Hard… but not impossible
Bootstrapping is one of the least favorable methods to fund and kickstart your startup. This is because, in such a startup, the owners or the co-founders fund the business via their individual means or resources. Raising capital for the startup and sustaining oneself at the same time is not an easy task, albeit, it is not impossible.
With so much advice out there about attracting investors, entrepreneurs rarely consider the option of bootstrapping. According to the statistics, venture capital firms have been investing an abundance of wealth within startups. However, almost 90% of these organizations have failed miserably in just two years of their lifespan. The same studies also state that the startups which do not receive any financial assistance initially, are more likely to flourish.
The reason for the success of bootstrapped startups
As mentioned, building a bootstrapped startup from the ground is certainly a daunting undertaking, but is certainly not impossible. More often than not, bootstrapped startups succeed because of the stake that entrepreneurs have in the business. This dynamic pushes the startup founders to work harder to prove themselves and generate the optimum returns from the money invested by them.
Bootstrapped startups also succeed due to a fact mentioned by Jason Fried, a highly successful bootstrapped entrepreneur. He says that the reason for the high rates of success amongst bootstrapped businesses is because they have no choice but drive their businesses to profitability. They don’t have a cushion to protect them if they fall. They can either make money or go home. For such businesses, money is the equivalent of air that we breathe.
They did it… so can you
To count the number of entrepreneurs who fended off equity funding at an early stage in their business would be a mammoth-sized task. However, all of them followed the same set of rules allowing them to pull off their businesses and allow it to rise. A few of these rules are:
1.Patience is the key – Bootstrapping should be considered akin to a marathon. The goal of participating in a marathon is to complete it. However, what most entrepreneurs do, is that they treat the building of a company like a sprint. In their zest to overachieve, they often burn themselves as well their company out. This mostly occurs in the cases of equity funded startups who need to rush in order to grow their business.
2.Become an expert in scare resource utilization – A lot of people think that creativity and ingenuity lies only with those who create. However, they fail to release that bootstrapping is, actually one of the most effective means of channeling the inner creativity of entrepreneurs. Bootstrapping allows entrepreneurs to find methods to maximize the value of every resource they own. By enabling the optimum utilization of resources, entrepreneurs are able to creatively keep their business running.
3.Freedom to do whatever you want – Entrepreneurs who choose equity funding at the very start of their business are often shackled by the choices of the investors. With the help of bootstrapping, entrepreneurs have the freedom to run their business in whatever way they want without having the need to answer to someone on the chain of command. Also, with the help of this freedom, you can make big decisions without being accountable to anybody other than your employees, customers, and yourself.
4.Hire only the best – Be ruthless. If possible, be extremely ruthless while hiring people for your team. Now, you may argue, that this is a strategy that all companies implement, be it equity-fueled or bootstrapped ones. However, bootstrapping companies have a shorter fuse than that of equity-fueled companies. Due to this, they are presented with very limited time before they can actually blow on a large scale. While hiring members for your team, make sure that you research the best researching techniques and don’t take any shortcuts while hiring people for your team. And certainly, don’t settle for people who are good enough. Go only for the best people who own the relevant skill-sets for your business to flourish.
5.Don’t waste your time or energy on expenditure channels on non-essential projects – When you’re at the start of your business, make sure to not take any unnecessary actions that you don’t explicitly require. That marketing channel that you have been eyeing for a while might feel to be a worthwhile investment. However, unless and until you can afford to invest your money and get a positive return on that investment, don’t waste your time or money in investing in it at all. The most important thing that you can do that this point of your business is to put all your efforts in pursuing positive cash-flow and revenue through any means necessary. This could be launching your product or service and get to the market fast, launching well planned marketing campaigns or partnering with already established entrepreneurs. Unless your money is capable of sustaining a customer, don’t spend it.
The popularity behind equity funding
There are various reasons as to why a lot of entrepreneurs go for equity funding instead to trying to bootstrap their company initially. Here are a few of those reasons:
1. Upfront payment for expensive resources – A lot of people are under the impression that in order to legitimize your business, you need to have some deep pockets backing you up. However, in most businesses this is hardly true especially digital businesses. The greatest example of this is Steve Jobs, who started Apple Computers in his parent’s garage.
2. Intense amounts of sales –There are a lot of businesses which experience a surge in the demand. More often than not, they are unable to keep up with the production due to the lack of funds. In such cases equity funding can be manna for the business owners.
3. Incurring expenses that are beyond your means – Often in bootstrapping, you go on to occur expenses that are often unnecessary and beyond your means. Investors, however, are not interested in covering these expenses unless they are convinced that you have already expended all the previously provided resources. To prevent from incurring such expenses, a lot of entrepreneurs go for equity funding.