If you can survive until your business is self-supporting, then you’ll feel the pride of a great accomplishment.
Dis- & Advantages, Have it your Way, total Control, retain the Equity, Flexibility
With all the talk of financing, it’s easy to forget that you don’t have to take on external debt in order to start a business. In fact, many successful businesses such as Facebook, Spanx, & Bear Naked all used bootstrapping.
When you’re Bootstrapping a startup, you rely on various personal methods of funding the business rather than seeking money through external sources like banks or investors. For example, boot-strappers use their savings, credit cards, + loans from friends, family & fools – all the while keeping their operating expenses to a bare minimum. The idea is to create a self-sustaining business that does not rely on external input. Some businesses start out this way, and once they begin to grow beyond the financial capabilities of the owners, they take the next step and reach out to external investors.
How? It’s possible to bootstrap any type of business, as long as you have the ability to raise basic startup costs using your personal finances & maintain the ongoing business expenses. In addition to the sources listed above, you can also make use of supplier financing, customer payments, factoring, & equipment financing.
- What are the Advantages of Boot-strapping?
- You don’t have to spend time hunting out investment
- You control the company and are not answerable to investors
- With no funding, you learn to manage the company’s $$$ efficiently very quickly or else
- It forces you to be creative. If, for instance you can’t afford a shop without borrowing money then sell via eBay, Festivals or Flea Markets – until you can.
- When you have direct contact with the customer, you find out quickly what they like & dont
- As all money is coming from customers, they become your #1 priority – not investors. Product development & marketing have to become efficient quickly or you will flop
- If you survive bootstrapping you will have a strong, lean, efficient, customer-focused company
2. What are the Dis-advantages of Boot-strapping?
- It is not always practical for businesses that need a large investment such as manufacturers or importers
- It can take much longer to grow a company without investment
- You will likely not be earning any money for quite a while – so make sure you can survive until.
- You can easily end up in a lot of debt – that is hard to get out of
3. Have it your Way. Bootstrapping in an undervalued business model that can help entrepreneurs finally take the first step into business ownership. Berry, who eventually turned to investors after his business became profitable, then bought them out two year later, notes that his business is still 100 % family owned, which he calls “the ultimate reward of bootstrapping.”
4. keep Total Control of your Business. If you’re like most entrepreneurs, one of the benefits of owning your own business is that you are in “control”. You get to make decisions about your products, marketing strategies, & operating procedures. But when external investors have equity in your business, they get a say, in how your business is run. Bootstrapping is a way to maintain total control. You’ll be proud of yourself when you’re a success.
5. Spend time Building your Business vs looking for Funding. “It takes a startup founder countless hours to properly prepare for and seek funding,” says to Tim Berry, founder of Palo Alto Software. “There’s the networking, emailing summaries, developing the lean business plan, pitch decks, updating, reviewing and revising, and doing all of that repeatedly. And aside from the hours, it’s the months that go by — sometimes years — waiting for the stars to align & investment to actually happen.” Boot-strappers, on the other hand, can spend that time developing & building each critical component of their business. That’s what Berry did when he was bootstrapping his Business Plan SW company – which took three mortgages & $65,000 in credit card debt.
6. Retain the Equity ($$$) in your own Business. For every external investor you bring into your business, you will have to give up a % of your business’s equity. The more investors you bring in, the more equity you will have to give up. But when you boot-strap your business, you keep 100 % of the equity, which will reap more profits for you in the future – should you decide to sell. In addition, as your business grows and you decide to seek investors, you will have more options – if you haven’t given up a lot of equity already.
7. It will be easier to Change Direction. Sometimes business owners must change directions in their business in order to keep up with a changing marketplace. But when you have investors to answer to, you can’t simply pivot without some serious discussions. Investors make the decision to invest in a startup because they feel confident in the direction the business is going. They may be reluctant to go along with a change. As a boot-strapper, you won’t be limited by an investor’s idea of where the business should go.
8. You won’t be Pressured to have an Exit Strategy. One of the things outside investors are looking for when considering investing in a startup is, when & how they will be able to exit the business – in order to make a profit – and that usually means selling the business. On the other hand, when you boot-strap your business, you can decide to keep & grow your business for as long as you want – with anyone pressuring you to sell – so they can regain their investment.
Comments: What have you experienced as the dis- & advantages of Boot-Strapping?
from QuickBooks.com 6/16 significantly enhanced by Peter/CXO Wiz4biz