If you’ve started to research ways to fund your small business idea, there’s a good chance you’ve stumbled across the term “bootstrapping.”
This buzzword is the name of the solution many startup founders use to launch their businesses quickly, even without the support of small business grants. So, what is bootstrapping?
In this article, we’ll provide a detailed definition of bootstrapping and explain why you should (or shouldn’t) pursue this route.
We’ll also provide tips for bootstrapping and a list of bootstrapped companies to inspire you.
- What Is Bootstrapping?
- Pros and Cons of Bootstrapping
- 5 Tips for Bootstrapping Your Business
- 3 Examples of Bootstrapped Companies
- Frequently Asked Questions
- Invest in Yourself
What Is Bootstrapping?
Bootstrapping is the act of growing a business with minimal support from outside investors.
Derived from the 19th century phrase “pulling oneself up by one’s own bootstraps,” the term predominantly describes founders who pull solely from their personal savings to launch a business.
Because bootstrappers commonly seek massive growth on a short budget, many of them use growth hacking strategies to boost their companies toward a successful launch.
However, bootstrapping doesn’t have to prioritize performance metrics or modern strategies, such as A/B testing or viral marketing.
Instead, your growth can be solely fueled by increasing cash flow.
With no traditional loans or venture capital — a form of financing that typically supports early-stage startups with high growth potential — your business is yours to keep alive.
Depending on how you look at it, this can be a good or a bad thing.
Pros and Cons of Bootstrapping
The bootstrap method is not for the faint of heart, but it is the path the majority of startup founders choose.
After all, it is the most efficient way to start a business, eliminating the hassle of pitches and funding applications right off the bat.
Bootstrapping is also the best way to guarantee you’ll maintain complete ownership of your company.
By funding your own business, you and any co-founders keep 100% of the company and have exclusive decision-making power.
In addition, you will avoid venture capitalists (VCs) who always seek equity in the attractive businesses they fund, and investors who will likely pressure you to meet financial milestones and complete a smart exit strategy.
However, as you likely have already observed, the biggest downside to the bootstrapping process is the enormous financial risk.
Because you’re essentially investing in yourself, you’ll take on the stress of earning enough back to fill the gap.
Without outside financial support, new businesses can run out of money fast.
This is why many bootstrappers continue working their day jobs even as they launch.
Because your budget is lower than that of a VC-backed startup, you’ll likely also run the risk of having an inconsistent team unless you or your co-founder is team culture-savvy.
Since you’ll likely rely on interns and team members who receive mediocre pay, great talent can easily slip through your fingers.
To counter this, maintain a positive work culture that values its employees.
Still, most business owners agree that bootstrapping is one of the most fulfilling ways to launch, as your hard work alone will be the origin of your success.
5 Tips for Bootstrapping Your Business
There’s no single way to bootstrap your business, but with some helpful hints on saving money the smart way, you can start shaping your business plan.
Here are five tips to help you get out of the red as soon as possible:
1. Offer Sweat Equity
When you need experienced team members but can’t immediately offer attractive salaries, you can advertise the incentive of sweat equity to potential applicants.
Sweat equity allows employees to receive a share in the business in return for the labor they put in.
While this requires you to give up some shares, it will allow you to get skilled help in needed areas without increasing salaries.
Some founders even choose to pay themselves through sweat equity, making money on an as-needed basis to commit to growth first.
2. Keep an Emergency Fund
While it may be tempting to go all-in with your business, it’s important to keep a back-up fund.
That reserve money will help cushion any credit card debt you accumulate or money you lose in the process.
In general, you should keep up with your personal finances as you go and know when to quit.
3. Brainstorm Where You Can Save
It’s important to prioritize specific spending areas that directly affect your company’s financial growth, such as your operations, and limit expenses for the supplements.
For example, you can decrease risk by opting for a coworking membership instead of an office lease and meet project-based needs by finding freelancers on Upwork instead of hiring full-time employees.
4. Find a Business Adviser
If you won’t have the help of venture capitalist firms or incubators, a business adviser can make a huge difference.
This person can provide an outside look on how your business is doing and offer the perspective of someone who has the experience of launching their own business or startup.
5. Find a Co-Founder (Wisely)
While many founders of bootstrapped companies choose the solo path, many non-technical co-founders seek technical co-founders and vice versa.
This will provide you with two mindsets that cover every corner of your business, especially if your business is an app or online platform.
However, choose wisely, as business breakups can cost your time and money.
3 Examples of Bootstrapped Companies
It’s one thing to say that bootstrapping can successfully done, but learning about how real-life business owners made it happen can be the inspiration you need to launch with financial independence.
Here are three examples of bootstrapped companies and what they did to succeed:
One of the most well-known bootstrapped companies around, Spanx started when founder Sara Blakely invested all her personal savings of $5,000.
By filing her own legal documents, making her own prototypes in her spare time, and writing her own patent, she was able to prioritize her money for growth.
Now, she is a billionaire entrepreneur who still has a 100% share of her company.
Though Github would start accepting funding four years into their business, the software development platform started as a completely bootstrapped company.
Each founder invested a few thousand dollars and eliminated office costs by working remotely.
Github was acquired by Microsoft in 2018 for a whopping $7.5 billion.
Though crowdfunding in itself can now be a financing model, GoFundMe interestingly started off as a bootstrapped company that operated solely with what it charged its users.
Founders Brad Damphousse and Andrew Ballester completely avoided outside financing until they sold ownership of GoFundMe in 2015 for $600 million.
Frequently Asked Questions
Knowing the answer to the question “What is bootstrapping?” is necessary when you’re figuring out your business model.
We’ve answered three other common questions about the financing method to help you understand it even better:
1. How much of my personal savings should I use to bootstrap my business?
This depends on how much money you have in savings and how much money you estimate is needed to launch your business.
It’s important to always have enough money to fall back on in case of business failure, so the amount of money you invest should be enough for both you and your business to survive.
If the gap between these two amounts is too large, bootstrapping may not be appropriate for you.
2. If I start out as a bootstrapped company, can I still accept venture capital or loans later on?
There’s no shame in changing your financing model to make your business work, even if you start out as a committed bootstrapper.
After all, bootstrapping can be extremely hard work and carries its own risks.
Plenty of business owners end up accepting outside financing opportunities eventually, and your original financing model doesn’t disqualify you from this option.
3. How do I find a co-founder for my bootstrapped company?
The process of finding a co-founder should never be rushed, and you should never settle for someone you’re not completely confident in.
Because of this, finding a co-founder by reaching out to professionals you’ve previously worked well with or by expanding your network through referrals can be more effective than posting a job description online.
However, if you use online recruiting, AngelList is one of the best platforms for startup founders to seek out co-founders.
Invest in Yourself
The bootstrapping process can be a big responsibility to take on, but it can also be an incredibly rewarding experience.
Weighing the pros and cons and determining your own priorities can help you determine the best path for your business.
With this guide, we hope you’ll be able to figure out where to begin when working toward the launch of your new business.
One last tip — if you’re interested in learning another way to finance your startup without costly loans, learn about equity crowdfunding and the platforms you can use to pursue it.