Case Study: 7 Principles of Bootstrapping an Online Media Empire

Tuesday, September 4, 2007 at 10:00pm by Site Administrator

Compared to traditional channels, the Internet provides opportunities for building online businesses that are within reach for many more entrepreneurs. Eager to try my hand, since I’ve had varying degrees of success with previous offline businesses, I’m in the midst of launching a bootstrapped online venture with several partners.

The model upon which this project is built, however, nearly guarantees some level of success, though it might come after year 1, or when we sell the business.

7 Principles of bootstrapping a partnered online business

Here are the seven principles of bootstrapping that this project is based on. Some project details are given afterwards. Note that these are not the only principles of bootstrapping, just the ones I based this project on.

  1. Minimal or no initial capital.
    Start with minimal resources and capital to carry the project through the first phase.

  2. Minimal operating costs.
    Use open source software and modify features as necessary. Use “bulk” resources that allow each sub-project to be easily operated in tandem. Recycle any revenues from previous phases.

  3. Minimal loss.
    An ideal bootstrapped operation results in minimal loss. In this case, I’ve guaranteed partners a refund of their $200-300 investment by no later than Dec 31st, 2008, if they are not happy with monthly returns. They keep any revenue share but give up their ownership to me.

  4. Return based on effort.
    Bloggers are used to the idea of greater returns for greater initial effort. This project’s success relies on early effort. However, once certain milestones are reached, the time investment decreases and the revenue increase.

  5. Leveraged partner efforts.
    Can’t run a business yourself? Bring in capable partners who get a large chunk of ownership in return for early efforts and a little bit of capital. In this project, each partner is at least a blogger. Some are designers, copywriters, SEOs. They’ll apply their skills to the official weblog for each sub-project. Each blog has the potential to generate web traffic and revenue supplemental to the rest of the sub-project.

  6. Leveraged resources and skills.
    What the Web offers to bootstrapping entrepreneurs that’s not available in traditional channels are free resources that can be customized. If you have the skills to use these resources, there’s a lot of opportunity for you. You just have to find it.

  7. Applied bootstrapping.
    An ideal bootstrapped operation will funnel the revenues from one phase into the next. Bootstrapped cash flow uses any suitable leverage.

Project details

The rest of this article goes into a bit of specifics about the project. They’re recorded here for posterity. This is a long-term bootstrapping project, and periodic updates for each phase will be provide on this blog.

  1. Top secret – sort of.
    Most of the details will be revealed in Jan 2008, after official launch. There will be 11-15 related sub-projects, all of which are based online. Each project will have an official weblog, which will hopefully generate enough early revenue to keep things going.

  2. Many partners.
    I could do this project all by myself but then it would most likely fail. I would much rather give passionate partners an equal net share of each sub-project in return for their early effort and no initial investment. The revenue model will hopefully motivate everyone to promote their sub-projects (1-3 per partner).

  3. Minimal partner investments.
    If early gross revenues are sufficient, there will be no cash investment required per partner. Else, each partner will put in $200-300 per sub-project that they are part of. That is, if I settle on 11 sub-projects, there will be a total pool of $2200 – $3300 dollars to hire some temporary staff. If things go very well in phase 1, partners will not have to open their own wallets.

  4. Minimal paid staff.
    Because this is an experiment in bootstrapping, paid staff have to be kept to a minimum, at least initially. At the start of the second phase, if revenues are sufficient, $2200 – $3300 will be pulled from gross revenues to hire staff. Otherwise, each sub-project’s partner will put in $200-300 towards the project pool, for hiring temporary staff.

    Success from phase 2 will determine whether staff can be kept on. If not, we go back to putting in our own time and effort, then try to hire again later – but only from available gross revenues.

  5. Self-promotion through blogging.
    A blog for bootstrapping a business project can be ideal for leverage. Each partner is a successful blogger in their own right, and hopefully each sub-project’s blog will generate enough revenue to create a bootstrapped cash flow for the entire project.

  6. Leveraged resources and skills.
    I am leveraging Open Source software and my own skills to bootstrap this project. This includes using free online collaboration applications where available. The only costs at the moment are for the project-related websites:

    1. Domain registration is about US$6.95/yr + $0.25 ICANN fee for each site. I registered all domains for two years.
    2. Hosting uses a special reseller acount for $52.97/mth. This provides 5 Terabytes pooled monthly bandwidth and 55 Gb pooled hard drive space. Using this site makes admin simple, but it requires a “main” domain, which also has to be registered ($6.95 + 0.25/yr).
    3. Design and graphics. Some of this work will be paid with a 10% net revenue share. Those sub-projects not launching immediately will have their design + graphics paid for in cash out of my own pocket.

    Thus, average monthly website costs are just over $60/mth out of my own pocket. When hosting needs go beyond my reseller account’s limits, the weblogs will be moved, and the cost paid from gross revenues.

  7. Overall project goals:
    To reveal this now gives away too much. From an entrepreneurial point of view, the project intends to show that bootstrapping can lead to successful revenues in an online venture, using a “synergy” of partnership, leverage of skills, and leveraging of Open Source software. The sub-projects will be aiding other people, but the details of this will be revealed in Jan 2008.

Expected returns

It’s impossible to determine what the exact return will be, but the nature of the project allows me to estimate long-term as well as minimums.

  • Minimum: $500/month gross revenue per sub-project, after a specific milestone point (to be revealed in the future). If operating costs are, say, $1000/mth across the entire project, that is divided 11 ways (11 partnerships). This is not much of a return for the partners nor myself, so there is hopefully motivation for a greater promotional effort.

  • My estimation: I’ve conservatively estimated that each sub-project could earn at least $3000/mth within two years, if partners do their share of promotional effort. While that will not be a huge return for each partner on a monthly basis, not only will they get their money back and some modest monthly income, they’ll benefit from any sale of the project.
  • Outside estimation: Two people I consider experts about such projects having been analyzing my plan. They feel there is a 50/50 chance of the project being hugely successful ($800K/mth) or a flop ($8K/mth). The latter means about $800/mth per sub-project. Their estimations are based on the success of similar projects.

I’m far more optimistic about the low end because I’m applying tried and true bootstrapping principles, leveraging effort and skills, and keeping costs minimal early on. What’s more, there’s a second layer of bootstrapping here. If my share of the project’s net monthly revenue reaches a certain level, I can afford to give up other paid work and devote more time. And because of the nature of the project, even a modest level of success means we’ll eventually get offers for at least $2-3M, if not as much as $10M. For some entrepreneurs, that’s nothing. But for a bootstrap-minded person like myself, it’s capital for the next project.


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