Usually, a large number of small and medium scale enterprises (SME’s) that make up a large portion of the economy are bootstrapped as they start small with the money that they have together with reinvested net profits to gradually grow their businesses. But what about startups that want to grow to become a million dollar business? Is it possible to be bootstrapped? If yes, why the trending craze and frenzy for outside investment and funding that it almost seems to be that you cannot build a successful company without angel investors, venture capitalists and/or venture firms.

So firstly, what is Bootstrap Financing?

Bootstrapping is a process of starting and growing your business without the aid/use or external funds like loans from banks, equity funding and also being able to allocate the little funds you have to the most profitable venture. Typically Bootstrapped startup’s capital comes from personal savings, soft loans from family and friends. 

Major Important Takeaway 

“Unless Bootstrapping is not an option at all for your business model, first consider Bootstrapping”

Why Choose Bootstrap Financing? 

Bootstrapping comes with a number of positive strong points that should entice a founder to try it out. These may include but not limited to:

• Full ownership of business gains and net profits. You don’t have to share your profits or dividends with someone else 

• Maintain control over every decision: Decision making is done by the founder(s) without much outside pressure or influence from investors

• For startups in its early stages, founders garner experience running and funding their venture on their own

• A successful bootstrapped business has higher possibilities of attracting venture capitalists at its scaling stage

• Encourages creativity, resourcefulness and proven accountability in founders as they iterate trying to find ways to fund their ventures without the aid of an external fund

• Reduces the risk involved in raising investment to produce and test new products or services

• Bootstrapping gives room for founders to steer their startups in the direction they want it to go without considering the interest and goals of external funders like investors

• Gives more room for idea iteration and maturation into a product and ideal for testing/vetting your products/solution before it gains large market acceptability. This also encourages creativity and increases the chances to develop a feasible, sustainable business model.

• Enables the entrepreneur to focus their energy on developing and growing their business and not on chasing after investors

• For some, a sense of satisfaction and pride, for being able to build a business without much external help

Downsides of Bootstrapping

So, let’s say you’ve decided to tow this line for your startup, what are then the downsides of bootstrap financing?

• As much as you enjoy the profits from your business alone, there’s also a huge financial risk involved especially if your business fails. As a popular saying goes “if you eat alone, you die alone” , you’ll also bear the risks involved alone. For e.g, there is a probability of your business failing and in such an occasion, you’ll lose both your profits and all the money you’ve initially invested. 

• Another important downside of Bootstrapping is the fact that your business might not successfully progress/grow with a speed as it should as you continuously struggle to meet up with the requirements and funds to scale.

• There is also reduced access to a large network of advisors, mentors, influencers and other forms of help. This also leads to less credibility especially at the initial stage.

To Bootstrap or Not?

Being armed with this information, (here are some questions you should answer before you decide to choose your funding path). What line would you want your startup to tow?

• Can your solution (MVP) be implemented without external funding no matter how small?

• Do you desire to have sole ownership of your business?

• Do you wish to limit the action of external influencers 

• How much capital is required to build a sellable product?

• Do you have what it takes to handle that? If not, can I raise such capital in the shortest time possible from personal savings, soft commitments from family and friends?

• What type of solution (product or service) is your startup working on?

If your answers to the above prompts are mostly in the positive side, then the best option for you would be to Bootstrap

So why waste a lot of time and talent scheming to raise funding from investors? Building a successful startup does not necessarily need funding at the early stages. Why then is there a sudden craze for looking for angel investors or capital venture firms rather than building your venture? Why not focus on building your venture with your personal savings or loans from family and friends just like some multi million businesses (Mailchimp, Shopify, GoPro and a host of others) have done and are still doing?

My advice to all founders and ‘would-be founders’ is rather than wallow in the craze of searching for investments at an early stage, BOOTSTRAP! Understand your customer needs, build a MVP and obtain revenue before looking to raise external funding.