Bootstrapping
and Why More Polish Startup's Should Consider It
By: Paul
Chen
In my
last re-post, it mentioned the possibility of EU funding, PoiG, for
startup's. I really like the rational for the funds and when it
works, it can be wonderful for the economy of a region or a whole
country. It will inject credit, money and capital into an economic
system. In turn, creating jobs, creating more competition as well as
promoting collaboration between businesses and as a result providing
the customer with better services and better products. In the end,
all parties win. Lower unemployment, better service, better
products, more satisfaction, more tax revenue for the municipality
all sound great, right?
Unfortunately,
many times when things looks wonderful on paper don't always work out
when put into practice. One must look at the EU funds as a first
round funding for your startup business. A little background
information first. The EU in order to promote a more smooth running
society decided to provide a vast amount of money which are earmarked
for business development as well as community improvements.
Community impovments can include the clean up of a certain part of a
city or to upgrade some piece of infrastructure that has fallen into
disrepair. As for business development, I will focus on the SME's.
How
to get the Funds?
First
one must draw up a business plan as well as provide information on
whether you will employ people or if you will run it on your own.
You are looked upon more favorably if you say that you will be
employing people. Then you will have to file the necessary paper
work and wait for the decision. There are services which will
provide you with assistance on how to write your proposal in order to
increase your chances of acceptance. More information can be found
here. Other than that, here in Poland, when you start your own
business there are some tax deductions for the first period (up to 24
months) of your business operation, mainly less ZUS payments. Those
who have ran businesses in Poland will attest to how much they dread
their monthly ZUS payments.
Why
is the Well Running Dry?
Some
funds in previous years provided young startup's and SME's just about
all the startup capital they needed to get their business off the
ground. As I said before, one must look at these funds as those
obtained in the first round of your fund raising efforts. It will
not do everything for you. Many people put these funds into their
pockets. Others weren't careful with these funds and wasted it on
unwise business investments and expenses. As a result, the
businesses went bankrupt and lives were ruined. As the media will
tell you, there is a on-going crisis in the Euro-Zone. Consequently,
the EU has to be more careful with their money. The new programs of
funding will only cover part of the startup capital you will need (up
to 70%). You will need to find the rest on your own.
Enter
VC's and Angels
Many
young people have wonderful ideas and would like to put these ideas
into a way that will make them money and launch a nice career. At
least, that is the dream. However, a majority of these individuals
in Poland lack the funds to get started. In previous posts, you have
learned that many of these young aspiring entrepreneurs have lots of
wonderful technical knowledge and can sometimes spin straw into gold.
However, they lack the business acumen to raise the funds or to
monetize their ideas. So, where are they going to get that other
30%, provided that their application has been accepted? Enter the
VC's and Angel Investors. As Cinderella will tell you, her fairy
god-mother really helped her get ready for the ball at the prince's
palace. These investors will help you launch your product and/or
service. If your startup needs are small (Less than $1 million) you
will just need an Angel but if your startup needs are substantial
(more than $1 million) you will need a VC. More on Angels vs. VC's
in another post. One must always remember, this money comes with
strings attached. Just about all of these investors are not in the
practice of throwing their money away nor are they charities. They
are able to get where they are through shrewd investments and
sometimes lucky breaks. Some of these said strings may be that you
will have to give they a share of the company (up to 30%). Other
investors will want to have a seat on your board and have a part in
the decision making process through the life of your business. At
some point, they might even try to buy you out by giving you a golden
parachute.
Control!
How do
you maintain control of your business and be the ultimate decision
maker? Bootstrapping! That means you will have to use your own
money amass money from your loved ones or save it up from your jobs.
Only through bootstrapping will you really „own” your company.
Although you are in control, make no mistake, there is much risk
involved. If things go bust you might lose everything. But let's
try to think positive, if things go well, you will be able to reap
the rewards and not have to share it. And by having complete control
over your product or service you will be able to make changes or do
other adjustments without having to get permission.
The
Final Take Away
I
understand that many young entrepreneurs would really like to make
their dreams come true. I understand that many startup's in Krakow
can really make a difference in our young ecosystem. I know that
many of these individuals simply lack the funds to get started. I
simply want to provide some things to consider before you sign your
idea away. I am not saying that all VC's and Angels are business
eating sharks who only care for the bottom line. I know some of them
personally and can even consider some of them friends. And they are
wonderful giving people who can do wonders for your business and connect you with the right people. In
future posts, I will be covering some of the good ones who really
care about the Krakow Startup Ecosystem.
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