Bootstrapping, or stretching resources, both financial and otherwise, refers to the process of starting a new business without any external funding.
Quite a lot of entrepreneurs have a hard time choosing the right funding model for their company so as to meet their business goals and achieve success. And given the fact that future business owners have a large number of funding models to choose from, starting with venture capitalists, angel investors, accelerators, crowdfunding and ending with bootstrapping, being confused is not surprising at all. Or, maybe you decide to startup your company with your own funds. Regardless of the road you choose to follow, each one of these routes will have a set of pros and cons.
And since we’re going to talk about bootstrapping, let’s see the pros and cons of starting a company via bootstrapping.
1. You are your own boss. This is one of the greatest pros of bootstrapping. Unlike VCs, angel investors or accelerators, if you choose bootstrapping, you won’t have to give up equity. Also, each of them will have their own interests, goals and motivations when they decide to invest in an enterprise. And their interests may not coincide with yours. And when they go head to head, trying to sail through these uncharted waters could steer your ship into the rocks.
Self-funding is great because you have to answer only to yourself and the “sense of freedom” is priceless.
2. The ability to focus on what you do best. Given the fact that outside influencers will steer your ship in different directions, by limiting their input you can focus on what your company does best. Plus, instead of investing your time in finding and convincing investors, you can focus more on the business development process.
3. A sense of responsibility. If you’re not the only person in charge of the decision-making process, ultimately you won’t care as much about the end-result. People look after personal things with more care than they would for someone else’s goods. Being the sole investor in your company will determine you to be more focused and detail-oriented.
4. Last but certainly not least, innovation. Most inventions come from the need, specifically the needs of individuals. And this is where things become interesting. When all of your savings and the mortgage you took on your house so that you can launch your company are on the line, the drive and pressure will force you to either innovate or invent, or fail. There are no other choices.
Related: Starting a business with no capital
1. The revenue, or lack thereof. If you go this route and manage to launch your company with your own funds, getting your hands on the necessary capital early in the game is mandatory so that you can ensure the survival of your baby through the first few months. And this entails creating a profit plan that needs to be operational as early as possible. Also, this can lead to growth models that could’ve been considered unnecessary when you created the plan in the first place. And this can surely hurt the growth of your business.
2. Organic development stagnates without a huge pile of money at your disposal. The lack of material resources might prevent you from developing key components on schedule. Thus, with all the planning in the world on your side, you won’t be able to meet your growth goals on time.
3. Small number of connections and related aspects. Angel investors or VCs are great when it comes to networking opportunities and providing you with the connections that will enable you to tap into your desired market. Also, let’s not forget about the lack of visibility given the fact that you’re pretty much on your own and on a limited budget.
4. And maybe the most important part, the lack of credibility. VCs and angel investors can vouch for you even though you’re not a vetted professional in your field. They put their name on the line, having faith in your idea, its potential and everything you could accomplish. The lack of outside investors can hurt the credibility of your enterprise early in the game. And the time it takes for you to gain the trust of potential customers seems like an eternity. Also, bootstrapping your company could also damage your business as people will see it as an enterprise with little to no resources and business experience.
Do the pros outweigh the cons? What do you think? Let us know in the comments section below.