Many people have a misconception about starting their own business, believing that they need a significant amount of money as startup capital. This is not always the case. Bootstrapping your business is a great way to start.
In the world of business, bootstrapping means starting up a business with low capital. It is the process of starting up a business without any external funding. Consequently, startups will rely on their funds, such as the founder’s overdraft and savings at its early stage.
Bootstrapping a startup has several advantages (A) and disadvantages (B).
(A) The advantages of bootstrapping a startup
- 100% ownership and control over the company
Having 100% ownership of the business and not giving up equity to an investor is on every entrepreneur’s wish list. Through bootstrapping, entrepreneurs can have that. Therefore, they will have the ability to conduct their work without worrying about investors, without having anyone on their back, and directing their work. They are in full control of the company.
Moreover, since the startup only uses internal funds, it won’t be indebted to any investor. It won’t be under any pressure to pay business loans to any institution.
Founders will have a space of freedom that all entrepreneurs seek.
- Develop a deeper understanding of the business
With bootstrapping, the business will have a slow start. As a result, founders will have to reduce expenses as much as they can on one hand. They will be forced to perform several functions by themselves, such as sales and customer services on the other.
This is considered very beneficial to the startup. It puts the founders on the ground with their customers. It allows them to understand their frustrations at a much more granular level.
- Time to be creative
Bootstrapping allows founders to be more creative since no investors are pressuring them to finish the product at a specific deadline. They have the opportunity to try and experiment with their product to come with the best outcome.
On the other hand, founders don’t have to spend time hunting out investment. Instead, they can use it to improve and work on their products and brand.
- Learn to manage the company’s money efficiently very quickly
Since bootstrapping consists of only using personal savings, founders will learn how to manage the company’s money efficiently very quickly. After a while, the company suffers from a shortage of money. Founders will have experience. They will be better off than companies not coming from a bootstrap background.
(B) The disadvantages of bootstrapping a startup
- Chances of survival
All startups and companies, in general, need money to run their business. The lack of money can lead to insolvency and therefore threatens their existence. It may be very challenging to keep a bootstrap startup afloat.
- Personal risk
Founders will indeed have 100% ownership and management powers, but that also means that their entire business rests on them. With bootstrapping, founders are risking their savings and assets, so there is a big chance of losing everything they worked for throughout the years. It is a significant risk to take, but as they say, “you have to risk it to take the biscuit.”
One of the main reasons why startups seek to raise funds is to ensure rapid growth. With bootstrapping, it can take much longer to grow a company. Founders will be limited on their resources, such as their marketing and what they can do to serve their customers.
In other words, time is not by their side. It is a slow path yet promising, of course.
- Hard work
Founders of bootstrapping startups will have to work for more hours and take more responsibilities since there is insufficient money to hire the talents you need. So, for some time, you will be doing all the work.
So, is bootstrapping your startup worth it? You will have to weigh the advantages and disadvantages.
In the end, it is essential to mention that some of the most important startups were bootstrapped, such as Apple, Microsoft, Spanx, and the list goes on.