Bootstrapping a security business

November 2010 Security Services & Risk Management

Bootstrapping is not a common occurrence in the security industry, but it can make the world of difference.

There are many legendary businesses that started out as a dream in an entrepreneur’s eye and that were built on little more than the owner’s savings or a small line of credit from a bank. This is the principle of bootstrapping: starting up a business from scratch with minimum help and funding from external sources that were not really meant to gear up a business.

But in an industry as dependent on the capital and skills base to tackle large projects as the security industry is, most businesses that are founded this way will fail within a matter of 18 months to two years. Often, these problems will be compounded by a lack of capacity for strategic and financial planning.

Although a credit card or a small loan from a friend might tide a company over for a few months, few businesses can plan for the longer term without strategic support. Those that don’t fail outright will often become trapped in survival mode, existing month-to-month and order-to-order without growing their revenues or the number of people that they hire. This is an untenable situation for organisations in the security industry that must secure long-term contracts and projects with customers if they are to thrive.

Typically, early-stage businesses are too young to qualify for venture capital and cannot afford consulting-based commercial support. This 'skill and equity gap' has proven to be the death knell of many an entrepreneurial dream in the security industry. With cash and strategic support, it can be hard or even impossible to turn a killer new security patent into a commercially viable product.

Many smaller businesses in the security industry that stumble over these obstacles might have succeeded with more assistance in their early stages. We need to look at ways of enabling these small businesses with great ideas and a lack of resources to become companies.

That is the role that business accelerator support firms have to play in the market. Business accelerators are companies that offer support and assistance in launching and growing a start-up or early-stage business. They offer funding to the companies they work with, as well as strategic, management and operational support that helps them to grow into the future. These organisations are particularly looking to work with entrepreneurs in high-growth market segments such as risk management and security.

Accelerated growth

The challenges that small security businesses face are not related only to money. They are often established by someone who is a superb technician or engineer or operations manager, but who lacks expertise in finance, sales and marketing. In addition, a great business needs good back-office infrastructure to support its growth.

Good financial managers, sales representatives and marketing professionals can be expensive to hire. A business accelerator will provide hands-on and strategic help around these areas, giving the business a better shot at success.

Some even have back-office hubs that can take on the management of non-core processes for the entrepreneurial business on an outsourced basis. That means the security industry entrepreneur can focus on what he or she is good at, without worrying that the operational or financial aspects of the business are being neglected.

Without accurate and reliable financial information, businesses can make costly mistakes. Back-office administration is an often neglected and distracting non-core activity. Accelerators can take care of this activity for companies, thus improving their chances of survival and growth.

Holding out for an angel

Funding is an issue, of course. Venture capitalists may offer funding help to select businesses, but they do not have enough cash to go around. There is a strong role for angel investors to play in this regard. We see angel investors and business accelerators as having complementary roles. Angel investors benefit from working with business accelerators as the commercial support that the acceleration service offers will improve the chances of commercial success and reduce risks.

Here is the catch 22. Seldom will an angel funder support a new business without having seen the entrepreneur go through a bootstrapping period. In fact, any good investor believes that without pain, there is no gain, especially with their money. So, bootstrapping is vital, it earns the respect of the investor and importantly, if done right, will bring down the cost of investment leaving you, the entrepreneur with more of the pie as your business grows.

For more information contact Aurik Investment Holdings, +27 (0)11 447 5575, pavlo@aurik.co.za, www.aurik.co.za





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