In literal terms it means, pulling oneself by their boot-straps. In start-up world this term is used as funding your own idea by using personal finance and personal paraphernalia such as your garage, home office, personal car, laptop, and anything else you can extract value from—to build and expand your business.
When you are bootstrapping your company, keeping a keen eye on cash flow becomes crucial than ever.
Phases of bootstrapping
It is usually done in stages starting from,
Pros and cons of bootstrapping
While it’s a great idea to bootstrap your dream, but you would like to be cautious about the shortcomings it has.
You are the real owner of your business, in complete control of its vision and decisions. Your equity is not diluted in the company which makes you even more fuelled to work harder.
It gives you sense of freedom to steer your business in any direction you want by taking as much risk as you wish. Because you own your success or failure and are not answerable to anyone.
It gives you more sense of responsibility to get good fast. We all have those extra gears but we use them only when in dire need. It propels you to excel, to come up with some unique & unthinkable strategies.
You can take decisions for your company’s long-term goal without having to worry to please the investors. It leaves you with enough options to choose from what’s best for your business growth. You can shape your dream entirely your way.
Bootstrapping can become daunting enough when you start to have more liabilities such as unpaid credit card bills, huge debts from bank or if the business goes haywire then you become answerable to your own financial health or your kins who helped you out.
It might also affect your rate of growth as it is directly proportional to the capital you put in it. Inadequacy of funds might push you to take decisions that can cost your business its future.
You might be missing out on some life changing advice and mentoring from wealthy and respected VCs or incubators which could make a big difference in the success of your business.
Weighing the overall importance of bootstrapping
Though we discussed for and against bootstrapping earlier but it is crucial to consider why one still must choose it. There are some brilliant examples of businesses who started as bootstrapped ventures such as:
Cisco Systems Inc.
Zerodha, (which is now a Unicorn)
However, it is an agreeable point that none of these companies saw an overnight success but in long term these companies have done well than many others in the same league. As a matter of fact, when you build something gradually, bit by bit, you put your soul into it. Best of the best ideas, unique strategies, quick and effective improvisation makes your business stand out of the box.
It also helps you find the right talent because in bootstrapped companies there are minimal chances to attract high salary incumbents. So, you have people who are really passionate and crazy enough to just be the part of your idea as they believe they can turn an idea into a billion-dollar business. Resultantly, you have culture in your company where bigger problems can be solved with minimum resources.
Additionally, it makes you think 10 times before you spend a penny on your business thereby helping you make some wise decisions that won’t hurt the financial health of your business. A big reason why most of the startups fail is because they generate huge funding right at the start and then spend most of the money on unreasonable aspects of business. It sometimes drifts you away from the real idea of your start-up.
Finally, it may sound ironical but investors are actually much more attracted to companies who can sustain themselves all on their own. Hence making them more investable.