Bootstrapping is the term used in startup financing to describe a situation where the owner of business chooses to use his personal savings to fund his business rather than seeking external financing and continuing to fuel growth internally from cash flow produced by the business.
Bootstrapping a startup business can work if you’re passionate and willing to put in the hustle. For those that can pull it off, it may bring even more rewards. Though, that doesn’t mean there aren’t any downsides.
Let’s see the pros and cons of launching a startup via bootstrapping.
1. YOU ARE YOUR OWN BOSS
This is one of the greatest pros of bootstrapping. Self-funding your startup means you only answer to yourself. You are free to do as you wish with the direction of your startup.
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 startup and will often put parameters on how you conduct business.
2. YOU BECOME MORE PRUDENT
Bootstrapping doesn’t allow extravagance. Because the money isn’t enough, you learn to spend wisely and efficiently. You evaluate every decision to buy before making any purchase. You seek if there are better alternatives or if a particular expense can be avoided completely.
Most inventions come from the need, specifically the needs of individuals. When all of your savings and the mortgage you took on your house so that you can launch your startup are on the line, the drive and pressure will force you to either innovate or invent or fail. There are no other choices.
4. YOU SAVE TIME
Before you finally meet a venture capitalist that will agree to invest in your startup, you must have expended a lot of time. The time used in creating and presenting slideshows could be used to focus on your business.
When you bootstrap, your energy, and focus are concentrated on how to get customers and how to satisfy them.
1. SLOW GROWTH
Without sufficient 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.
2. LACK OF NETWORKING
Venture capitalists and investors are usually very well connected.
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.
With fewer resources at your disposal, you may not be able to compete effectively with your competitors. Competitors may be able to spend big on an advertisement, which can enable them to gain a larger market share.
Because they have the money to buy goods in large quantities, they may be privileged to buy goods at cheaper prices from their suppliers. This may afford them to sell at cheaper prices to consumers, prices which will be difficult for you to match.
Is bootstrapping your startup worth it? You’ll have to weigh the pros and cons.
Many bootstrapped startups 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.