Bootstrapping is a term bandied around a lot to describe the way in which many entrepreneurs operate, manage and finance their startups. What is bootstrapping and what exactly does it mean in a business context?
Bootstrapping is a term bandied around a lot to describe the way in which many entrepreneurs operate, manage and finance their startups.
What is bootstrapping and what exactly does it mean in a business context?
In a recent Forbes article, Alejandro Cremades offered readers a clear definition of the term stating that “Bootstrapping a startup means starting lean and without the help of outside capital. It means continuing to fuel growth internally from cash flow produced by the business.”
Bootstrapped startups grow their businesses without the help of external investors. Instead they go about financing startups using personal means and often reinvest their profits back into their businesses.
Like any method employed by entrepreneurs to finance and grow their business, there are pros and cons to bootstrapping.
Let’s start with the pros:
1. You get to call the shots
Unlike startups who’ve availed of funding from angel investors or venture capitalists, bootstrapping your startup means that you have the autonomy to make decisions about your business without conferring with other individuals or parties.
2. You don’t waste precious time fundraising
Startups which rely on sourcing external funding to grow their businesses spend quite a lot of time identifying and chasing potential investors for funding. Bootstrapped startups on the other hand are self-sufficient and use their time to creatively strategise how they can allocate and stretch their existing resources to help grow their business.
3. You’re more careful when taking risks
There’s a very different attitude between founders who are funded and founders who self fund their startups. Those who are funded can sometimes be less concerned by potential risk. For example, if a startup needs to hire a developer at a cost of eighty grand a year, a bootstrapped founder will likely be more cautious and rigorous about finding a developer who will do the job right, whereas a funded founder may not spend quite so much time doing the due diligence.
Why so? The bootstrapped founder can’t afford to get it wrong, whereas the funded founder may not take the same financial hit if the developer didn’t work out.
While the bootstrapped founder may seem to be at a disadvantage in this situation, it is not quite the case. Unfunded founders are conditioned to ensure that they get their money’s worth when paying for a product or service, a mindset which enables them to grow their startups at a slow, yet often sustainable rate.
Now for Con’s:
1.You grow at a slower pace
Taking on new hires helps founders to grow their business. As bootstrapped businesses oftentimes don’t have the resources to hire staff, it can take longer for the business to develop and grow than a founder might like. A lack of funds to invest in entities like office space or equipment for example, may also inhibit the rate at which a startup can grow.
2. You might run out of money
The most obvious downside of bootstrapping is the risk that you’ll run out of capital to sustain your business and you’ll have to close up shop. Failure is something we all risk when we start a new endeavor however, so some might argue that it’s not a viable reason to avoid bootstrapping your startup.
What is bootstrapping?
If you clicked into this article looking for an answer to this question, I hope we've helped.
When it comes to financing your startup, there’s no right or wrong way to do it. Founders find what works for them and for many, bootstrapping is often the most obvious and practical choice.
Like any method of financing, bootstrapping in business has its upsides and downsides. How do you know if it’s suitable for your startup? Weigh up the advantages and disadvantages of bootstrapping with respect to your specific startup. If the pros outweigh the cons, bootstrapping your startup might just be the way to go.
Like this piece? Check out our articles How to Get the Most Out of Your Crowdfunding Campaign? and 5 Ways to Create Company Culture Using Slack.