Pros and Cons of Bootstrapping your Startup

When Uber was a start-up business in its youth, it went on to pitch 523 times before it could secure funding. Airbnb, Apple, and Honda were some of the other companies that were denied funding multiple times when each of them was a start-up. Clearly, raising capital is a massive difficulty in itself and is very time-consuming. More often than not, a startup founder isn’t willing to stick around for too much time trying to get his startup company off and running. He’d prefer his start-up to launch now. This is why entrepreneurs look to another option; making their dream startup company a bootstrapping business.

What is Bootstrapping and What Makes a Business a Bootstrap Company?

Bootstrapping is the method of employing internal sources of financing company operations, namely using personal finances or operating revenues of the start-up business, rather than opting for external financing options such as bank loans, or outside investments. A bootstrapping business is, therefore, a business that utilizes internal financing rather than external sources. To get a better understanding of when a startup founder might use bootstrapping, it helps to look at the stages that a bootstrap company goes through:

Beginner Stage:

Just like any other start-up business, a bootstrapping business also starts its journey the same way – first an idea of the product or service, and then the formalities of execution.

Customer-Funded Stage:

When money earned via revenue is used to fund operations.

Profitability & Growth Stage:

As the business develops its product and finds its initial customer base, the natural direction to look towards then becomes growth and profitability. To make sure they have a safety net of cash, a company must be wise in spending hard-earned revenue to finance growth.

“Got it! But as a Startup Founder, is Bootstrapping Any Good?“

The Pros of Bootstrapping

While there are cons to this method of financing, there are many pros as well:

• You’re The Boss:

Because no startup investor has a stake in your business in return for financing, the whole of the business is yours to keep. This is vital for those who prefer full ownership and control, and like to be quick decision-makers who don’t prefer anyone interrupting their flow.

• Creating a Base that Attracts:

Forming the financial fundamentals of business by a startup founder is massively desirable for a future startup investor or a venture capital startup that does not want to invest as much in the beginning. This is because they like the demonstration of commitment and practicality of the owners, and what they have at stake.

• A Way to Profitability:

Since huge amounts of interest paid to banks on loans taken or stakeholder returns are out of the picture, your Profit & Loss Statement will reflect the growing success of your business. This is a great way to future-proofing the business and again, attract a startup investor or a venture capital startup to invest at some point down the line.

“Sounds good! But What’s The Catch?“

The Cons of Bootstrapping

This is where things may get a bit tricky, and here’s why:

Everything To Lose:

Since every cent of the capital invested is yours, there is a 100% risk to potential risk of ruin. Many owners over the past few decades have gone bankrupt after losing everything once their businesses ended. There’s absolutely no way to leverage and share the losses.

Jack of All, Master of None:

There comes a point in the lifecycle of every start-up, wherein you need expert skills to navigate the storms that you find yourself in. Doing it all can only get you so far. You need the strengths of others to balance out your weaknesses.

Lack of Opportunities To Grow:

Since internal sourcing of financing will always be limited to how well a business performs or how much an owner decides to put in, the chances of more growth are put to a stop because of a paucity of resources. A startup company can hyper-grow only if it has the resources backing the firm.

“Are There Any Bootstrapped Companies That I Know Of?”

Real-World Examples of Bootstrapping

• Dell Computers
• Apple
• Coca Cola
• Hewlett-Packard
• Microsoft
• eBay

“Sold! How do I Go About It?“

Strategies For Bootstrapping

• Start part-time.
• Work on your business at home or share an office space.
• Reinvest net turnover.
• Create a business plan. This will help organize things and understand the trajectories your business will move towards.
• Network with people who’ve done it before you.
• Ask your close friends and family for their opinions, and how this decision would affect them.

Parting Words

Like every other business decision, it comes down to the personal risk tolerance of the individual in question. How much risk are you willing to tolerate – if any? How important is it for you to make decisions without interference? Does debt make you uncomfortable or does the risk of losing your own hard-earned money scare you more? Bootstrapping can be a great way to get hands-on experience in the market you’re in. It can also help lead you to short-term profits and ownership satisfaction. Regardless of your decision, be sure to keep these pointers in mind:

• You need to be there when things get tough – quitting at the first sign of trouble is not the solution
• Don’t make any financial decisions without accessing the numbers. How much debt can you practically take on? Or how much more can you invest your money?
• Lastly remember, that bootstrapping is only one of the options in the vast ocean of fundraising for your business. Consider all options in hand, and don’t commit to anything hastily.

If you’re still confused and need tailor-made plans to get you moving in the right direction, schedule a call with one of our experts at Marquee Equity and build the business you’ve always dreamt of having.