Bootstrapping is a popular way to start a business. It's often used by people who want to get into the startup world without taking on outside investors or other types of financing.
The idea behind bootstrapping is simple: You believe that you can develop your business with moderate amounts of money and that you can achieve success with less risk than if you were relying on outside sources of capital.
Although financing your own business can be difficult, many now-successful companies have taken this route. In this post, we share all the information you need to know about this funding strategy, including the advantages and disadvantages of bootstrapping.
What is bootstrapping?
Bootstrapping refers to a way of funding your business or startup using personal savings, funds from family & friends or cash flow from other sources (i.e., side hustles)s. With these dollars, you cover startup costs like rent and equipment when starting out. This is typical for entrepreneurs who start out with limited resources. It allows you to fund your business without taking on external investment in form of debt or equity. Not that this approach can be used by both small and large businesses.
Advantages of bootstrapping a business
Bootstrapping your business allows you to focus on what's important: making money and growing your business. You have more control over the direction of your company, which means that you can make decisions about how it should grow and evolve. You don't have to worry about the outside investors; they're not getting involved in the day-to-day operations of your company. If something goes wrong, there's no one else involved who could take the blame for it or place stressful blame on you.
You also don't have to rely on external investors or grant funding from banks or other sources (like venture capitalists). This gives you more freedom in how much capital is available for investment in order to grow the company as quickly as possible without having any outside help at all! Control over finances is important because when money is tight, decisions must be made quickly and effectively with limited resources at hand.
You get a feeling of accomplishment. For many people, being able to build anything from concept to completion with a close-knit group of believers (i.e., donors, friends, family) can create a deep sense of accomplishment.
Disadvantages of bootstrapping a business
You will have to work long hours and work extra hard. Bootstrapping entrepreneurs generally have to put in more effort and take on more responsibilities in the beginning because they may have fewer resources and connections.
You will have limited support and opportunities. Traditional financing approaches not only provide larger sums of money but also open up networking chances with influential people like board members and shareholders. This kind of support and opportunity is limited when you bootstrap your startup.
You will have to be patient with yourself and your business because it takes time for things to get off the ground, but once they are, you'll generate money more effortlessly!
Tips for bootstrapping a business
Bootstrapping is a long-term strategy, and it can take years to build your business if you're not careful. Here are some tips to follow when bootstrapping your business to be sure you're doing it right:
Don’t spend money on unnecessary things. Focus on building your company first, and then you can worry about the small luxuries in life.
Try to get free help from people who have experience in the field. This could be by working with volunteers or interns, or it could mean asking friends and family members for advice instead of hiring expensive consultants (who may actually not have as much knowledge).
Take advantage of free or discounted services. Many companies offer free or discounted services to startup businesses, so you should always be on the lookout for these opportunities.
Use your existing resources as much as possible. Instead of buying new equipment, try renting it from a company that specializes in renting equipment for entrepreneurs.
Examples of companies that achieved success by bootstrapping
Mailchimp: This email marketing platform, which started as a self-funded fantasy and is still 100% founder-owned, now generates approximately $700 million in yearly revenue.
Braintree Payments: The business managed to get by on its own earnings from business transactions for four years without the support of venture financing. In the end, the company's owners raised $69 million in venture funding before selling it to PayPal for $800 million not long afterwards, in 2013.
Tough Mudder: The founders of Tough Mudder invested roughly $10,000 each in their business that provides extreme obstacle courses. Tough Mudder is now among the industry's heavyweights for obstacle racing, having attracted over two million participants since its debut.
Zoho: Founded in 1996 as AdventNet, Zoho is a multibillion-dollar business-to-business software provider. Kumar Vembu and Shekhar Vembu, two brothers from Chennai, India, initially established it. But it was Sridhar Vembu, their third brother, who took over as CEO in 2000, that helped Zoho grow from a bootstrapped startup to a tremendously successful business with over $600 million in revenue (2021) and 10,000+ people globally.
Now that you’re armed with all the facts, we encourage you to give it a try! Bootstrapping can be a great way to start your business and build credibility. It’s not easy, but with patience and persistence, you will find success in bootstrapping your business.
Remember that this is just one option out of many—so if something else works better for you than bootstrapping does, then go for it! You may also want to consider crowdfunding or an angel investor group if there aren't any other sources of funding available within your budget or timeline.
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