Startups have brought with them several complicated terms in business. I’m talking about Lean Startup, Bootstrapping, Growth Hacking… and many more. Today we look at bootstrapping. What is bootstrapping and what are the advantages of bootstrapping for startups? In future we shall look at the Demerits of bootstrapping.
What is Bootstrapping?
If you were keen for a very complicated answer in very complex English business terms I would have given you but fortunately enough for me, bootstrapping has a very easy definition. It is when a company finances it’s own growth from it’s cash-flow and revenue without any external funding from investors or lenders. In short a company spends as much or as little as it makes. Generally this would be a business whose workers earn nothing for a while because the initial cash goes back into the business to grow the business. People in such startup models work really hard to make sure the business is making money to survive, then go steady then thrive.
Merits of bootstrapping
From the startups that have done this before, to the business industry and speeches from investors, I have come up with 8 merits of bootstrapping you should know about:
1. Total Control
Probably the best advantage of a bootstrapping business is that it maintains full control of it’s future. The founders also maintain full control of the business. This could be bad if the founders aren’t sure of the direction to take but mostly it’s a very good thing because successful startups are usually founded by people who have a strong belief in what they want to do with their business. For a bootstrapping business, the founders should have the self-belief. By maintaining full control of the direction and decisions of the business, you avoid bringing different interests onto the table by taking on any venture capitalists, investors or lenders. Most of these investors come into the business proposing different directions, if you want to maintain full control of that, bootstrapping will do.
For a bootstrapped business, the customer is the chief investor, buyer, and determinant of the existence of that business. If the customer stops buying for whatever reason and the startup stops making money, it will die or go into debt. Startups that are bootstrapped are usually very customer-focused. They make every decision with the customer in mind. They make every decision to improve the customer experience and get more customers. The customer is therefore the lifeline of such a business and for startups that have bootstrapped well, they usually have very loyal customers who keep them in the business. By bootstrapping you avoid interruptions that may come out of having investors and lenders.
3. Sustainable and Profitable business models
Bootstrapped startups survive because they are making money. Enough to grow, albeit slowly, and still enough to pay the workers. This is a sustainable business model. It is a proven profitable model that the startup finds to continue to grow in their field. For startups that depend on external funding, the same cannot be guaranteed. Other externally funded startups may even run on debts because they haven’t found a sustainable business model but for a bootstrapped business, they had to find a sustainable and profitable business model to survive. Such a business is therefore a guaranteed profit-maker.
4. More money distorts product growth
When you have a lot of money for your startup, it’s very easy to miss the most fundamental aspects of product growth. More money means you are now going to make all the changes you wanted to make for your product. Everything you couldn’t do, you have the money to do it so you can go ahead and hire expensive developers to develop the product further. Such stances distort the customer-centered product growth. A bootstrapped business will implement features as time goes by. By being restricted in cash, as much as it might be a slow product growth process, it is a finer way of making the end-game product. You create a few features, add onto the product, while the customers continue to use the product with the new changes, they provide feedback to your startup and you get the customer views, you get the idea of what to tweak when the money comes next time. When you eventually make the changes the customers are satisfied that you gave them time to provide feedback that worked and now you are both happy. When you have a lot of money, you start making your own idea of a great product forgetting that slow growth gives you the customer’s perspective. Eventually you have spent a lot of money making a shit product and have lost direction, and maybe several customers too,
5. No time spent finding investors
Finding investors for your startup is not an easy thing. It could take hours, days, weeks and even months. Sometimes years. That’s a lot of time that you could spend working on the product and sourcing for more customers. That’s time you could spend growing the business.
6. Efficient Management
Have you realized how efficient you can be in terms of spending money when you know that you have so little money left? As a young person I know that sometimes I spend so little money in a week and the spending is so efficient that it feels okay to be broke. That’s just how bootstrapping works. You learn to be so efficient in everything involving management and spending. You want to spend on the meaningful things only. Usually for a bootstrapping startup, it’s spending on things that improve the product and customer experience. Efficient management learnt from the art of bootstrapping is a virtue you will never learn from any school or college, it’s first-hand experience. It can only make you and your startup better.
When you know you cant afford something in a bootstrapped startup, you improvise ways of getting that done without spending a dime or spending a quarter of what you would have spent if you didn’t improvise. While this point has a little connection to the previous one, it is still a very strong point on it’s own. Bootstrapping improves creativity for the startup team. You find ways of doing things cheaper, faster and correctly. Sometimes lacking is heaven sent.
8. Lean Company
A lean company is attractive to investors, lenders, VCs and all. A lean company will get you all sorts of attention when you are making profit and that’s good for your business. By bootstrapping, you will find yourself in the company of a strong, efficient, lean and committed startup team. That is always a good thing. When there is a lot of people in a team it is usually less efficient because levels of accountability are lower. Keeping a small team means your expenses are lower, and every one is the best at what they do. There is also little chance for mistakes and management issues.
Have I forgotten anything that you would like to add to these merits of bootstrapping? Let me know in the comments section below.