Starting a successful business requires thoughtful consideration, and few things are as important as the way you fund the startup. Entrepreneurs and other thought leaders are typically presented with choices that include taking out a business loan, onboarding venture capitalists, or going it alone, aka bootstrapping. If you are curious about what “bootstrapping” entails, the answers to these frequently asked questions can help you make an informed decision.
What Exactly Does It Mean To Bootstrap a Business?
Bootstrapping a business typically involves forgoing business loans or taking on investors. Entrepreneurs who bootstrap often use their own money and resources to get the enterprise up and running. It can lead to better awareness of how much outside funding you need – if any.
How Can I Finance My Business Without External Funding?
Start with the three F’s: Friends, Family and Fools. While each person starts from a unique financial health position, several commonly employed options exist. Before doing this, make sure you have a well-thought-out idea and have validated it. Once you are confident you have an idea worth pursuing, then create a one-page plan that outlines what you are willing to spend (nothing complicated, the notorious back-of-napkin plan). Work on the assumption that you are going to lose money as you develop your customer, further test, and validate your solution.
Consider the following options:
- What Is Your Affordable Loss?
How much can you lose before you will have to seek outside help. This will drive your decision making when it comes to spending. - Take Out a Home Equity Loan
As mentioned in my previous blog, these types of loans, unlike a traditional mortgage, are good because they do not typically include a set monthly payment. Many banks will allow you to just pay the interest for an extended period. Unlike other types of loans, the interest on home equity loans is also tax deductible. - Apply for Government Grants
These will work especially if you are part of a certain demographic group, but they take an extended period to get approved and are hard to get. - Leverage Retirement Accounts
Many entrepreneurs will roll the dice and cash in their retirement accounts. I started my business when I was 54 years old, so that was not an option for me. I used a home equity loan and recouped the money once we sold the company. If you are younger, then you can consider doing this. When younger, you have a much longer runway to replace that money before you will need it. At the end of the day, bootstrapping your way to a successful company requires plenty of hard work and sweat equity.
What Are Some Effective Marketing Strategies for a Bootstrapped Business?
The good news for business visionaries is that expensive marketing campaigns are no longer a necessity. The power of social media has unlocked the branding potential of upstart organizations. Consider creating an eye-catching logo using free apps and design tools. Write a few lines that define why your product or service is worthwhile.
Then, go to work showering platforms such as Facebook, X (formerly Twitter), TikTok, and a variety of other popular options with information and links. Build an email list and send out bulk electronic messages on a regular basis. Paid advertisements can be purchased when it makes sound financial sense.
How Do I Prioritize Expenses When Bootstrapping?
It is essential to keep in mind that a startup does not necessarily have to “spend money to make money,” as the saying goes. Instead, you must prioritize spending and live within your means. Focus on profit-driving expenditures, first and foremost. Whether that means leasing a vehicle to provide services or purchasing enough inventory to meet demand, these expenses have a direct and discernible connection to creating revenue streams. A “bottom line” to use: If what you are about to spend doesn’t contribute to the “bottom line,” don’t spend it.
Can Bootstrapped Businesses Scale Successfully?
Scaling a business comes once you have gone through your discovery, validation and creation periods. At this point in your company’s development, you have a proven business and one that can support outside funding. Because you bootstrapped the early stages, that discipline will remain in your culture, ensuring profitable growth. Scalability is a crucial aspect of any operation, and outsourcing can help you manage costs. Approximately 37 percent of small businesses outsource necessary expenses to help reduce costs. If you need services such as bookkeeping, managed IT or another item – and cannot afford to hire someone – consider outsourcing. Prioritize the type of expenses to determine whether you should hire, buy and build, or buy.
To ensure success, always consider what I call the Triad of Success. You need three key components to ensure success: Sales, Engineering and Operations. Find ways to own these three components either through equity partnerships or reliable outsourcing. Use equity when cash is low and use cash when it is plentiful.
Will Bootstrapping Benefit My Business Even If I Have Investors?
Bootstrapping is a business concept designed to lower costs and drive profits. It will instill discipline into any business, which will result in a more profitable company. The approach trades hard work and ingenuity for paying expenses unnecessarily.
What are the Pros and Cons of Bootstrapping?
The process of bootstrapping also provides pros and cons that are not necessarily quantitative. For example, the strategy helps innovators focus on growth, branding and outreach while enjoying greater business agility. By that same token, people who bootstrap their way to success tend to put in long hours and incur greater personal risk.
Download Our Free Bootstrapping Success Guide Today
If you plan to launch a business or would like to improve your company’s current profitability, download our free “Stepping Toward Success” guide. Contact Bootstrap2Success today, and let us get the process started.
