You might have recently started hearing more and more about startups being “bootstrapped”.
Basically, it’s the business equivalent of going all-in and trying to win it all.
Although many experts claim bootstrapping is extremely risky and shouldn’t be your first choice, if you play your cards right, you might, well, win it all.
In this article, I’ll quickly explain:
▶ what exactly bootstrapping means and why it is a good/bad practice,
What is Bootstrapping?
Bootstrapping is a term used to describe a situation in which an entrepreneur launches a business with minimal money and no outside funding. When someone tries to start and develop a business with their own money or the new company’s operating profits, they are said to be bootstrapping. Bootstrapping may also refer to a method for calculating the zero-coupon yield curve using market information.
Is Bootstrapping good or bad?
As with any business concept, there are some advantages and disadvantages of bootstrapping.
I will show both sides of the coin so you can decide whether you’re in a position to benefit more from the advantages or experience the damages of disadvantages:
Advantages of Bootstrapping 👍
- Low entrance cost: Bootstrapping is inexpensive; yet, working with your own money necessitates extreme efficiency. You become more conscious of the costs associated with the day-to-day operation of your firm and begin to manage it on a lean business model.
- You make the decisions: The founders’ stock and control over the firm are not diminished because there are no external investors (as only the founders invest in the company). The founders are their own bosses and are in charge of all important operational and growth decisions. This can assure that the firm is progressing in the right direction, according to the founders’ vision and cultural values, without the influence of investors, and that, if successful, the revenues are kept by the founders.
- It allows you to concentrate on growing the business: Because acquiring external capital is not a concern, you may focus entirely on the business’s key functions, such as sales and product development. With bootstrapping, other choices (factoring, asset re-financing, and trade finance) become the standard due to the restricted cash supply. Building a business’s financial infrastructure on your own is a significant draw for potential investors. Investors are far more comfortable backing enterprises that have already been endorsed by their founders and demonstrate promise and dedication. Business flaws may be ironed out as the company grows, therefore perfection at the start isn’t required.
Disadvantages of Bootstrapping 👎
- Cash flow concerns: If a firm doesn’t create the capital it needs to develop goods and grow, problems might occur due to a lack of capital and cash flow. A lack of expertise and knowledge on the side of an entrepreneur, particularly in the areas of business acumen and leads, can lead to stagnation and failure.
- Multiple founders mean authority issues: When there are several founders, equity difficulties might create a difficulty. If there is an imbalance amongst founders in terms of invested cash, experience, or time, this might lead to disagreement as well as negative tax effects. One of the main reasons to incorporate or form a limited liability company is to avoid mixing business and personal money (LLC).This difficulty can be alleviated by keeping track of the funds supplied by the founders to the company. In addition, for new businesses, speaking with an attorney is important.
- Risk of failure: Bootstrapping entails a higher level of risk, with the possibility of losses and failures. The lack of money is one of the reasons why some bootstrapped businesses fail. Profit is insufficient to cover all expenses. Starting a business frequently means putting in long hours simply to keep it running, let alone the fact that there is often no monetary reward for your efforts. Because employing employees may not be an option, all problems are your responsibility. This implies that your options are confined to your own abilities or the abilities of friends and family who may be able to assist you.
23 Famous Businesses That Were Bootstrapped
Ben Chestnut and Dan Kurzius owned a design consultancy firm in the year 2000. Their clients requested e-newsletters, but sending such stuff out was a time-consuming procedure at the time.
As a result, their team set out to develop a better method to design email newsletters, and so MailChimp was founded.
The co-founders’ bootstrapped startup firm is now valued at more than $10 billion, more than 20 years later. How did they pull it off? They worked inside the limits of their current design business, treating MailChimp as a natural extension that went beyond their wildest expectations.
Lynda Weinman began her career as a teacher in the late 1990s. She was instructing aspiring web designers, but she need extra materials that were not yet accessible. Lynda began creating her own visuals and workshops that were tailored to her pupils’ requirements after being dissatisfied with what she found in bookshops.
