July 19, 2023
#BackToBasics
In this, our penultimate blog in our startup bootstrapping series, we help you answer the question whether bootstrapping is right for your startup.
Just a recap on what we’ve explored in previous posts on bootstrapping:
If you’re unfamiliar with these topics or need a quick refresher, it’s worth taking a looking at these blogs before reading further.
Just want to know when is bootstrapping right for your startup? Carry on reading because we’re jumping in right now.
When is bootstrapping right for my startup?
Bootstrapping isn’t for everyone. Here are 9 circumstances where bootstrapping could be a good fit for your startup.
#1 When you don’t need much money to get started.
Seeking fundraising, acquiring bank loans, or crowdfunding requires significant time and effort, and there’s no guarantee you’ll be successful with either. If your business model requires little capital to get started, and you have access to that capital now, then what are you waiting for example, consulting or online cources, start today.
#2 When you believe you will quickly turn a profit.
Suppose your business model can return a profit quickly. In this case, bootstrapping is the obvious choice, providing you have sufficient funds to cover your expected overheads until the business can bring in sufficient revenue.
#3When your startup is ‘red ocean’.
This means your startup is competing in a crowded market, and you are fighting to acquire or maintain market share. A.K.A plenty of competition. ‘Red ocean’ companies are unlikely to succeed with fundraising, as the return on investment (ROI) is lower than what investors seek. While bank loans and crowdfunding could also be applicable, bootstrapping should be high on your list providing you have the financial means to commit.
#4 When you strive for sustainability.
Startups that successfully secure equity funding traditionally plough this capital into growth, often at the expense of other aspects of the business. In contrast, bootstrapped startups are rarely flush with cash, so they are very thoughtful in how they invest their limited capital to grow. If you are aiming to build a long-term, sustainable business, bootstrapping will help ensure an efficient business model with optimised overheads.
#5 When you want to maintain complete control.
Though bank loans will also allow you to maintain control without diluting equity, they often come with caveats, namely personal guarantees. Bootstrapping will enable you to maintain complete control of your business while not diluting equity or taking on debt.
#6 When you’re building an MVP.
Bank loans and investors often want to see product-market fit before investing in your business. And to do that, you need to build a Minimum Viable Product (MVP) of your offering that attracts and retains customers. While securing external funding (see funding) for your initial MVP is possible, you will incur debt or lose equity for an unproven idea.
#7 When you have a side hustle.
Though other forms of financing, namely bank loans and crowdfunding, can still support side hustles, your full or part-time job may help fund your startup in the early days. Typically, Founders will only move full-time to their side hustle once it has broken even or is very close to this point. Alternatively, Founders put aside substantial savings to support both themselves and the startup’s expenditure for a period of time.
#8 When you are uncomfortable with debt.
For some founders, dept is a no-go. This may be for religious reasons, previous financial issues, or personal values. If that’s you, you’ll know that bootstrapping is your only option.
#9 When you can afford to.
Many startup founders can only consider bootstrapping if they are able to access sufficient funds to cover the cost of their fledgling business. When assessing whether you have the means to bootstrap your business, determine how long you anticipate it will take to cover costs, then double that time again. Typically this can be as much as three years.
The elephant in the room. Almost all startups end up bootstrapping.
To put it another way, < 1% of startups are successful in equity fundraising. That means 99% of Founders have to give up on their dream or seek other sources of finance.
Eventually, the business must be self-sustaining and not rely on outside revenue. If it can’t, it isn’t a viable business.
So while bootstrapping might not be how you kickstart your business, all businesses eventually end up bootstrapping, even though the term traditionally applies to companies in the startup/growth-phase.
Bottom Line.
So is bootstrapping for you? The answer depends on your circumstances, business model and how you envision running your startup.
There are no right or wrong answers. Whichever way your finance your startup has benefits and drawbacks, and bootstrapping is no exception.
Just bear in mind that one day your startup will need to break away from external sources of finance to thrive. When you start on that journey is up to you.
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