What is bootstrapping?
The word bootstrap was first used in 1720 when it meant to pull oneself up (like a boot). Eventually, it morphed into a verb, meaning to do something for yourself instead of hiring someone else. Today, the word is used in general business and software development circles as a synonym for self-sufficiency.
People use bootstrapping to refer to taking on risk oneself through the exploration of various new ventures. It suggests that individual entrepreneurs or small businesses have bootstrapped themselves off the ground by starting up with relatively little capital, though it does not always have this connotation. When looking at bootstrapping in companies, it refers to a strategy where less money is raised from outside investors and instead more money is internally generated by projects.
Bootstrapping in business
Some of these projects can be quite risky and investors often have more confidence in businesses that have grown organically from a small base. This is what people mean by bootstrapping as it relates to business. The word itself is used metaphorically to suggest that the business has pulled itself up by its own bootstraps, rather than relying on external investment or sources of capital. It represents a strategy for growing a company with internal resources and without outside funding, relying instead on revenue to finance growth. It also represents a willingness to take risks and invest in oneself with the potential for high reward.
When discussing bootstrapping in companies, it may refer specifically to approaching projects in this way or just as an approach to achieving success. It can also be used as a verb when referring to the process of funding growth externally, such as in a bootstrapping strategy. As such, it is useful to consider precisely what people mean by bootstrapping. In addition, it can be useful to think about if it has any advantages or disadvantages as a strategy for growing and managing a business.
Bootstrapping can be considered a risky strategy because it can involve doing business in areas that are not well established and in which very little is known. It means attempting to generate revenue from these ventures and then using it to finance new projects. Bootstrapping is often taken to represent the idea that an entrepreneur will take on great debt if they have to, so long as they are able to keep their company afloat.
Here are a few tips recommended by Fintalent’s bootstrap consultants for startups and firms looking to bootstrap their way to prominence.
Pros and Cons of Bootstrapping
According to Fintalent’s bootstrap consultants, if you plan to launch and grow your company, bootstrapping can give you the chance to get going without any outside debts or investors. This is especially good if you don’t have much money to spend and can’t afford startup capital. The main advantage of bootstrapping is that you don’t have any outside investors who want a big chunk of your profits as well as board members who want their piece of the action every time something goes wrong (i.e., someone in charge that wants their cut).
The major disadvantages of bootstrapping identified by Fintalent’s bootstrap experts include loss of profits to pay for current expenses and earning back some money to cover the costs of up-front marketing and other finance costs. But bootstrapping can also be a huge advantage if it’s done right. You simply need to know what you’re doing. Fintalent’s bootstrapping experts offers the below tips for business owners looking to adopt the bootstrap option.
Bootstrapping Tip #1:
Be creative with your resources. Bootstrapping requires the entrepreneur to think outside the box, so to speak. Businesses that can successfully use their own internal resources demonstrate an ability to take on projects in creative ways and solve problems in new and innovative ways while identifying areas of opportunity. While innovative thinking is highly valued in this arena, it’s also important to be able to apply these skills in a way that contributes value. The business owner can apply them in a way that makes their operations more efficient, which means cutting costs and increasing productivity. With fewer resources comes fewer options for the business owner, but it also means less overhead and less capital needed for operations over time.
Bootstrapping Tip #2:
Use your resources smartly. When the entrepreneur has less capital, they often cannot afford to be too conservative. This means that the entrepreneur must allow their operations to run and get used to their current resources so that they have a better idea of how much is needed for the business, so that when a time comes for additional resources, enough is left over to cover it. It’s best to spend only as much as necessary on gathering or creating resources in the beginning.
Bootstrapping Tip #3:
Don’t underestimate your capabilities. While bootstrapping can be a very challenging and expensive process, it’s also one of the most rewarding forms of business ownership. It demonstrates how determined and resourceful entrepreneurs willing to work hard can create products, products or services and get them to market. Fortunately, bootstrapping also means that the entrepreneur is not beholden to outside investors for growth capital.
Bootstrapping Tip #4:
Start small. Starting a business with little or no capital can be difficult for anyone but the savvy business owner knows that starting small is the best way to minimize risks while still demonstrating product or service viability to potential clients. When resources are minimal, it’s important to focus on what the business owner is doing best–their core competencies in high-value work–and use those talents as a foundation for growth over time.
Bootstrapping Tip #5:
Cut costs. When the business owner has very few (if any) resources, they must be smart about how they spend to ensure that their every dollar of expenditure is spent wisely. The entrepreneur can do this by identifying areas of cost that are not absolutely necessary, and using that money toward something else in the startup. Other ways to cut costs include making more efficient decisions and being more mindful when it comes to acquiring additional resources.