It takes money to get a company off the ground. Whose money is best?
Let's look at the advantages and the disadvantages of bootstrapping your startup.
First, let’s define bootstrapping.
What is Bootstrapping?
In the business world, bootstrapping means starting a business with either very little money or no money at all. It especially means getting your startup going without the help of venture capital or an angel investment.
Basically, bootstrapping is using your own money or the money you earn from customers and putting it right back into your startup.
The term, “pull yourself up by your bootstraps,” was first heard in the 20th century by author James Joyce. He was alluding to getting oneself out of a difficult situation on one’s own.
With fewer and fewer startups obtaining venture capital funding these days, bootstrapping is more common.
Let’s look at the advantages and disadvantages of bootstrapping your startup.
Advantage: You are the Boss
This is the biggest advantage to bootstrapping your startup.
Self-funding your business means you only answer to yourself. You are free to do as you wish with the direction of your startup.
Freedom is well worth it to many business owners.
You’re free because when you fund your startup through venture capitalists or angel investors, they have a say. They also have their own goals and interests in funding your company and will often put parameters on how you conduct business.
If your interests and theirs aren’t compatible, you can run into problems.
Advantage: You Pick the Focus
When you are the ultimate boss, you pick the direction of your startup. This isn’t always possible if you obtain funding elsewhere.
When you self-fund, you don’t have to pay attention to outside influencers – think investors – who might try to steer your startup in other directions than you want.
By bootstrapping your startup, you can focus on doing what you do best without having to worry that you’re taking your company in someone else’s prescribed direction.
Ultimately, bootstrapping gives you creative control of the direction of your company. You won’t get bogged down by others trying to navigate the course of your business.
Advantage: You Maintain Responsibility
As the sole investor in your company, you maintain sole responsibility as well. Most people in charge of their own companies will give it their all.
As humans, we are more apt to take care of something extremely well when we have absolute ownership. This is just another advantage to bootstrapping your business.
Disadvantage: Personal Risk
Entrepreneurs who use their own money or personal assets to get their startup going incur a huge financial risk, especially if the business fails.
Bootstrapping means your entire startup rests on you – only you.
If you make a profit, that’s great. If you don’t, you could lose everything.
For many startup owners, they forgo a salary in the beginning months. So, if you fail, you’ll have spent time without an income as well.
The financial risks to bootstrapping are huge, so owners must have a plan for moving forward.
Disadvantage: Lack of Networking
Venture capitalists and investors are usually very well connected.
You’ve heard the saying, “It’s not what you know, but who you know.”
When you bootstrap your startup, you may miss out on valuable networking connections. You may miss out on partnership opportunities that can open up new markets for you or increase your visibility.
In addition, investors are often full of advice and support. So, you might miss out on their expert wisdom as well.
Without capital, your growth may be slow.
Bootstrapping your startup most likely means you’re operating with limited resources and very little, if any, staff to help you.
You can invest in resources once the money starts coming in, but this will be slow, and you’ll have to adjust your overall projections.
So, is bootstrapping your startup worth it? You'll have to weight the pros and cons.
Many bootstrapped companies are highly successful. Why?
These startups are forced to be careful, resourceful and accountable to themselves. They are often highly focused on one profitable product.
They work to build customer loyalty while maintaining a strict budget. They have loads of patience and know how to scale up their hiring, production and marketing efforts when they have the funds.
Yet, bootstrapping isn’t for everyone. Whichever way you decide to go – bootstrapping or investors, you’ll find advantages and disadvantages.
The key is weighing them carefully before moving on. It’s up to you to decide which strategy works best with your overall goals.
Are you a new startup ready to expand? Are you looking to get your new business off the ground and watch it rise to success? We are here for you. We can help answer your questions and guide you through the process. Outsource your finances, payroll, HR duties and more to us. Contact Escalon today to get started.
Image: Jeremy Yap