The videos evolved into tutorials and how-tos over time, and she now has a large content collection and other technical assets.
In 2015, she sold her whole life’s work to LinkedIn for $1.5 billion.
When Limor “Ladyada” Fried was an MIT engineering student, she started experimenting with electronics by putting together pieces to make DIY kits.
In 2005, she founded AdaFruit with the purpose of making learning about electronics interesting and meaningful for aspiring builders.
She built on the same broad framework as electronics stores, but added her own distinctive spin, resulting in a 50,000 square foot building, over 100 workers, and annual revenue of over $40 million.
Nathan Seide has a similar tale to Limor Friend’s, the founder of AdaFruit. In college, Nathan was selling his own DIY electronics kits from his dorm room. He noticed something that sparked his and his friends’ curiosity – and he bolted.
Nathan attributes his success to the fact that he did not rush to Silicon Valley to compete with other huge corporations.
Instead, he kept loyal to his roots and grew his company at a slow and steady rate, emphasizing social responsibility and sustainability.
In fact, he claims that a venture capital investment would have diverted him from his current path.
SparkFun employs over 140 people and has an 80,000-square-foot warehouse, with annual sales exceeding $67 million.
Since the birth of the internet, con artists have been busy devising new ways to scam people.
Braintree devised a method in which each side pays a modest charge in exchange for the assurance that the transaction is legitimate.
Without any venture money, the firm thrived for four years on its own revenues from transactions. The firm owners eventually secured $69 million in venture funding before selling the company to PayPal for $800 million in 2013.
The Shopify founders wanted to build an e-commerce site for snowboarding, but they required a shopping cart.
They made their own when they couldn’t locate one that suited their demands. Before taking venture funding or launching an IPO, their company survived on its own revenue for six years.
Shopify is now valued at more than $166 billion and millions prefer selling their creations on Shopify stores.
Michelle Phan, the founder of Ipsy, began her career providing cosmetic videos on YouTube. She was a superb makeup artist with a fan base that included everyone from young women to CEOs of cosmetic companies.
Michelle believed she could put a unique touch on the product because there was already a popular monthly subscription box for cosmetics.
Starting out, Phan worked with beauty manufacturers and had less than $500,000 in startup capital.
Before receiving $100 million in venture money, her firm had revenue of $150 million every year.
The company even took out a competitor, BoxyCharm, in 2015, boosting its market position.
Jon Oringer, the company’s founder, began his career as a professional software engineer, but he also dabbled in photography.
He merged his two work backgrounds to launch Shutterstock, a stock picture website based on his personal library of over 30,000 photos.
Shutterstock went public in 2012, and it is now valued at $4.42 billion, over 10 years later.
Chad Laurans believed that home security is crucial so he took small donations from friends and family to get started with his own business. He designed his equipment and spent eight years expanding his company, SimpliSafe, to a client base of hundreds of millions.
Later, he took $57 million in venture financing to help the firm develop.
SimpliSafe’s current market value is estimated to be $1 billion.
When Will Dean came up with the concept for a Tough Mudder competition, he had $7,000 in his savings account. He began by pre-selling event registrations and then investing the proceeds on the equipment and materials he need to put each event on.
The Tough Mudder brand now generates over $100 million in sales each year.
There is no way you haven’t heard of Dungeons & Dragons. If you don’t know what D&D is, it’s a very popular game. The CMON website began as a showcase for the brand’s valuable figurines. Later, the company’s founders spotted an opportunity for expansion and began creating their own games and comics for collectors.
They used Kickstarter to gather funds for the creation and production of their numerous projects.
They collected approximately $36 million for ideas over the course of 27 Kickstarter campaigns, with no investment funding necessary.
Selling directly to customers is becoming a more common business strategy, as it eliminates the need for physical retail locations. Before they could afford to place ads, the Scentsy founders sold candles at local swap shows.
