Bootstrapping, or starting a business with your own internal funding, is an increasingly common way to start and grow a business. It can be the difference between getting a great business idea off the ground or watching it gather dust on the shelf and never starting.
Bootstrapping offers many advantages over the more traditional method of seeking funding from the beginning. Starting a business can be a risky enterprise, and bootstrapping can safely guard against some of those risks – namely, taking on a large amount of debt before you have a successful business. It will also force you to focus on money-making tasks and not waste your precious resources on non-revenue- producing ones.
Guess what? If your startup fails, the bank or lender will still expect you to pay back the loan. Here are seven signs your business is ready to bootstrap.
1. You Are Ready To Take the Helm
Bootstrapping is about taking control and autonomy. When you take this step, you are committing to doing things on your own terms; often alone or with just a few close, trusted partners. Everyone on your team needs to be ready to either take turns steering the ship or manning their own stations. But the freedom of using this method can be exhilarating, and most entrepreneurs are glad they took the helm. Most people start a business to be independent and not have to work for someone else. Using your own funding allows you to do that. By getting a loan or using equity funding, however, you are giving up that independence, which is diametrically opposed to the very reason most people start their own companies.
2. You Want To Stay Lean
Many young businesses make the mistake of focusing on infrastructure rather than sales. You should focus on developing the customer rather than the product, and keep your organization lean while doing this. Once you have vetted your idea with early adopters and have validated your idea in a target market, you can then build out your company. In following this path, bootstrapping is a good approach to take.
This helps to ensure that your business’s resources — however limited they may be — are directed toward the core needs of the company. It is a proven method for success.
3. Guaranteeing Sustainable Growth
Bootstrapping means you will be sacrificing instant monetization for longer, more sustainable success. There are three components you will need to ensure this: Operations, Engineering or Product Development, and Sales. Each one of these is equally important and can be acquired using bootstrap techniques like forming equity partnerships or subcontracting these services.
4. Avoid Debt Like the Plague and Use Your Equity Wisely
As noted above, starting a business with debt is like starting a race with an anchor tied to your ankle. Bootstrapping is all about avoiding this. When your business is off the ground and you are looking to expand to cross the chasm, this is when you can look at financing that expansion. Even at this point, consider using equity funding to do this. Hold onto your equity dearly – use it when cash is light but then use cash when it is plentiful to buy the equity back.
5. You Are Aware of Creative Financing Strategies
Entrepreneurs are inherently creative thinkers. This often means that you will have some creative ideas about how to obtain funding. Every business needs funding, so look to use your own savings and financing that does not require fixed payments. The interest on credit cards is high, but the payback terms are very low. Home equity loans work in a similar fashion, where you can service the loan by just paying interest. Crowd funding is another form of equity funding you can explore. Once funded, continue to adhere to your bootstrap principle: If it will not help you make a sale, do not spend it.
6. You’ve Got Long Vision
Bootstrapping is definitely a long-term strategy in starting a business. Do not expect instant financial gratification, but do expect personal gratification from the feeling that you are in charge. Bootstrapping is the one way to guarantee your independence. Isn’t that why you decided to start your own business in the first place? Other methods, such as taking on investors, mean that others will come in and maybe have their own visions and agendas. If you want to keep that kind of influence to a minimum, bootstrapping is the way to go.
7. You Are Resourceful
A knack for solving problems creatively and efficiently is crucial for bootstrapping success. This skill set ensures that challenges are met with innovative solutions, maximizing the impact of limited resources. It will create a certain discipline that will become part of your company’s culture well into the future. This culture is always good for business even after you have attained financial success.
Anecdotal Insight: Brian’s Bootstrapping Success
Unlike my previous experiences with venture-funded startups, my two partners and I decided to go
against the grain and bootstrap our company. We started lean, relied on ourselves, and did not use funding from any outside sources. Remarkably, after 14 years in operation, we successfully sold our company that relied solely on our own initial startup funding.
Throughout our tenure, our company posted consistent growth, generated excellent EBITDA, and contributed to cost savings and revenue increases for our partner customers while ensuring our employees received above-average wages and outstanding benefits.
If you’re ready to explore the benefits of bootstrapping for your business, contact us to discuss personalized strategies and solutions tailored to your unique needs. Let us grow together!
