in which it had nothing to lose, id redefined a business and won. Take a look at all the attributes listed in this chapter. Id took advantage of the seven that help the bootstrapper and steadfastly avoided the five that help the big company. By redefining the game and playing on its home field, it trounced companies valued at more than half a billion dollars. 20/103 iss. 6.01 i U X +

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