There are numerous Unicorn companies that have started using this technique. It is difficult to forecast how successful you will end but it does not mean that you cannot do very well using this strategy. Getting a successful bank loan is against you and even if you do, how must equity will you have to give up to get it? This method compares well against other start-ups methods but I have added my own spin on it because every cent lost was probably hard earned.
What is Bootstrapping or frugal start-ups? and why choose it? Bootstrapping is the process of building a business from scratch without attracting investment or with minimal external capital. It is a way to finance small businesses by purchasing and using resources at the owner’s expense, without sharing equity or borrowing huge sums of money from banks. For the successful growth of an enterprise, a competent development strategy is necessary, in which all possible risks will be accounted for. In addition, it is unlikely that one individual will have all the areas of expertise necessary to run a business and some level of research into fields such as marketing, sales, web design or S.E.O. will be required to have a fully functional business. Why do People Choose Bootstrapping? Bootstrapping is typically the choice of beginning entrepreneurs. It allows them to create a company without experience and attract an investor or investors. The choice reasons for taking bootstrapping as a business model are different. Entrepreneurs begin to engage in bootstrapping if they:
Bootstrapping allows business owners to experiment more with their brand, as there is no pressure from investors to get the product right the first time. There is another kind of pressure, though, that comes because the entrepreneur has personal assets, and maybe family assets, on the line. Bootstrapping is also a suitable for young companies as well as any organisation with little money.
However some issues may need to be considered when using this method. 1. Being creative with scarce resources:
2. As a start-up, using money saving strategies to keep your company’s financing problem as small as possible is all part of employing a bootstrap approach. A founder’s time should be a replacement for paid labour, because his time is totally disposable for the demands of growing the business. 3. Bootstrapping is not only for non-profit organisations: for-profit start-ups can benefit just as well. In fact, bootstrap strategies can be applied by every organisation that wants to achieve something new. 4. Having a professional approach is important. A professional attitude commands respect and confidence from suppliers, partners and (potential) customers. Being involved using a bootstrap budget is not always taken positively and your product or service maybe affected. Stages of Bootstrapping Whether you consider a self-funding or future loan, there are a few stages that a bootstrapped company goes through: 1. Beginner stage The beginner stage starts with some saved money or borrowed/invested money coming from friends. For example, the founder continues to work on their main job and, at the same time, starts a business. 2. Customer-funded stage When money from customers/clients is used to keep the business operating and to fund its growth. 3. Credit stage The credit stage involves the entrepreneur focusing on funding specific activities, such as hiring staff, upgrading equipment, etc. At the credit stage, the business takes out loans or tries to find venture capital for expansion. Bootstrapping Strategy Below are some proven methods that will help an entrepreneur in the early stages of the bootstrapped start-up:
Advantages of Bootstrapping
Disadvantages of Bootstrapping
Bootstrappers have to be resourceful — never give up and exploit every last angle and opportunity. Harvard Business School professor says: “Entrepreneurs don’t worry about the resources they lack, but about the resourcefulness required to get a big idea done”. The skill of resourcefulness must be developed. SmallBiz Trends says “bootstrapped companies have a 50/50 chance of succeeding during a five-year period”, more importantly, funded start-ups do not produce much better odds. Finally, Facebook, Dell, Microsoft, Apple, Tech Crunch, Github, Mailchimp, Oracle, H.P. and eBay started as bootstraps businesses and they didn’t do too badly.