There’s an age-old saying that goes like this –
| “Pull yourself up by your bootstraps.” |
Literally, it means improving your situation by investing your time and efforts without getting any external help. However, this phrase has an entirely different connotation in the world of business. If you are working on setting up your business – offline or online, this applies to it too. If you would like to go with the current trends, you might have decided on starting an e-commerce business and thought of a viable product idea.
But can you really start a business without external help? What does bootstrapping your particular business idea look like? The truth is – bootstrapping a business is not an easy thing but it can be quite rewarding in the long run.
Before we tap into the advantages of bootstrapping and how you can do that too, let’s cover what it means.
What is bootstrapping?
Bootstrapping is a term used to refer to the situation in which an aspiring business owner/entrepreneur starts and grows a company using only existing resources, like personal computing setup, garage space, and personal savings. In other words, he/she is said to be bootstrapping on attempting to found and build a company using personal finances.
This approach is quite different from the popular way to bring investors to provide capital to fund profitable product ideas. In layman’s terms, it is about carefully stretching what you have got to get the business up and running.
In these terms, a bootstrapped company is one that starts and expands only through your personal resources and the operating revenue that it generates.
Tapping into the details of bootstrapping
- Bootstrapping, as an initial form of business financing, allows you to maintain more control over the business operations but it can also cause financial strain.
- You can bootstrap by cutting costs, financing operations personally, or looking for other short-term financing options.
- Many bootstrapped companies also take pre-orders for their products and then use the funds generated from these orders to build and deliver the product.
Advantages of bootstrapping
- You, as the business owner, can exercise complete control over the company without facing any external influence (from investors). You can follow the product ideas or pivot as per the changing business dynamics.
- By relying on existing resources to start a company with less money, you also reduce the need to set aside funds to repay any loan.
- Bootstrapping also helps in instilling smart spending and money management habits from the outset.
Disadvantages of bootstrapping
Given below are some of the downsides of declining external cash infusions:
- The growth of your bootstrapped business may be hampered or limited in case the demand for your product(s) exceeds the capabilities to procure raw materials and inventory.
- It is you (and your partner if any) who assumes all the financial risk after putting up your savings to support the growth of your company. This burden cannot be shared with outside investors.
How to bootstrap a business
If bootstrapping sounds like your thing, how would you step forward to give it a try? Worry not as we have enlisted a few important things for you to keep in mind:
Assess your business strategy early
A crucial part of understanding how to bootstrap in business is to first assess whether this model of funding makes sense for your business idea. For example, if you want to start selling self-manufactured clothing through an online store, it would require high upfront capital investments. This is where you need to consider whether it would be financially feasible to bootstrap this idea further. If not, either change the product idea or business model.
Recommended Read: A Comprehensive Guide to Starting a Dropshipping Business
Create a business plan
If your business idea passes the first assessment with flying colors, the next step will be to create a business plan. Your business plan should describe products, goals, go-to-market strategies, business models, and every such essential detail. If you have several product ideas in mind that you want to validate, create a rough business plan for each of them. This will help you know where you should invest most of your time, money, and energy.
Create a revenue retention plan
A critical aspect of bootstrapping a business is deciding how the revenue generated in the initial stages of the company will be recycled for business growth. For example, you may be bootstrapping 100% of operations until the business starts earning revenue from customers. Before you reach that stage, you should have a clear idea of how that revenue will be used – to channel business growth, increase market penetration, or reimburse the founders.
Have a clear idea of the sourcing of initial resources
Before you step into the bootstrapping shoes, decide from where the resources will come. For instance, you may decide to utilize the cash you have or your personal line of credit, and your time to save capital. You must be mindful that each of these resources has its detriments – you may lose your capital, the time you invest may not be recovered, etc.
5 bootstrapping strategies you can follow
There is no one-size-fits-all bootstrap strategy. Depending on the business needs and specifications, you need to redefine your strategy to get the resources you need. Still, here are some of the common bootstrapping strategies you can begin with:
Contribute personal savings
When you first form a company, you will need some upfront capital – whether it is to legalize the company, source the products, or other business activities. At the very start, contribute your personal capital as an initial investment in your company. Depending on the business operations and industry, you will need to supply funds at different stages.
Take personal debt
If you feel like the funds you have won’t be enough to begin your business, you may decide to borrow a personal loan to support the initial finances. In technical terms, your company cannot file for a business loan because it does not have any financial history. Keep in mind that this strategy will make you personally liable to repay the loan.
Cut company spends wherever possible
In the early days of your bootstrapped business, you need to limit what you spend. For example, you may choose to deliver the products in the areas near to your office by yourself instead of paying for the delivery services. More often, this results in trade between time and capital. You would be willing to sacrifice your time to save money.
Limit operations to what is feasible
You can get a good start on your business by limiting the operations temporarily. For instance, you may choose to sell only a specific geographical area to save on the shipping costs involved otherwise. Similarly, you may choose to sell only a specific product for a certain period until you accumulate the capital to increase the product lineup.
Also Read: How to Get a Business Loan in India
FAQs
What does bootstrapping mean?
In business terms, bootstrapping means setting up the initial stages and sides of operations with personal savings or funds. This does not involve any external contribution of capital and the founders are only involved in paying for things by themselves.
What is the concept of bootstrapping?
It includes starting a company with your personal savings, funds from family and friends, and income generated from initial sales. Generally, bootstrapped businesses do not rely on traditional business financing methods like asking for investors’ capital or borrowing business loans.
What are the pros of bootstrapping a business?
Bootstrapping is quite beneficial in the sense that you do not need to spend time hunting for investors. With less money by your side, you also get to learn how to run a company with the least spending.
| Having plans to start an e-commerce business? You must read this guide. |
