This week’s issue of U.S.News & World Report features an article on "bootstrapping" a small business—launching a start-up with little or no money. And certainly no venture capital. For some further insights into the topic, U.S. News editor James Pethokoukis chatted via E-mail with entrepreneur and futurist Thomas Frey of the DaVinci Institute, a business and technology think tank.

U.S. News: Is raising money for a new venture overrated?

Frey: When you launch a start-up business, there are essentially two things you can sell. You can either sell your product or service, or you can sell an investment—an investment in your business. In either case, you have to sell something. And I strongly encourage people to sell their product rather than the investment. Some people are extremely good at selling investments, but invariably the rest of the business suffers and the product or service that the business is being built around oftentimes never gets created. It’s far better to bootstrap the business and build it without investor money. Every situation is different, and boot-strapping a business doesn’t necessarily mean that no money is involved, but in general the business gets started with very little money, and the primary emphasis goes toward selling the product.

U.S. News: Why do you think this is so important?

Frey: Investor money tends to confuse the issues in a start-up business. Start-up entrepreneurs need to learn how to wrestle with every decision that they make. They need to take ownership of their decisions, and investors often need to "weigh in," sometimes confusing the issues and delaying things. Entrepreneurs often confuse investors with customers. They’re not. A business operates off of the people who are making the "buy decision," and the sooner you can get to know the buyers, the better your decision making will be from there on out.

U.S. News: Let’s say you have an uncle or good friend who wants to put $50,000 into your business. Should you say no?

Frey: That depends on the situation. It’s easy to think that money will solve all of your problems. The reality is that investor money usually creates more complexities and usually more problems than it solves. Most often the money comes in too early, and you don’t know enough to spend it wisely. It’s better to make your mistakes on a small scale before you blow things up to the next level. However, there are some businesses that simply require upfront expenses that you can’t avoid. Sometimes it’s tooling costs, or fixtures, or specialized equipment. Oftentimes people will spend tons of money on office furniture. While a nice office can create an image that is absolutely necessary for certain kinds of businesses, it is almost always a bad way to spend your start-up money, which you will soon be in very short supply of.

U.S. News: What if you run out of money?

Frey: Usually I tell people to get used to it because as an entrepreneur, it will happen a lot. There are virtually no businesses that haven’t gone through the money struggles. Quite often the less resilient entrepreneurs will hit the kill switch at the first sign of problems. Business owners need to earn the right to be where they are, and working their way through a myriad of problems they face every day gives them the stripes to say they earned it. Money is just one of the many problems.

U.S. News: Can you give me some examples of good bootstrapping techniques?

Frey: Bootstrappers are looking for unusual arrangements—trading, barter, delayed payment, volunteer help, and tons of things for free. They’re not afraid to ask for ridiculously one-sided deals because if you don’t ask, you’ll never know how far you can push it. A bootstrapper will tackle a problem from a hundred different angles looking for ways to create a wedge into a problem and begin prying the problem apart. Good bootstrappers are relentless and tenacious, never letting a good problem get the best of them. They actually look forward to the next problem to tackle.

U.S. News: Could you give an example?

Frey: A small business gets started, and they put everything they have into getting a contract with Wal-Mart. They create marketing material, spend countless hours on the phone and in conversations to land the big Wal-Mart deal. And when Wal-Mart says no, the business owner feels crushed and wants to throw in the towel. But usually they don’t get a no answer; they just don’t hear anything, and they wait and wait and wait. People need to avoid the single point of failure and constantly keep moving. There are thousands of possible distribution channels, and Wal-Mart, in most cases, should be at the bottom of your priority list because they typically want you to be a well-established business before they order from you. And too large of an order, too soon, can kill a business.