With only about one in 1,000 companies scoring the venture capital funds needed to grow, most entrepreneurs have to start their businesses the old-fashioned way: by bootstrapping.

Bootstraps are loops on boots that are used to pull on the footgear. In the business world, the term means financing a company through the "creative acquisition and use of resources," or raising cash without the help of independent investors.

Raj Narula has bootstrapped both a restaurant and a high-tech startup. His restaurant, Haveli Indian Restaurant, has been in business in the Byward Market for 20 years. Narula and his brother managed to get financing from the bank, but admitted the process was difficult. They had to put together a good business plan and convince the bank there was demand for what they were proposing.

"It took four months of planning to get the restaurant to the stage where we were secure to get it to work and find good team players," says Narula.

The concept of customers buying in to the company's goods or service is the cornerstone of Narula's business philosophy. Even a traditional business such as a restaurant requires customer buy-in, he says.

"(Restaurants) are a real-time environment. Customers are made and broken by their first-time experience."

That same concept went into the tech startup Narula co-founded called TenXc Wireless. Narula and his partner financed the venture themselves, choosing not to go to friends and family for funds. They focused on getting validation from a customer for their product before they "papered" the company.

That first customer gave them a letter of intent indicating support for the product that they could show to potential investors.

After that, the pair focused on building a strong management team.

In fact, having an executive team buy in to the product or service is also crucial to a startup's success, Narula says.

Because startups can't pay six-figure salaries, they need experienced executives to come into a new venture and buy a piece of it in lieu of a paycheque, says Narula.

"One problem in Ottawa is people come from large entities and it is hard (for them) to move into smaller companies with low cash."

Providing equity, shares or options instead of the going rate for salaries is a fair way to reward early team members, says Narula.

Creativity is key to bootstrapping effectively, says Ken Charbonneau, a partner with KPMG. "The activities that impress me are those activities that relate to customers. Getting cash out of customers are areas you want to focus on."

For example, a startup might get deposits from customers and follow up with them in a timely manner to collect the full funds, says Charbonneau. Dealing creatively with suppliers is another option. For example, if a company can work out an agreement with a supplier to get credit and extend the payment terms to protect its cash.

"Accelerating cash inflow and delaying cash outflow, that's what you're doing when you look at customers, suppliers and employees," says Charbonneau.

Giving discounts to customers is another option for increasing cash flow, says Kevin Ford, CEO of Parliant Corp. If a small business owner is upfront with a customer about preferring full payment right away instead of after 30 days, Ford says many customers agree because they understand what it is like for a small player.

Ultimately, it is important to get a product out to customers early for their feedback, Ford says. "This is what typical bootstrapping is. Get ideas out there early, get feedback early because you can't afford to do market surveys."

Monitoring cash flow also means looking at expenses such as business equipment. Ford says companies should consider their needs down the road and consider leasing over purchasing.

"Leasing keeps what little money they have liquid. Only do those things that add value (to your company)," says Ford.

Companies can increase cash inflow by ensuring they are paid for any research and development, says Charbonneau. Filing GST returns on a monthly basis instead of quarterly or annually could also be a frugal move, he adds.

Perhaps most importantly, startups should surround themselves with advisers, Charbonneau says. Organizations such as the Ottawa Centre for Research and Innovation and its Entrepreneurship Centre are a good way to find the right networks and materials, he says.

Ford concurs. "(Find) someone who has run that course in that industry. They'll have the right questions (and) they'll help you find money."

Narula says he looked for advisers for his product at TenXc. "It gives you an immediate roadmap."

Establishing a company's business objectives will enable entrepreneurs to figure out how much money they will need, says Ford. Being realistic about costs is important because even if a first product has done well, it will likely only break even and a company needs to have enough money for a second version, Ford says.

Once a company has bootstrapped itself and can prove its sustainability, then it can look for outside investors.

"Focus on customers, focus on selling, cherish your cash, make sure you spend cash on things related to the product, be creative and focused," says Charbonneau.

"Bootstrapping a company is a very difficult thing to do. It takes a lot of hard work and commitment."

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Source: KPMG