They learned more about their clients as a consequence of this procedure, and their product offerings improved as a result. The corporation now generates over $472 million in annual revenue.
The CarGurus app searches and sorts data using computer algorithms to give clients the greatest bargain on a used automobile. Almost half of the company’s 350 employees are on the phone making sales calls to promote the brand.
The success of CarGurus, according to founder Langley Steinert, stems from making wise business decisions early on.
During its IPO in 2017, it raised $150 million. The firm now generates more than $150 million in overall annual revenue.
Inc Magazine called LootCrate the fastest growing startup in 2016. Chris Davis, co-founder, and CEO founded the firm with his business partner on a single weekend in 2012.
They charged customers for the boxes they intended to send. He and his co-founder used the money to buy products, fill boxes, and send packages.
They now have over 200,000 monthly members and have secured $56.5 million in venture funding to help them continue to grow.
Niraj Shah and Steve Conine, the founders of Wayfair, took an unusual approach to launch their home products website. Rather than advertising its brand, they purchased domain names that matched popular search phrases and directed visitors to the Wayfair website to make purchases.
Wayfair made a profit in their first month and didn’t take any venture funding until they hit $500 million in revenues on their own — more than six years later.
Wayfair is now valued at $6.9 billion and is one of the most successful bootstrapped businesses.
Cards Against Humanity
The founders of Cards Against Humanity had a vision of a funny, interesting and scandalous new game and raised over $15,000 that they turned into $12 million in the first year.
They also got free media exposure for the business by launching a series of unconventional marketing efforts that drew everyone’s attention.
It currently produces a range of themed add-on card decks for its game, bringing in between $40 and $50 million annually.
The notion that a business strategy can survive purely on viral marketing is frequently ridiculed.
But that’s exactly how the GoFundMe founders built their company.
When the founders of GoFundMe decided to broaden their services, they were already working on crowdfunding events for aspiring artists and businesses. GoFundMe now generates $22.6 million in annual revenue.
In 2002, Ryan and Jared Smith established Qualtrics in their basement. It started as a survey tool for schools and companies and has now grown to employ over 1,000 people and generate $763 million in revenue.
The company’s founders sold Qualtrics for an astonishing $8 billion in 2018 – yet they still supervise operations in the company.
Campaign Monitor was launched in 2004 by Ben Richardson and David Greiner. They began as a web design company but rapidly realized that there was no email program that fulfilled their requirements. As a result, they made one.
They obtained $250 million in 2014 to expand the company, and by 2019, Campaign Monitor had revenue of $153.7 million each year. They’ve provided email analytics to big brands like Disney and Coca-Cola during the history of the company’s existence.
Nick Woodman, the company’s founder invented GoPro as a method to document his surfing trips with pals.
He had previously attempted and failed to create another firm, which gave him the motivation to make GoPro a success. To conserve money and make things work, he even moved back in with his parents.
When cameras switched from film to digital, Woodman realized that everything about his design was changing. He devised a variety of mounting options for the GoPro camera, allowing it to be utilized in a variety of activities and sports. In 2014, the firm went public, raising more than $427 million.
It is currently valued at $1.33 billion.
Everybody knows what Minecraft is, whether it is you that have played it or your 4-year-old nephew.
Markus Persson was a creative person who worked on his Minecraft concept on the side of his normal employment.
Mojang, Persson’s firm, was founded in 2009.
Before selling to Microsoft for $2.5 billion in 2014, he made nearly $1 billion in profit.
The founder of SurveyMonkey founded the brand when the internet was becoming a sensation in the 1990s so it wouldn’t be wrong to say that SurveyMonkey is unusual in the digital world. Following the high, there was a fall, and few firms didn’t survive — but SurveyMonkey did.
Within 11 years, it had grown to a profit of $100 million.
It is currently valued at $3.67 billion as the world’s number 1 free online survey tool.
