Want to get accepted into the entrepreneurial hall of fame?
Admitted. We haven’t actually checked if there is such a thing as a hall of fame for entrepreneurs. But these days, it sure can seem like fame, fortune, and funding have become the largest measures of success for startups.
As a result, many aspiring entrepreneurs believe they should raise impressive funding pools as soon as possible. And while it may get you some attention and perhaps some much needed mentoring, getting funded is not all beer and skittles. It also means giving up some of your company, both in terms of control and in terms of equity.
Instead, consider bootstrapping. What’s that now?
What is bootstrapping?
The term Bootstrapping comes from the phrase "pulling on one's own bootstraps” and first emerged in the 19th century. It’s been used to describe challenges that are deemed apparently unrealistic for someone to solve. Today it is used to describe the act of achieving something big without any external support, which is exactly what bootstrapping your startup means.
Bootstrapping a startup essentially means kick-starting a new business using your own pocket change. Using your own money to fund your entrepreneurial adventure means that you keep maximum control over your business operations. And relying on your abilities in favor of outside investment has become very popular among startups and small businesses.
If you’re ready to learn more about bootstrapping and how to do it, read on!
When your done reading, you'll know
- Why you should bootstrap
- How to bootstrap your startup successfully
- The pitfalls of bootstrapping a business
So, to bootstrap, your startup is to fund your own business, and as a rule of thumb, you should do that for as long as you can. That way, you are the one calling the shots, and when it’s truly the right time to look for investors, you’ll have the upper hand and can find the ones who are exactly right for your company and have some leverage left to work with.
Bootstrapping is a challenging way to go for sure. It puts all the financial pressure on you, the founder, and not having that much to spend can slow down business development and compromise the quality of your products or services.
That doesn’t sound too great, we know. But is it all bad? Nope.
It depends on what you value as an entrepreneur. As the founder of a bootstrap, you are in a position of absolute power over the business and all of its activities. The good thing is that all the resources flow towards product development, not into the pockets of investment partners.
Bootstrapping is not a simple path to make a return on investment, but it can be a method to begin steadily increasing profits and building up a safe operation that will support further business investment.
Bootstrapping is also known to encourage entrepreneurs to be more innovative with their startups. You have no obligations to other stakeholders to deliver the product, move your business in a certain direction, so you have more time for refinement. You are winning more freedom but also taking on a greater risk to your personal assets to fund the business. Your financial health is tied to the success of your business. That can be a bit scary, but for the entrepreneurial spirit, it may be the perfect challenge.
Here are five ways to bootstrap your startup
A great entrepreneur is resourceful, money smart and hardworking, all of which you have to be, to successfully bootstrap your way through the startup jungle.
Bootstrapping a business gives you the chance to stay in control for as long as possible. Besides that, scraping together money on your own will give you invaluable experience that you will benefit from further down the road. It will force you to be smart about your money, come up with creative solutions to every single problem you face, and put all your resources, knowledge and abilities to good use.
Most importantly, bootstrapping will teach you the most crucial skill you need as an entrepreneur. Working hard. We're not joining the "you must work 80 hours to be a real entrepreneur" choir. That old song isn't our jam. Hard work comes in different forms - but being persistent in your efforts is essential, regardless of how many hours you put in.
So before you make the final leap, ask yourself if your boots are made for walking the startup walk. Do you really have what it takes to be an entrepreneur?
Ready to dig deep into your pockets? Here's how to bootstrap your startup in five bulletproof ways:
1. Cut down your expenses
We know. Cutting down on luxuries and things you like sounds almost as enjoyable as realizing you just ate the last piece of candy without having been prepared for it. You know the struggle, right?
But if you’re serious about your startup, cutting down your everyday expenses is key. The more you cut, the more you have to put into your business. And while we’re not going to tell you to move into your parents’ basement for the next three years, we won’t judge you if you do.
2. Dip your feet before you quit your day job
If you still have a job, consider keeping it a little while longer. Building your startup as a side hustle will help you keep your head above water.
Use the time to test your idea, work out your business plan, do market research and all those other unavoidable tasks that no one will pay you to do anyway.
3. Find a co-founder
Are you a one-person army? Maybe you should consider bringing someone else on the trip. While finding the right co-founder can be a difficult task, for most startups, it’s worth the effort. You can share the ups, downs, risks, workload - and bootstrapping costs, of course.
4. Hold on to your cash and spend them wisely
For most entrepreneurs, it can be tempting to spend profits as soon as they hit the bank account. But don’t fall into that trap. Adding unnecessary expenses might seem like a good idea, but we promise you it’s not.
