What is Bootstrapping?
BootStrapping essentially means moving an organization ahead without any external financial help. It is like running a business without any external investments. A bootstrapper would typically run a startup by putting in his own funds or borrowed from [as they say], friends, family and fools.
It is same as running a financially self-sufficient business. An ideal bootstrapped business would be the one, which generates revenues from one of its services, and redirects the profits to further expend the business or to focus on developing the core competency of the company. Usually such an entrepreneur would start a venture with own funds, just about sufficient to kick off consultancy services, and then redirect his/her profits to developing the core business of their startup.
Advantages of BootStrapping
Almost every successful business honcho and other analysts around the world have advocated BootStrapping. This has not been just for nothing. Despite the hardships that bootstrapped ventures go through, there are certain advantages, which are of critical nature in pulling your startup ahead and generating revenues. Some of these advantages are:
Agility: While the small size of any startup itself subscribes to agility, a bootstrapped business enjoys further on agility factor. More often than not, when you start a venture, the initial business idea undergoes changes. These changes are important to implement if you are listening to the feedbacks coming from your prospective customers. Unless you provide what the customers want, there is no business. It becomes easy if the startup is a bootstrapped one, as you do not deal with investors who are not very flexible on changing the business plans. You can implement the changes faster as you understand the business concept started by you, the best. You can comprehend the need for fine-tuning the required changes much faster. The time and resources that are wasted in convincing others can be utilized in concentrating towards generating revenue.
Full Ownership of Equity: Going for investors very early has its own drawback. Considering all the risk that exists with the early stage startups, investors seek for higher share in the equity. Your share of equity could dwindle to as low as 10% if there is external funding at the early stage of a startup. Because the valuation also is low at the early stage, obviously the valuation in your part is significantly low, and you would not want that to happen when you step out as an entrepreneur with your business idea. It is best to figure out an idea for bootstrapping your startup. If you bootstrap your startup, the equity share remains within the cofounders and when the revenue chunk is larger and streamlined, the valuation too rises. This improves your chance of higher wealth creation between the cofounders.
Cost Effective Management: It is true that when you have superfluous funds, you are more likely to spend more than required. But when you are under crunch [a typical situation when a startup is self-funded], the expenses are judiciously kept low. The cash burn will be under strict control: a lever that many managers vie to use. You will be surprised yourself how innovatively you can come up with cost-saving tactics. The necessity and need for more money or funds will drive you more aggressively towards your goals of achieving revenues.
Ways and Means for BootStrapping and Sustaining
A very common way of bootstrapping your venture is to start a consulting service in your field of expertise and then redirect the profits to develop and expand the core competency of your business venture. This has typically been seen by the product development startup ventures. Consulting is usually a minimum investment startup and usually generates revenues during the few months of operations.
Another option for bootstrapping your startup is to put in your own funds. As I have mentioned earlier, once your startup is bootstrapped through your own funds, you will definitely come up with innovative solutions to keep the expenses at a minimum. In this article, I have tried to compile some of the ways of avoiding the big-ticket expenses.
We are living in a beautiful world of Internet and the social media networking [as a consequence of it]. You must understand the essence and importance of networking and social media marketing platforms. Once you have bootstrapped your venture you can utilize the features of social media networking platforms and achieve mileage at a much lower cost. Utilizing the premium services of professional networking and microblogging platforms like LinkedIn, Facebook and Twitter proves to be far more cost effective than spending money for print and other media advertisements, which cost exorbitantly.
Secondly, as far as possible you must avoid having an office space to start with. Not having an office saves on costs big time. Not having an office space means not having to pay high rents or EMIs [if the space has been bought]. It also saves on utility costs like electricity and water expenses. Instead of office space you must consider either work from home options or renting business centers for some critical business deals.
Think about it before you begin your venture. Bootstrapping still retains you as the boss of your startup, whereas any external investment, whether angel or VC, ties you down with their terms and conditions. This again poses a challenge where you might get cordoned off from much of the decision-making, depending largely on the amount of investment and division of equity.
Mridula is a freelance writer. She writes on Entrepreneurship and has worked for a start-up in the past. To know more check out her profile at LinkedIn/Mridula Velagapudi