Not every entrepreneur would have the gall to leave a 6-figure job with the U.S. Department of Veteran Affairs, leverage their 401K, and bootstrap a business from their kitchen table. But then again, not every entrepreneur is as bold as Chas Sampson.
Sampson, the founder and CEO of Seven Principles, recognizes that his methods for building and scaling a business are not for the faint of heart. Recognizing that burgeoning businesses can be strapped for cash or have poor credit, Sampson chose to dip into his retirement savings to fund his startup. For Sampson, the gamble paid off, but he is emphatic that his story is not quite so straightforward.
Risk and Reward
“When you are just beginning in business, you have to understand that there are a lot of unexpected expenses,” Sampson explains. After leaving a 6-figure government role to strike out on his own, Sampson ran up against an age-old problem: how would he pay for the business expenses, take care of his children, and be able to live in the meantime?
Sampson’s ultimate decision to tap into his 401K account is not one he made lightly.
“The 401K was my last resort,” he explains. “If the business idea didn’t work, I would be out a lot of money.” However, Sampson stresses that it’s not all bad ideas and cautionary tales with dipping into retirement funds. His 401K gave him and his business access to capital at a much cheaper rate than could be found with, say, a small business loan or business credit card. When one is just starting, they may not have the creditworthiness or longevity banks require to loan them funds for their business.
“I was smart enough to invest the money properly and scale the business,” Sampson says, cautioning entrepreneurs to proceed at their own risk when deciding to fund their businesses with retirement funds. In the end, Sampson says, it may all come down to a question of age.
“I can’t say whether it’s good or bad,” he clarifies. “Everyone’s financial makeup is different. If you are a young person, the chances are better that you can take that money and get a return on using those funds and cover penalties, as well. If you are older, say over 50, it’s extremely dangerous. You may not make your money back.”
Sampson explains that one must always give themselves the time and the space necessary to rebound in case things go south. The older one gets, the harder that rebound becomes.
Many of today’s businesses were initially built upon a bootstrapping mentality. Think of Steve Jobs toiling away in his California garage, or those pictures you’ve seen of Jeff Bezos in his tiny office back when Amazon only sold books. Businesses with successful bootstrapping stories can be inspiring and provide a template for other entrepreneurs to follow suit.
For Sampson, successful bootstrapping comes down to three principles:
1. “Manage your personal affairs. Business owners need to understand what it means to ‘bootstrap’ a venture on a personal level,” he says. “What will building a business mean for your family, friends, time, and home life?”
2. “Always reinvest the money that you are making.” Sampson shares that he believes this is the key to growth in a business.
3. “Learn to say ‘no’ because ‘yes’ can be very expensive,” adds Sampson. “When you are bootstrapping, you are apt to say ‘yes’ to everything. ‘No’ is important.”
Doing it Differently
On the road to scaling a business successfully, there are bound to be missteps. Sampson recognizes some early mistakes he made — mistakes that may have cost him time, money, and relationships.
“This goes back to my tip about saying ‘no’, but I wish I wouldn’t have partnered with people as early as I did,” says Sampson. Managing partnerships successfully can be a difficult undertaking, even for seasoned business owners. For startups, it can be nearly impossible if a solid plan isn’t implemented.
“I wish I would have had a more stringent vetting process and a broader vision of the end goal of the partnership. My initial partnerships cost me some money,” Sampson says. “When you form a partnership, it shouldn’t be entirely about revenue; there are other aspects involved — social, mindset, shared vision.”
Upon reflection, Sampson remarks that he also would have taken more risks and been more bold with his initial choices. “When I first started, I was shy with marketing and taking major risks,” he says, “but not taking those risks cost us some growth opportunities around year four or five.”
Nevertheless, there is little else Sampson says he would change about his approach to bootstrapping and scaling his business, mentioning that all of the pieces eventually fell into place for him. At the end of the day, Sampson has learned much from his experience with funding and building a startup, and leans on three key takeaways.
“First, always find ways to add value,” he says, “whether that’s for clients or through partnerships and relationships. Second, remain consistent; and lastly, focus on your health and personal development. As a leader, you’re going to need a lot more than just support from the outside world. Businesses have a lot of ups and downs. Make sure your health is well in hand and that you have a personal support system.”