We bet you can go a little while longer without a new office space, the cool business cards you had designed, or the website you don’t really need yet. Instead, only invest in things that will boost and grow your business right away.
5. Prepare yourself for a marathon
Building a successful startup will not happen overnight. If you’re looking for the quick big bucks, you’ll be disappointed. 90% of startups fail. Not yours, of course. But succeeding takes blood, sweat and tears.
Prepare yourself for a marathon, and you’ll (almost) be ready for everything that lies ahead.
Highlights and Pitfalls of Bootstrapping
Let’s take a detailed look at the pros and cons of bootstrapping your startup business.
The Highlights of Bootstrapping
Bootstrapping has many advantages.
Bootstrapping is relatively inexpensive. Working with your own resources ensures that you will be most cost-efficient. You are more mindful of your day-to-day operations expenses and start managing your business on a streamlined strategy to lower costs.
Require new skills
Because you don’t bring in outside investment and support to help you tackle challenges, bootstrapping your startup also pushes you to develop new skills. Entrepreneurs who bootstrap need to be hard-working, flexible, and always challenge themselves.
Be your own boss
As a bootstrapping entrepreneur, you don’t have to answer to anyone. So you’re free to determine the direction of your company. This means that your company’s progress will happen according to your concepts and personal principles, without any external interference.
Reap what you sow
Being the boss of your own business, with no investors involved, also means that when your business succeeds, you will be the one harvesting the fruits of your labors.
No need for sweet talk
Securing outside funding from venture capitalists can be challenging, and it requires time and commitment, something you don’t have to spend time on if you’re bootstrapping. This means you can focus completely on your own visions for the business and spend more resources on product development, marketing, and sales growth.
Further, once you are ready to go out and get funding, you will stand stronger, because you’ve built the financial base of your company by yourself. And if there’s one thing investors like in a founder, it’s founders and CEOs who are devoted to their own businesses and who can demonstrate a good financial understanding.
The pitfalls to bootstrapping
Bootstrapping is tough, and while it is generally a good way to get your startup going, there are some other pitfalls that you should be aware of.
It’s all on you
You’ll not have the money to hire someone to help you. Not even with the things you don’t know how to do. So you will need to hustle a lot, work way more hours and manage more roles and tasks than you might think is possible.
Lack of resources
One of the top reasons why startups fail is that they run out of money. Being smart about your money doesn’t just mean not spending them. It also means knowing when to stop bootstrapping and start looking for outside capital.
At some point, not having money to spend will hurt your visibility and your chance to spread the word about your product. This means that you’ll experience slower growth and that you’ll have fewer means to spend on serving your customers.
Mixing business with pleasure
The mixture of business assets and private savings can be a problematic and stressful affair. While bootstrapping gets you more control and profit share, it also entails a higher level of uncertainty where losses and setbacks can occur. One main reason why some bootstrapped businesses fail is lack of revenue because their earnings aren’t high enough to cover all expenses.
Handling the long working hours alone
Founding a company usually means exceptionally long working hours, because you alone have to keep the business afloat. And since you’re bootstrapping your way through, you will most likely get a minimal income for your efforts, at least in the early stages. You are also typically the only person responsible for challenges, issues, and problems that pop up because you don’t have the means to hire anyone yet.
There’s no doubt that the pressure on bootstrapping founders is tremendous. You have to deal with all the tasks, responsibilities, and financial management by yourself, which can be a heavy load to carry. That’s why all entrepreneurs, bootstrapping or not, should seek help and support from their friends and family.
While bootstrapping your startup for as long as you can is a good idea, be careful not to let it kill your growth. If you want to make it into the startup hall of fame, you will need to get funded at some point. Make sure you’re always on top of your financial situation and be smart about the decisions you make.
Want to explore other funding options? We think you'll like: How to get seed capital (and avoid early startup death
What It Takes To Bootstrap Your Startup
A successful startup founder is highly productive, clever, and hard-working, and if you want to (or need to) bootstrap your startup, you need to be those things too. Bootstrapping a company allows you to be in charge for as long as you can. And as an added bonus, managing finances and generating money by yourself will give you valuable insights that will help you grow your business in the long run.
It will push you to be smart with your money, come up with innovative solutions to every challenge you face, and put all your energy, experience, and skills to good use.
Most notably, bootstrapping sheds light on all the essential skills and parts of being an entrepreneur. It is heavily reliant on your ability to work hard, be persistent, and push through.
Hard work means different things to different people, but no matter your definition it is imperative that you’re consistent in what you do, no matter how many hours you work.
So before you decide to bootstrap - or jump into the wild startup waters, be sure you’re fully committed to what lies ahead.
