Everything You Need to Know about Bootstrapping
What is bootstrapping?
This approach entails starting up a company or a project without funding or loans from investors, banks, or governments. In other words, you use what you have available, stretch your already existing resources as much as possible, and rely on some savvy business techniques to keep costs at a minimum and get the ball of your business rolling. Bootstrapping is effectively a process of getting a business started completely on your own resources and the primary reason why entrepreneurs choose to bootstrap is because it ensures that the founder(s) maintains full ownership rather than sharing equity through external investors.
Which techniques facilitate bootstrapping?
The following 4 techniques are essential to effectively bootstrap your company:
Utilizing Your Existing Space
In the embryonic stages of company development, rented or owned office space is a luxury. Bootstrapping aims at removing all but the absolutely essential when trying to get a business off the ground. Many people will initially use old garage space, or work from their home in order to save money and concentrate as much initial income possible into the business.
Sweat Labor
This does not have to be as bad as the images in your mind may imply, but effectively sweat labor is consented, unpaid work. When people take the Bootstrapping approach, the founder(s) will rely on voluntary help from friends, family, and themselves, meaning that they often invest a large amount of their own time into project management and growth without the expectation of any financial returns in the short term. This is a necessary sacrifice for growth!
Trading and Purchasing Tricks
There are some ways of initially doing business that can keep costs at a minimum whilst still allowing trading and commercial exchanges to thrive. In terms of buying initial products, it is worth dedicating time to finding discounted vendors and potentially engaging in exchange schemes whereby your services or future products can act as a means of initial capital for exchange. Another approach is to agree on extended (ideally interest-free) repayment periods for those providing their services or products so that initial costs are kept low and as much as possible can be reinvested into company growth.
Use what you have
This is a broad advice since everyone has different assets and financial situations. However, the theme here is to simply maximize the things already in your possession and minimize what you purchase/borrow. Financially this means relying on your credit card loans and dipping into the savings that you have available. Practically, you should rely on the existing equipment you have before buying more, i.e. all the computing hardware, printers, and production line equipment that you can access for free.
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Disadvantages of Bootstrapping
The following 3 disadvantages of bootstrapping are important to be aware of:
Full liability
Without investors and paid advisors, you are on your own if the market crashes, natural disasters strike, or simply when your concept doesn’t get the traction that you expected.
High discipline
If you decide you want to go this route, you’ll have to say goodbye to your leisure activities and ensure that not a second of your time is wasted because while you have a lot to gain, you also have a great deal to lose when the odds are stacked against you.
High risk
It is your time, your money, and your assets that are on the line if anything goes wrong.
Advantages of Bootstrapping
The following 3 advantages of bootstrapping might make it a worthwhile pursuit:
Full ownership
By abstaining from equity funding and investment, the company remains solely in the hands of the founders. This means that you can stay true to your vision, operate in the way you see fit, and make important decisions without needing to constantly depend on external approval. Of course, all the company rewards also don’t have to be shared with any investors or shareholders.
Personal development and fulfillment
When the going gets tough, the tough turn pro. By plunging yourself into the deep end, you will have no choice but to work hard, manage your time well, and be constantly improving your business skills. These factors are profoundly formative in the development of character and will ingrain a widespread skill set that is valuable beyond entrepreneurship as well.
Strong company base
If you do wish to apply for funding further down the line, you are likely to have created a more stable business model through initially Bootstrapping. With an existing structure and business plan in place, you increase the likelihood of getting funding approved when you need it.
Should you bootstrap?
If you are considering “picking yourself up by your bootstraps,” as the age-old saying goes, and getting started on your own, then ask yourself: Are you determined, self-disciplined, confident, and competitive? If you aren’t, and don’t feel like you will become so, then it might not be for you. However, if you think you can rise to the occasion and manage it, you can own a truly self-made business and pursue the concept that you have always dreamed of.
