Bootstrapping is the word that first originated with the phrase: ” to pull oneself up with your bootstrap” between the 18th and 19th centuries. Then after this word is used to get out of the situation by using existing resources. Today this word is mostly used for new startup growth. Bootstrapping startup is a startup, which is raised by the use of its own resources. That means it fully depends on internal funding.
What is bootstrapping in startups?
Bootstrapping is a term used in the startup industry. For the startup, that grows their business by the use of internal funding without calling for outer investment. These are the startups that grow their business through self-finance, sweat equity (contribution in the form of physical and mental effort), personal loans, mortgages, and cash after selling. DELL computer, Apple, Microsoft, and Facebook are some bootstrapping companies. Which now become the Eiffel tower of the business community.
Bootstrapping startup = owner finance + sweat equity + subsidy or tax rebate by government + cash after selling + personal loan = startup growth
How does bootstrapping work to reach the goal of startup growth?
These are the following ways by which bootstrapping work reaches the goal of startup growth.
- Try your luck in that startup. Which requires the least capital. Like if you want to open a world-class restaurant. You can not open it at the start. But if you try to open a food truck. You can do it and after some time you achieve your dream.
- Choose the startup in which capital will fastly circulate in the market. How quickly your capital circulates, you can earn that much.
- First start your startup as a side job. Do not quit the job. Before you ensure your future.
- Try to do budgeting. Like, do cost cutting, do not emphasize making infrastructure, try to work from home, and manage your inventory.
- Avoid giving unnecessary credit or discounts. Do not block your cash flow.
- Do not hire but outsource. Use your family members.
- Get online. To increase your outreach.
Why should you choose to bootstrap your startup in the initial stage?
To execute the compelling idea.
The importance of bootstrapping a startup is that. You can compel your ideas. Because you have full authority over your business. You do not have to answer anyone. The success and failure are yours. So there is a high probability of startup growth.
In a bootstrapping startup, there is freedom from investor ideas. An owner can make all decisions autonomously. So he can create something distinctive. Which acknowledges his dream, tests his strengths and keeps him self-reliant from the instructions of investors.
To focus on skills development.
The importance of bootstrapping a startup is that. There is an enormous opportunity for skill development. Generally, a bootstrapping startup is started by people. Who has no more knowledge about how to start a startup? How to make a marketing strategy? How do you clear documentation issues? And how to reach new customers?
So, these are some reasons. The owner of a bootstrapping startup does not start their startup with outer funding. Because it raises their obligation. Similarly, by doing all the work slowly, their skill starts developing. Through their failure, they can learn. In short, they can get a wealth of skills while risking their own money.
To focus on profit and raise funds.
Raising a business by own fund. This will make the investor attracted to the business. Because bootstrapping startup owners give more focus on making a profit. Because of less obligation and accountability. So Investors, such as private individuals, special funds, or venture capital firms. Are much more confident in financing businesses. That is already secured and has demonstrated the promises and commitment of the owners.
To not share income/profit with investors.
Attracting external funding is a very difficult task. On another hand, external funding raises an extra burden for the owner. Which creates stress and pressure on the owner of the startup. Investors also want to invest in that firm. Which shows some results. And the last owner has to share his profit with the investor.
So, because of that bootstrapping startup owner does not want investors. Because it saves him from the stress of loans. Second, it saves the owner to share income with the investor. Because for a new startup sharing of profit is not a good thing. Because it struck the fund. That owner wants to invest in his startup to grow.
Pros & Cons of bootstrapping your startup.
- Start with minimum investment– The importance of a Bootstrapping startup is that. They can be started with a minimum investment. This startup fund has been raised by internal resources. Like personal loans, investments by family, and personal funds.
- Help to compel owner ideas- Because of a sole proprietorship in the bootstrapping startup. The owners are free to take risks. And execute his ideas. The owner’s idea is the foundation stone of any business. It makes the owner creative.
- Save from external debt- The bootstrapping startup owner must be free from the burden of debt. Because the owner does not take debt. So that investor does not try to influence the decision of the owner. And the owner takes their decision freely.
- Concentrate on building business- For startup growth. It is essential to concentrate on planning, making a strategy, and executing it. If your attention is deceived even a little bit. Then you may have to face a very big loss.
- Freely take risks- This is a common business principle. High risk, high gain. But if we take a loan from someone, he will always interfere in our decision. It doesn’t matter to him how that decision affects our business. He only cares about his profit. So the importance of bootstrapping a startup is to have the chance to make the decision. Which is profitable for the startup growth.
- Lack of marketing strategy- Due to less investment and lack of funds in a bootstrapping startup. These startups can not hire professionals. The owner is whole and sole for their business. Like he is the manager, accountant, as well as a marketing expert for his business. So if one man does the work of three professionals. It affects startup growth.
