Many people today are taking the leap and becoming entrepreneurs. In fact, there were 5 million businesses created in 2022!
However, not all of these bold individuals will have access to large amounts of funding or angel investors. Yet they still possess an entrepreneurial mindset and wish to start a business venture. In this case, they will need to start their business while being bootstrapped on funding.
In this article we will define bootstrapping, question if bootstrapping businesses can be successful, and discuss various methods of this business strategy.
What is bootstrapping?
Bootstrapping is the process of running and growing a business with limited resources, usually in reference to low funding. It is essentially making something out of nothing. This is different from your ordinary business, which will typically rely on external funding from angel investors or venture capital firms.
During this process, you must rely on existing resources, such as personal savings and personal space (such as the garage).
Let’s look at the pros and cons of this business strategy.
Pros:
- The entrepreneur maintains control over the business and all decisions due to a lack of external influences.
- It teaches healthy habits, such as how to manage money.
- Since you rely on your personal resources, there is no almost no need to procure debt through loans.
Cons:
- The entrepreneur must endure increased financial risk as they do not share any burden with outside investors.
- The growth of the business could be hampered by a lack of investment. For example, the business may not be able to meet demand due to low funding.
Can bootstrapping businesses be successful?
The short answer is yes. Many businesses have found success while being bootstrapped.
One example of a company finding success while being bootstrapped is GoPro. Nick Woodman, the CEO of GoPro, wanted to create recording equipment that required no effort whilst recording. His inspiration for this idea came in 2002 as a result of his struggles to record himself in action while surfing. Woodman started with little funding ($10,000 in bootstrapped cash) and embarked on a perilous journey.
This journey saw Woodman selling crafted goods out of his Volkswagen van as well as having to move back into his parent’s house at the age of 26. He failed numerous times but was determined to succeed. Eventually, Woodman experienced his first sale in 2004, a 35mm analog camera. The rest is history.
GoPro is not alone in being a bootstrapping business that found success. Other companies, such as GitHub (acquired by Microsoft for $7.5 billion in 2018), have been successful despite initial hiccups.
Bootstrapping methods
There are various bootstrapping methods that can be used to get the necessary resources to run a business until they get more abundant capital.
- Contribute personal equity: The founder supplies the initial funding needed to start and run the business.
- Take on debt: If they deem it necessary, the entrepreneur may choose to take out personal loans to finance the company.
- Limiting business operations: The business may choose to temporarily limit what it can do. For example, they may only offer a certain amount of a product, or manufacture it on an on-demand basis (created upon a paid order).
- Preorders: The company may choose to offer a preorder for their product/service to accumulate some much-needed funding.
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