Bootstrapping your Startup – Good or Bad Idea?
No Investors? No big Capital? No big Problem! – BOOTSTRAP IT!
If you can’t seem to find investors to fund your idea, there might just be a bright side to it – Complete Ownership. Where most entrepreneurs choose to go the Angel Funding and Private Equity way; some of them still choose to Bootstrap. Simply put, Bootstrapping is a means to start your business using all possible internal resources without relying on outside sources ( in this case, funding).
Unlike what popular theories suggest, a startup can survive without the help of ‘Angels’.
What do you get out of it?
A Lot of Flexibility
You don’t owe anybody anything. You make your decisions without any form of interference from your Shareholders.
Honed Managerial Abilities
As the Jack of all Trades; you have to run the show with a bare minimum. It teaches you to manage with less – from cost cutting to donning several hats at once (You = Office Boy + Developer + Receptionist).
If you sense something is not working out; it is easier for you to pivot (You = Boss), as mentioned earlier, you face no probing by investors and VC’s in matters related to business.
In the longer run, bootstrapping will give your business a higher valuation when it comes to Private Equity Investors. A little help won’t hurt and you will require some sort of funding once your business begins to grow.
The Credit & Debit Theory
You are free from debts.
Debit Card = Bootstrapping – you are careful with the money that you have earned and spend every bit wisely.
Credit Card = Angel Investors, Venture Capitalists, etc. – you give yourself more liberty with the money you don’t have; unsure of the consequences. In this case, exits that will only profit investors, sharing a huge chunk of equity, etc.
Being frugal with every resource that you have helps you find a more efficient and innovative way to get things done.
The Customer Is Always Right
You know you exist because of your customers and not because of another round of funding. This makes you more responsible towards them. Most lean startups abide by the adage ‘Customer is King’, now you know why.
What are the struggles you will face?
Less Money Was Never Easy
Finances will be a big issue in the start. It is likely that you will not be able to draw a livable salary for yourself.
The Law Of Profit & Loss
Just like the profits are all yours to keep while bootstrapping, the same applies when it comes to losses as well.
The Long and Short of Time
It goes without saying, you have to put in those extra hours. It takes time to grow organically, sometimes a lot!
Missing out on more than just Money
VC’s and investors are more than just money; they provide a bucketful of networking, guidance, objectivity and credibility. Additionally, there might be a dearth of opportunities to grow due to lack of strong funding backup.
8 Commandments to strive by while bootstrapping a business
- Positive net profits as well as cash flow
- Cash burn rate < Earning rate
- Raising funds only when crucial
- Utilise existing resources full potential
- Stay informed about limited funds
- Hire multitasking manpower
- Opt for a co-working space or work from home
- Marketing your business with no funds = an uphill battle. Go the Grassroots Marketing way – call, mail, and network; simply put ‘word of mouth’.
Lastly, steer clear of the glass ceiling effect and be clear about the true potential of your self-funded project. Funding is not the end; it is the means to achieve the end. So you need to be very clear about the fact as to whether you are in urgent need of outside funding before opting for it. This said, it is important to note that bootstrapping will be helpful as long as you are not restricting yourself from making use of external resources that are the absolutely necessary.
Startup Choice is dedicated to helping startups grow. Be it in the form of legal counsel, meeting statutory compliances, registering your company, or filing taxes and returns. We help you grow at every step.