In 2008, three founders started GitHub as a method to share coding ideas and strategies with the rest of the world.
This form of partnership was a success, and the business raised $100 million in venture funding in 2012.
GitHub offered a coding solution that improved the way people coded, which benefited the whole technological ecosystem.
Only a decade after it all began, the co-founders sold their firm to Microsoft for $7.5 billion in 2018.
Successfully Bootstrapping a Business in 6 Steps
1- Find a good co-founder
If you’re starting your business with a co-founder, make sure that your skills don’t overlap.
Think about it like puzzle pieces, you should become a full portrait together. For example, If one of you is good at development and engineering, one of you should focus on marketing.
Co-founders that work well together and each offer something unique to the table are a winning combination.
In a 2015 study of Inc. CEOs, 68% stated that their team of founding partners still work in their startups.
Trust is really important when it comes to choosing business partners and the key to a successful co-founder relationship. You must be certain that the other individual is equally devoted to the company’s growth and success as you are. Initially, you’ll probably both be working long hours for little income.
And you don’t want your friendship to be jeopardized if you fail, but it’s possible.
Starting a business with a friend can be a fabulous idea if you’re both 100% committed to making it a hit.
When you start a firm, you may be legally bound together for the rest of your lives, so be sure your co-founder is someone you can survive with! You can look for co-founders on sites like Co-Founders Lab if you don’t have any close friends who would make good co-founders. Using Co-Founders Lab’s platform, you may find possible co-founders, advisers, freelancers, and other crucial team members.
2- Get help from experienced advisors
Even if you and your co-founder have complementary skill sets, it’s doubtful that you’ll both know everything there is to know about running a business.
Advisors can help your startup succeed, but there are drawbacks as well. In exchange for their assistance and advice, most advisers will demand an interest in your firm.
As time passes, the founders’ equity gets diminished. You start with half and half, which gradually becomes divided up like pie slices as you add additional equity-based advisers.
You must also ensure that your consultants are providing actual value.
Many company founders value their advisors’ contacts for exposing them to strong people or professional services, like as attorneys, but your adviser is more than a phone book. They should offer long-term advice and assistance with strategic decision-making.
So advisors can be a lot of help but you should be careful and monitor various aspects of your relationship with them.
In the early stages of your startup, you are the Taylor Swift of your business. You write, compose and sing the song. You might eleven direct the music video and play all of the characters yourself.
From product design to HR and marketing, you do it with your co-founder. That’s it.
However, as your business grows, you’ll need to recognize when to outsource responsibilities that you no longer need to handle yourself.
Hiring a complete crew too fast might result in negative cash flow, and you’ll be laying people off and packing up your own desk before you know it.
Fortunately, the Internet has made it possible to employ staff for your firm in a variety of ways. You can connect with freelancers all across the world on sites like Upwork, Freelancer, Fiverr, and People Per Hour.
As I have stated, the freelancing economy is thriving. On one of these networks, you may get whatever sort of freelancer you need, from designers to marketers. It might seem easy to outsource as soon as the funds are available. However, before outsourcing work, I recommend waiting until you no longer have the time to do it.
This keeps you from blowing your budget too quickly, while yet allowing you to expand your business when the time comes. Finding a freelancer is quick and easy thanks to these internet platforms, so you don’t need much notice.
4- Get rid of your extra expenses
Go and make a budget if you haven’t already done it.
To cut your expenses, you must be aware of your monthly fixed costs.
Rent, vehicle payments, power bills, and other non-controllable costs are examples of fixed expenses. You could always sell your automobile, but you won’t be able to negotiate a lower power bill.
Become a lean startup. Eric Ries coined the term “lean startup” and it means creating a startup that performs quickly but also does it on data. This means performing consumer research and developing minimum viable products to test your theory.
It also involves foregoing the high-priced office space and large salary that many venture-backed firms offer.
A startup is not a lottery ticket to becoming rich in seconds.
