Almost all the start-ups look out for Venture Capital, Angel Investors and co-founders when they start the business to get the company up and running. But like there’s a saying “Pull yourself up by the bootstraps.” Which means in modern English to do something without anyone’s help. This is how the term “Bootstrap Funding” come in the picture for the start-ups. Let’s talk about how to bootstrap for your business and break down the pros and cons of Bootstrapping your business.
What is bootstrapping?
Like mentioned above, Bootstrapping means that funding your business with your own money, savings and revenue from your business’s sales, sometimes borrowing money from your friends and family where there is no equity involved. In other words, bootstrapping is funding the business without the venture capital investment. Some business and start-ups go with Angel investors for the bootstrap round, but normally that is very small amount of money and details of the investments are straightforward and simple in compare to venture capital deal.
The major benefit of going with bootstrapping and not funding is that it limits the number of stockholders of the company. You just basically need to deal with users, current and prospective ones. When you go with venture capital and funding, you need to think about the growth and keep your investors satisfied about the how progress is going and work is going ahead. Specially in the early stages where you do not have big pool of customers and users, this is very hard not to care about investors as they have more leverage on you.
Bootstrap funding vs. venture capital
Let’s talk about the key differences between bootstrap funding and venture capital.
Bootstrap funding is normal and easy way to raise funding where as a business founder you keep the control to yourself as you don’t have to give huge percentage of equity to any investor in exchange of the investment. On the other hand, Venture capital funding can will give the much needed large amount of capital to the business but in return it will also require you to give away the ownership of the business to get the money. That lessen your control in your own company and the investors may ask you to work even more to grow fast for fast returns.
When you have your friends and family as the investor, you make the basic deal terms which will cover the small amount of equity the investor will get from the company or it will work out as a loan and you will pay it back. These terms are a proof of transactions been made between two entities. While you get the funds with venture capital, it requires you to cover lot of additional terms because the funds and investments are huge and larger and venture capitalists have to look after the interests of their company as well.
Advantages and disadvantages of bootstrapping
While the above details are pretty much notifying the difference between venture capital funding and bootstrap funding and it completely depends upon the founder which way to go. Do you want
to go massive funding of venture investment or do you prefer the reward of self-funding ? Let’s talk about the pros and cons of the bootstrap funding.
- You can have the ownership rights in your hand and can control your company your way and make the decisions without any orders or pressure from
- You can save your time and energy by not going for a formal funding
- Grow steadily and at a sustainable rate as per your vision and not being under pressure from investors to grow rapidly and
- Quick turnaround profit can be motivational to fund your
- During an economic down time, you can sustain your start-up. Nowadays, many founders find that bootstrapping and agile funding solutions work better.
- Bootstrapping can help you create a strong
- You need to keep spending to a minimum from your
- The Growth can be really
- If things don’t work out, then the financial risk and getting debt is
- It will limit the network opportunities compared to chances of having VC’s
- It will limit the chances of expertise available to your company and start-up.
How to bootstrap your start-up
It is not about taking small steps or thinking small. That can limit your growth. Bootstrap is more about going ahead with the strategy and have your strongest points to play with. If you are looking forward to bootstrapping your business, then you can go through these points to understand how you can bootstrap the best to your business.
Get Creative with Start-up Funds
To start a business, it takes and requires a money. Initial funding has to come from somewhere. Not necessarily you need to give the equity of your business to seek out external funding. You can use credit cards or rely on the personal savings and get the things up and running.
One thing you need to think about when you launch a bootstrapped start-up is to get creative. Think of business model where you can quickly get the customers and establish the cash flow. You can take out the time and note down detailed business plans with all the expenses you do can help you think about future expenses that might take place and you can plan further payment accordingly.
Test the market
Like before starting the business, you study the market trends. Similarly, before investing and spend money in your business, study the market as well and gather as much information as you can to understand what will be worth spending money on and how and what people will pay for.
- Start with the minimum viable product or service and include the basic features only to see how your customer respond on
- Go with small PPC that is pay-per-click campaign and understand what people really want from the report of how people respond to your
- If you are going with business-to-consumer that is B2C then the crowdfunding is absolutely useful and effective way to build up your customer base and market yourself. You can run a reward-based campaign which will test the marketability of your product offering or service
Keep things low
An effective and important key to bootstrapping is to keep your costs low. Consider all the ways you can keep things lean in every possible way.
- You can cut down your cost on website or digital presence. You can focus on important and mandatory functionality and do not spend much on website
- Do not hire a huge team, hire a few experienced and positive people who can work and tackle all the sort of tasks to get the mandatory and required work done while you
- Prioritise – make sure you have the priority clear on where your money to be used in the most effective
Focus on Your Customers
When you have the limited team with you, the benefit of this is you can focus on clients from the beginning. You can engage with your customers on social media which will help them to know all the updates about your business from your marketing strategy to your product in and out and launches. While you are connected with your customers, this is helpful for you to aware of what they are looking and how they are responding to your innovation and business and offerings.
Providing effective customer services is equally important. When your business is growing then you can create and build customer loyalty as well as valuable customer referrals. This referral system can expand your business without spending much on marketing your business.
Embrace and Accept Slow Growth
As a founder and entrepreneur and self-investor, it is very easy to stressed and frustrated to have a slow growth of the business with the limited and small funding. But slowing down can be a gift in disguise.
The slow growth of the business and bootstrapping your own business can help you know your spendings and make you aware of how you are spending the money. This can make you more cautious about the decisions you make in future. Being slow and time taking, evaluation of each step can ensure the clarity of the business and is assure customers as well that your business is wisely built which makes it a great chance of being successful.
Start-ups which started as bootstrapped and got successful
Mailchimp Minecraft Spanx
Conclusion – Be Patient and Appreciate
“Bootstrapping your business is a long game, so take time to unwind and appreciate what you’re doing so that you don’t burn yourself out.” You need to be patient so that you can enjoy the experience of building something great, all with your own funding and be successful.
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