Bootstrapping, in the world of business, basically means that you begin a business on your own—no investors, no outside help. The term bootstrapping goes quite a way back in terms of the American past. In the early 1900s, people would use the word bootstrapping when speaking of someone who managed to raise themselves and achieve success. From "rags to riches" also applies in this context. As an entrepreneur, if you are considering bootstrapping your business venture, you are going into it not reliant on a venture capitalist or angel investor for example. It means that you are going to find the ways and means within your power to make a go of it. In this article, we look closer at the concept of bootstrapping and what it means for aspiring entrepreneurs.
Starting Your Company – The Bootstrapping Way
If you are bootstrapping your business, odds are good that you may be the sole investor in the venture. And this doesn't just mean in terms of money; you are also likely going to be working for free until the business makes some cash—enough for you to take a paycheck. Everything you bring in in the early phase of the firm is probably going to go back into the business. This is the only way the company can survive. There is no outside capital when bootstrapping, and so the cash flow that does come in has to be reinvested into the business to keep things moving forward. Bootstrapping, make no mistake, is all about doing things on your own as far as your business is concerned.
So how do you get started if you intend to bootstrap your business? Most bootstrappers tend to start with a smaller amount of funds versus those who seek investors and/or other outside financial sources. There are steps you can take to help facilitate the process of starting your company without outside money.
Know where seed money is coming from. If you're bootstrapping your business, you do have to start with some funds. For most bootstrapping a business, this money could come from personal savings, it may be from a 401k, approaching friends and family is another option. Many bootstrappers will begin their business as more of a side hustle while keeping their full-time job. This way they still do have income coming in weekly and thus have a source of money. A bootstrapped business very often begins with a very tight budget, and so you may have to get creative at times.
Have a minimum viable product ready to go. Maybe your full offering isn't going to be ready to go at the start. Get something out there. When working with a shoestring budget, you have to be able to offer the public something to attract attention and start generating sales. Waiting too long to release an MVP could cost you the company.
Put sales revenue back into the business immediately. Most bootstrapping a company will not have the luxury of using the money gotten from sales for anything else but keeping that company up and running. Customer money is put right back into the business; this means that customer money has to be forthcoming. The key is to close on sales and most importantly, to collect that payment as soon as possible.
Bootstrapping a business is no easy task. Growing the company can be a slow and sometimes tedious process. It takes patience and determination to bootstrap a business. Commitment without question is going to be the key to success here.
What Not to Do When Bootstrapping
There can be some confusion in terms of what exactly bootstrapping is and consequently, what it is not. As noted, bootstrapping is not about giving up control or a percentage of your business to get an investor's money. It also does not entail going to a lending institution for a business loan and funding your company in that way. Later on, you may potentially take on a business loan, but in the early stage of your company's life cycle, bootstrapping is all about going it on your own.
The same goes for getting credit. That is to say, businesses will often apply for credit, be it in the form of credit cards or certain loan programs, however when strictly talking about bootstrapping, credit might be something that comes down the road. At any rate, credit and credit cards are generally only short-term—they don't offer new companies a long-term solution to their financial needs.
The other credit issue is that once you start taking out cards and lines of credit, this ultimately will have an impact on the business's credit history which could in turn prevent you from getting funding later on. Yes, businesses can and should use credit at some point, but the key is to do so strategically when you know it can be paid back in a relatively short period. Using credit wisely can help the business, but taking on too much debt in the initial phases of the company will cause more harm than good.
If you do decide to undertake to bootstrap your new business, while an admirable approach, keep in mind it can be a difficult one to sustain. This is certainly not a route everyone can handle or manage. Take some time to determine whether or not you are really up for the challenge. And remember that as you start, you want to work within your means. Don't overextend yourself or your company. And know how long your resources can last before you may have to come up with other options.
First Union Lending is here to help. We work with companies across a wide array of industries. And we are invested in helping clients grow and succeed. With short-term loans, merchant cash advances, and SBA loans among other programs, we have the resources to help you now—not weeks or months from now. Call today and let's get started!