You won’t get very far if you’re only in it for the money. It takes years to grow a firm to the point where you can afford to pay yourself a good wage.
Years later, if you’re lucky, you’ll have grown even more to a multi-million dollar valuation. 75% of company founders make less than $75,000 a year.
Founders of many startups tended to pay themselves more. Even those who had previously founded six or more enterprises earned less than $80,000 per year. Depending on where you live, that is either a large sum of money or a small sum of money.
Get in the habit of living frugally during the first several years of your business, regardless of your income or budget. It may appear harsh, but it is the reality of a businessman at the beginning of the journey.
5- Work on your brand
Okay, the last step was a little negative but this one is really important.
Invest in your brand.
Your brand should be strong, attractive, and professional. A strong brand image is a key to success in the current market.
Make sure that you show what’s unique about your brand. Uniqueness attracts users and gets people’s attention from your competition to you.
When evaluating providers, B2B decision-makers take your brand image into account. Branding is critical for the success of your business, especially when it comes to establishing user trust.
It doesn’t have to be expensive.
You may locate freelance designers on sites like Upwork, which I discussed previously in this post. Look for terms like “logo design,” “website design,” and “email template design” to get the items you’ll need. After that, you’ll be led to a website with a list of some of Upwork’s best logo designers.
Rates vary significantly depending on a freelancer’s expertise, region, and number of reviews. You’ll have no trouble finding someone who fits your budget.
The most crucial aspect of investing in your brand is attracting new customers. You can convert those users into brand advocates if you have a solid brand promise. A brand advocate is a customer that is so enthusiastic about your business that they will gladly recommend you to their friends and family.
They are the best type of clients.
Brand advocates’ referrals are 150 times more likely to convert than conventional leads. One of the best ways to spend your marketing money is to invest in your brand in order to generate these devoted supporters.
6- Content marketing is the best at attracting customers
And don’t forget to create a content marketing plan for your business.
Believe me, one of the most successful methods to reach new individuals is through content marketing since 70% of consumers believe that businesses that develop unique content strive to form relationships with their customers.
You have the option of creating your own material or contacting bloggers and other content developers. You can also hire freelancers and part-timers.
Whichever tactics you choose to make up your content marketing strategy, make sure you’re focusing on what your users want. Create content that answers their questions and objections.
A 2017 study by Time Inc found that want custom content. So give it to them! Make sure you’re concentrating on what your consumers desire, no matter whatever strategies you employ to build your content marketing plan.
Create content that will answer the questions of your audience. Catch their attention through SEO and make them genuinely enjoy your blog posts.
According to a 2017 research by Time Inc, 90% of consumers prefer personalized content. So offer them the best!
Bootstrapping a startup is not easy.
Some of the most successful businesses in the world started with less than $10,000.
You’ll need to choose a co-founder that is compatible with you and has skills that complement your own. You can also start it alone, however, being the only founder carries a great deal of risk.
It’s usually a good idea to seek guidance from seasoned professionals, but it’s not inexpensive. You’ll have to give up some of your ownership. You must also learn when to do work alone and when to delegate.
And, in the midst of it all, you must maintain a strong brand presence and keep an eye on your spending.
9 out of 10 businesses fail at some point, but if you play your cards right, you may be the one that succeeds.
Frequently Asked Questions
Is bootstrapping a business a good idea?
Bootstrapping is a great way to support a business since it retains ownership in the family and keeps debt to a minimum. While self-financing entails financial risk because you’re using your own finances, you may take wise efforts to mitigate the disadvantages and focus only on the rewards.
What percentage of startups bootstrap?
According to experts, a majority of startups (75% to 85%) benefit from a type of bootstrapping to finance their business. With the right steps, bootstrapping might help you to create a strong brand too.
What is the disadvantage of bootstrap?
Since the finances depend on you, bootstrapping comes with a huge personal financial risk. If you have co-founders, you might face some authority issues since you are the only investors. Of course, there is also the risk of failure, which is statistically very high.