- Fewer funds- Being fewer funds also has its drawbacks. Without funds, you can not scale up your startup growth. You can not do constant consumer Technology advancement. You can not hire a marketing expert for your startup. And many more.
- High stress- Any business in which investment is low. There is a dearth of good marketing experts. The burden of all the work is on one man’s shoulder. So the stress level of the owner of that business will automatically become high. And this will affect the startup growth.
How can you bootstrap your startup?
To bootstrap your startup. First, you can make a plan which fulfills your idea. Second, make a strategy for how you will execute the plan. Like, know who your target customer is? And how will you reach them? Third, know the reinvest fund method. Fourth, take the help of a mentor. That will guide your startup growth. So for better understanding, how can you bootstrap your startup? I would like to discuss the methods to bootstrapping a startup and trade strategies for bootstrapping your startup.
Common methods of Bootstrapping.
The common methods to bootstrapping a startup are to apply all the methods from which we arrange funds for our startup. These methods are like we make budgeting for our house. The methods to bootstrapping a startup are as follows:
- Personal Finance– From personal finance, we relate to the fund. Which we have in our account in liquid form. Personal loans also come in this. We also arrange money by mortgaging our property.
- Sweat equity– Sweat equity is generally not monetary. And in most cases comes in the form of labour, or mental effort by any venture. It is mainly used in the real estate business. To reduce the cost of business.
- Minimize the cost– We all do it in our house. We all want to reduce our spending. To save money or invest in that thing. Which is valuable for us. We can do the same in our business to reduce the cost. By doing cost-cutting.
- Reduce the inventory– we can always try to reduce the inventory. Please keep your inventory moveable. Because if you have a lot of inventory. It increases your warehouse cost. Second, it becomes your deadstock. And will strike your cash flow.
- Subsidies and tax rebates– Be aware of all government policies. And regularly update yourself to find the best deal.
- Reinvest– Reinvest the cash that comes from the sales of your product. Until your money has not circulated in the market. And do not get a good outcome from it.
trade strategy should follow to bootstrap your startup.
- Identify your startup stage
You divide the bootstrapping startup growth stage into three parts. First, is the beginning stage, in which you start a business as your side work. In this stage, you start a business with your fund. Or by taking loans from family and friends.
Second, is the consumer-funded stage, in which you raise funds from the consumer to keep the operation of the business.
Third, is the credit stage, in this, you raise funds by doing ventures and taking a loan. For infrastructure growth and improving equipment.
- Do market research.
After knowing about your stage. You have to do marketing research. To know about your target consumer and their wants. And how to influence them or how to reach them.
- Get mentored by angel investors.
The investor is not only a burden for the new startups. But they also are valuable for the new startup. Because when they come, they bring their valuable experience with them. All that is needed is that you people should strike a harmony between yourself and your investor.
- Create a strategy to execute the idea.
When you do market research, know about your consumers and how to reach them. Now you have to make a strategy to execute the idea under the mentorship of your investor.
- Build an excellent team.
With the help of investment. You can hire the best team for your startup growth. With the help of your mentor. Because he has the best knowledge in hiring.
- Create MVP.
An MVP (Minimum Viable Product) is a basic, launchable version of the product that supports the minimum but required features. This is one of the best cost-cutting methods. Which decreases the cost of market research. This method helps to launch a product quickly, based on established ideas, and on a low budget.
- Always be creative.
Creativity is one of the bases for establishing ideas behind bootstrapping startups. The creative ideas of Mark Zuckerberg, Steve Jobs, and Bill Gates are the reason behind Apple, Facebook, and Microsoft reaching their zenith.
Example of bootstrapping a startup
I would like to give you an example of a bootstrapping startup company. GoPro (American-based high definition personal action camera manufacturing company). This company was started by Nick woodman in 2002.
He got the inspiration for starting this company during his Australian trip. He had a passion for surfing. So while surfing he wanted to shoot his valuable moments with his camera. But he could not do it. Because he did not have a high-definition camera. And it was out of his budget.
So, he decided to make an action camera at an affordable price. To solve the issue of biker, skydiver, surfer, and skiing. He started his business at 20$. Which he arranged by selling his bead and shell belts from a VW van and later his fashionable camera. He also received $230,000 from his parents.
In 2004 he launched his first camera, which used 35 mm film. Now the company is one of the leading companies in the world. Its revenue in 2021 was US$ 1.16 billion. This company manufactures high-definition action cameras and develops mobile apps and video-editing software. The GoPro was branded with the name HERO.
Know why and how bootstrapping is a great strategy for your startup to grow at the initial stage. Bootstrapping startup concept helps the low-budget owner to increase their startup growth. It divides startup growth into three stages. First, the beginning stage, second, the consumer-funded stage, and third credit stage.
It helps new people to start their startup.
Without more qualifications, skills, assets, and funds. It allows the owner to create compelling ideas, develop their skill, without any investment, without any sharing of profit, and concentrate on the startup growth.
Best of luck.