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The pros and cons of bootstrapping startups

Our approach, Start up

Startups always want investments, but they don't always get them. Then you have to look for ways to start a business with your own money or use part of future income. Many have succeeded without equity capital. And you can. We will tell you what is needed for this.

What is bootstrapping?

The word "bootstrapping" has several meanings that describe different aspects of the life of novice entrepreneurs:

- "Self-tuning"

- "Bootstrapping", "self-sufficiency," "promotion"

- "Calculation of the rate curve for cash transactions"

- "Automatic installation of the system in a given state"

- "Bootstrap"

In the startup vocabulary, bootstrapping means "tightening the straps on your shoes," "tightening the belts." Still, it is a way to create and finance your own business with only your own money or with a little external funding.

Bootstrapping is considered the fastest, safest way to start your own business - and the least risky. He mobilizes the founder to take action from the very first day. For this method of organizing a company, only small-scale ideas are suitable, the implementation of which can be started quickly. The founder, in this case, will be the guaranteed owner of the business, which is essential, given the numerous examples of toxic investments and shareholder conflicts with greenmail practice.

Ultimately, bootstrapping is business alchemy, the source of new golden approaches to solving business problems. Big developed businesses and startups that sit tightly on rounds don't need to look for beautiful new work schemes without startup capital and cash infusions. Bootstrapping startups survive only due to these micro-innovations with great potential.

Bootstrapping: pros and cons

The main disadvantage of this approach is limited funds. But there are also positive aspects, namely the absence of the risk of losing investors' money or credit funds.

If we talk about the advantages in more detail, then it is necessary to highlight the following positive factors associated with this model:

1. An entrepreneur gains a wealth of experience while risking his own money exclusively. It means that he will not be forced to repay loans or other borrowed funds in case of failure. Suppose the project turns out to be successful. In that case, the business owner will save capital and be able to attract investors' resources, thereby moving to a new level of activity.

2. You can count on a limited amount when launching a project forces an entrepreneur to think creatively and find non-standard ways to achieve the assigned tasks.

3. A startup has every chance of becoming a successful, scalable business without credit restrictions and debt.

4. Since bootstrapping is a business from scratch, with no money, the company owner is forced to make every effort to maximize profit. It means the formation of decent service and a brilliant strategy for working with clients in general. In today's market, good service is the key to the successful growth of a company.

5. The bootstrapper retains ownership of all developments and ideas that were used to develop the startup.

6. The later investors are attracted, the greater the company's share will remain in the hands of its actual creator.

7. You remain entirely independent of investors' opinions, who, as investors, could make certain adjustments to the company's development strategy. Since an entrepreneur who chooses a business with his financing has complete freedom of action, he can develop a unique and unusual product or service.

8. Using the house as an office or workshop, that is, without renting a room. The only case where a lease may be required is to store goods, but at the same time, no one canceled the joint storage of interests with other companies.

We need to consider the cons of this form of startup funding. The main disadvantage of bootstrapping is the lack of net profit in the early stages of enterprise development. It is because all earned funds must be immediately invested in the project.

Another disadvantage is the need to act quickly and exceptionally competently. It depends on the correctness of the actions whether the bootstrapper can survive or not.

How to start bootstrapping?

All you need to do is follow a small plan and be aware of your goal:

  1. Confirm the idea

  2. Work constantly

  3. Focus on income

  4. Improvise and take risks

To be sure of the idea, you need to do a market analysis. Create, test, and improve the quality of MVP. Fortunately, all this is done at no extra cost, which is precisely the same, ideally built in the bootstrapping system.

There are several types of this check:

  1. Knock on the door

  2. Test advertising campaign

  3. 20-dollar Starbucks test

The bootstrapping philosophy is that there is no initial outside investment. Accordingly, at the very beginning of development, the company will not have the opportunity to hire sales managers, marketers, and PR specialists. That is why all of this will have to be done by the startup himself.

The second point implies specifically that the founder will have to work several times harder and necessarily constantly.

The essence of the third point is that the only way to grow a business is through constant short cash conversion cycles. In simple terms, these processes will allow every dollar spent back into the business to reinvest and grow the company.

As for the fourth point, ingenuity and improvisation in the most unusual situations can save any firm from bankruptcy. Considering the peculiarities of bootstrapping, these two traits of the owner are simply necessary.

One illustrative example is free but powerful tools like Google Docs, Trello, Slack, etc. In addition, you must be able to be economical about the company's money. Instead of renting a space, it is often enough to have an online slot, a disk, or a server. Google Drive or Dropbox is a good choice.

Sannacode specializes in the development of MPVs. With experience in launching startups, we help our clients make the right decisions at every stage of business development. We provide services for the development, design, testing, launch, support, and marketing of a startup. Please leave a request on the site and get a free consultation with our CEO.

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