What to Watch Out for When Bootstrapping
We’ve already established that bootstrapping is a challenge, but at the same time is often a good (or necessary) way to get your startup going. Even so, there are a few risks you should consider before you start emptying all your savings accounts.
Relying on Yourself
Since you won’t have the money to recruit a team or even just one person to help you, you will need to count heavily on your own skills and ability to make things happen. You will have to push boundaries, work long hours, and handle more positions and duties than you have ever done before. Are you up for the challenge?
One of the key reasons why startups struggle is that they're running out of money. Being smart with your money doesn't necessarily mean that you don’t spend it. In fact, spending money on the right things at the right time can massively improve your startup’s performance and success. When you choose to bootstrap, know that it won’t be forever (probably). At some point, you will have to decide when to stop using your own money and start searching for funding.
Decreasing Growth Rate
Why shouldn’t you just keep bootstrapping, until you’re profitable? Unless you have a lot of money to invest in your own business, at some point the lack of funds will start harming your ability to market and expose your product or service to the masses. This means that you will face sluggish growth, which will again mean fewer resources to service your customers and build growth.
Although bootstrapping your startup is great up to a certain point, be careful not to let it slow down or undermine development. If you want your startup to be an established business in the future, you'll need to get financed at some point. So make sure your financial situation is healthy and be smart about the choices you make.
Exploring the Success of Real Bootstrapped Startups
Still a bit shaky about the benefits of bootstrapping your startup? Don’t be! A lot of today’s world-leading businesses started out short on cash. Let's take a look at a few examples.
RailsFactory is an advisory and software development company that offers services for the Ruby on Rails web framework. It was started in 2006 by Senthil Nayagam and Dinesh Kumar. RailsFactory offers a wide variety of services, mostly prioritizing the Ruby on Rails interface app creation.
Senthil and Dinesh bootstrapped RailsFactory on their own, starting with around $1,250 in cash. From that point on, they each put their own money into developing and growing the business. Senthil used his savings, and Dinesh asked his parents for help. They luckily began to generate revenue quickly. They were able to generate a solid income after just a couple of months – and the company has been growing ever since! Currently, RailsFactory has carried out over a hundred projects and established relationships with customers in the United Kingdom, Australia, United States, Canada, Singapore, and India. Very impressive!
Mansa Systems is a SaaS-based IT business established by Siva Devaki in San Francisco in 2006. Siva created Mansa Systems to concentrate on cloud computing primarily. Mansa is now publishing a range of applications to be used in combination with CRM and Cloud Storage to expand the enterprise through Salesforce's AppExchange platform.
Mansa Systems remains fully self-funded, and there are reportedly no plans to seek outside financing. The business has currently generated two million dollars in annual sales and sufficient profitability to grow and distribute its apps at a steady pace – without ever raising capital!
AgilOne, a cloud-based predictive consumer research firm, was created in 2006 by Omer Artun. Initially, the business-focused solely on utilities to get close to clients, understand and resolve their issues, and produce sales in the process.
When AgilOne collaborated with Sequoia Capital in 2011, Omer had successfully bootstrapped his startup and taken it from no money or workers in 2005 to over fifteen million dollars in sales and almost fifty employees. Silicon Valley's largest venture investment firm then made a sizeable, high-value purchase in a service-driven startup.
Finisar manufactures optical communication modules and control systems. It was created in 1988 by Jerry Rawls and Frank Levinson. Jerry and Frank financed Finisar by first offering consultancy services before designing high-speed fiber optics for computer systems.
They looked for a gap in the electronics industry that was not fulfilled and found the demand in the early nineties when they invented a cheaper gigabit optical connection that made optical drives more viable.
Even as Finisar took off, the organization stayed entirely self-financed. The two founders bootstrapped Finisar for the first decade of its establishment and did not obtain outside support until 1998.
Jerry forecasts that the business's pre-IPO revenues amounted to thirty million dollars in 1998. By the time the firm was made public in 2000, its revenue had reached about sixty-seven million dollars. Optical communication systems and modules are designed to be highly complex and expensive. But still, the two founders managed to bootstrap their business by incorporating services to grow their business to an IPO.
Our final thoughts on Bootstrapping
All of the bootstrapped companies and startups listed above became profitable because they managed to cleverly use common bootstrapping principles to start their ventures. And you can apply those same principles to your startup as well. Not only is this a smart way to get your startup up and running, but the examples also show that the strategy can lead to success.
So, are you up for it? Strap up those boots and get to work!
If you like the idea of bootstrapping, we think this will inspire you
Steve McLeod interviews startup founders about their businesses and discuss the different ways to make bootstrapping work.
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