People all around the world dream of becoming an entrepreneur and owning small businesses. There are many ways to pursue that dream, and one of the fundamental methods is bootstrapping a business.
But what does it mean to bootstrap a business? While it does bring to mind the phrase “pulling yourself up by your bootstraps,” it’s actually a technical term for a type of funding.
Let’s take a look at what it means to bootstrap a business, the benefits of this technique, and whether or not it’s right for you.
The Meaning of Bootstrapping
When some people start a business, they raise money with fundraising. Whether it’s as basic as putting together a Kickstarter or going after major seed funding, seeking outside funding is the opposite of the bootstrapping technique. There are certainly pros and cons to this type of business plan.
When you are bootstrapping a startup, you’re relying on your own funding and assets, not external capital. This funding could be from personal savings or a portion of your paycheck you put towards your side hustle each week. Maybe you have a few friends and family who contribute a bit to your startup fund. Your capital outside of finances could be your personal computer or garage space. Going forward, the amount you spend on your business is limited to what the business makes. If you have a really successful month, you can put more money from your cash flow back into your business. This is called the customer funded stage. The customer funding stage happens when you let the profits you make pay for your expenses. Your business now pays for itself. But if you go through a dry spell, you won’t have reserves to fall back on and you’ll need to scale back.
With this method, you don’t take on debt or rely on major investments to grow the business. You resolve to turn a little capital into a big business. You won’t have the expansive, explosive growth of a fully-funded start-up, but you won’t burn through cash and fizzle out.
The Best Way to Explain the Bootstrapping Business Model
Starting a business is like setting a fire. Seeking external funding is like adding kerosine to your fire. You’re going to get real hot, real fast, but unless you’re feeding the fire, you’re going to burn out quickly.
Bootstrapping a business is starting a fire the old fashioned way. You’re collecting kindle, organizing your wood in an optimal formation, and using a flint to start it. It’s going to take some time to grow a sizable fire, but once it catches, you’ll have a more sustainable, sturdy output and the skills to keep it going.
Advantages of Bootstrapping
While finding angel investors at the early stage of a startup is exciting and can really get things moving, there are many advantages to bootstrapping a business. Let’s talk about reasons why bootstrapping your business could be the right move for you.
1. You Own Your Business
If you’re putting up all the funding for your business, the only person that gets the return on investment is you. You don’t have to pay interest or share the profits on your success.
You also don’t owe any money to anyone if you fail.
If you do the math, someone with a significantly lower revenue stream could make more than someone with a significant amount of funding, since you own all the equity. You aren’t sharing the wealth with anyone but yourself (and maybe a partner or two).
2. You Answer to No One
When you take on funding, people who gave you money get a say in your company.
It’s like planning a wedding. If Aunt Susan gives you money to go towards your dress, Aunt Susan will then get a say in the dress you choose. But if you think Aunt Susan really has abysmal taste in fashion, you won’t want the burden of her opinion coming with the cash.
It’s the same with accepting investors’ money. In exchange for their investment, investors will get equity in the company and will have a say in the operations. When you take on a considerable amount of funding, you’ll have a board to answer to. If you fail to follow their direction, they can even take your company from you.
3. You Can Keep Your Business In the Long Term
The way a lot of funding works is that investors don’t get their payday until the company gets sold. When a new entity buys the company, they get paid for what the company is worth upon the sale based on the percentage of the company they own. If you don’t sell the business, they don’t get paid.
Shockingly, investors want to get paid for their investment.
If you want to keep this company forever, you’ll want to bootstrap it. Then, you own the company and don’t have to experience the pressure to sell. And if you want to pass the business down to the next generation, you’ll be able to do so since you own it completely.
4. You’ll Spend Cautiously
When bootstrapping a business, you can’t make big gambles by sinking a lot of money into the venture. While the payoff for that type of move could be huge, you could also lose a lot of capital on operating expenses.
If you’re relying on your own capital, you’re going to take extra care to only spend money when necessary. You need to protect your personal investment and will do your due diligence before you spend. Being personally connected to the money you spend on your business will inspire you to invest cautiously and wisely.
Bootstrapping a Startup: Is It the Right Path for You?
No two companies are the same. So it makes sense that there are different paths towards success. Some companies simply cannot be successfully bootstrapped. If your products or services require a vast amount of research and expenses, you can’t just dip into personal savings. For example, a biomedical startup will need capital for a lab, researchers, and equipment. You’ll burn through cash fast, so you need to seek external funding.
But if you have a vision you’re passionate about for building a business that can grow slowly, bootstrapping a business will give you complete control over the creative direction.
Want to learn more about what it’s like bootstrapping a business? Join WBD! We’re run by women business owners who know a thing or two about running a bootstrapped startup and would love to help!
Author, Artist, Photographer.
Sarah Margaret is an artist who expresses her love for feminism, equality, and justice through a variety of mediums: photography, filmmaking, poetry, illustration, song, acting, and of course, writing.
She owns Still Poetry Photography, a company that showcases her passion for capturing poetic moments in time. Instead of poetry in motion, she captures visual poetry in fractions of a second, making cherished keepsakes of unforgettable moments.
She is the artist behind the Still Poetry Etsy shop, which houses her illustrations and bespoke, handmade items. She is the author of intricacies are just cracks in the wall, a narrative poetry anthology that follows a young woman discovering herself as she emerges from an abusive relationship.