You may have a great business idea. Perhaps you’ve researched and tested the market and believe your business idea is a winner. However you need the funds to take it to the next stage. If you can’t or don’t want to approach a bank or other sources of funding you might consider bootstrapping your idea instead.
So what is bootstrapping and what are the benefits and drawbacks of this approach?
What is Bootstrapping?
Simply put, bootstrapping is an entrepreneurial approach where an individual or business funds and grows their company with their own resources, instead of taking investments from venture capitalists or other outside investors. It would also cover funding drawn from sales generated in the early stages of launching a business and reinvesting any money the business generates to fund growth.
Pros of bootstrapping a startup
There is much to recommend bootstrapping a business start-up.
- By bootstrapping your start-up you won’t be accountable to anyone else for your business decisions or pace of growth.
- You avoid risking personal assets, as might be the case had you chosen to apply for a secured business loan.
- You avoid losing equity in your business as might have been the case had you gone for funding from venture capitalists.
- You benefit from all profits (and loses) generated by your business.
Cons of bootstrapping a startup
The drawbacks of bootstrapping should also be considered. Some of which have been listed below.
- Bootstrapping may well limit the resources you have available to develop and market your business. This is where creative marketing can make all the difference.
- It might be difficult to fund a salary or recruit staff in the early stages of the business. This means you will need to fund your personal expenses separately and work across all areas of running, marketing and making a success of your business.
- Funding from venture capitalists may well come with support. If you bootstrap your business you will not have this.
- Financial planning is crucial for a bootstrapped business which takes time. This may draw your time away from other aspects of running the business such as networking and sales.
- Bootstrapping tends to lead to slow growth. This can be a problem if competitors gain more market share by moving faster than you.
- If your business makes a loss it’s your money at stake. This means the risk element of this approach is all yours.
Tips for bootstrapping successfully
Bootstrapping a startup can lead to success at your own pace. It enables a business person to develop skills across many different areas of running a business and delivers rewards without the need to share with other investors. However, bootstrapping isn’t for everyone.
1. Live within your means: Expenses such as rent, staffing costs and marketing costs should all be accounted for before money is spent. Try to keep fixed costs down so there’s more money available for expansion and growth in the future.
2. Build relationships: As a bootstrapper you would need to establish relationships with other businesses who can provide you with discounted materials or services that will you’re your business grow without breaking your budget.
3. Use existing resources: Create partnerships or affiliations with existing businesses that have access to tools, technology and expertise that may be hard for you to obtain on your own if cash is tight.
4. Use marketing strategies wisely: A well-designed website is essential these days, but it’s also important not to pile on too many costly marketing initiatives until you see some ROI from them first – consider test campaigns and targeted initiatives such as online advertising before committing more money into marketing activities. Write PR articles and check out creative marketing for effective but low cost marketing ideas.
5. Stick to deadlines: Set realistic goals that can be tracked against progress so you stay focused on delivering milestones and end results at regular intervals. This will help ensure accountability in yourself as well as stop potential burnout of working long hours with no measurable progress made over time.
And finally…
Bootstrapping a business requires discipline and sacrifice. If you budget well and are willing to work incredibly hard, the rewards for success can make all the effort worthwhile. Business owners who start with limited financial resources often have less to lose, so they are fearless in trying new ideas and don’t hesitate to take calculated risks. Evaluate your finances. Make sure your business start-up budget is affordable and takes account of your available funds for your personal living expenses. Set deadlines by which the start-up must start generating a profit and work hard until you achieve your goals. Bootstrapping a business is not for everyone, but if it’s a good fit for you the rewards are can be incredible.