Do you know how much venture capital (VC) firms invested in startups in 2021? Around $329 billion! Surprisingly, nearly 90% of the startups that received this funding will fail within the next two years.
In fact, experts believe that startups that are not funded are more likely to succeed. They argue that this occurs because startup founders who have their own funds at stake (bootstrapping a business) are more likely to work in their startup to recoup their funds.
Let's explore why bootstrapping a business is necessary and is the right choice for you! #TWN
Bootstrapping is likely to be a feature of nearly every successful company's history. Before management accepts venture capital or other forms of outside funding, these companies are often entirely bootstrapped.
Self-made entrepreneurs—those who built their businesses from the ground up—are a rare breed. Starting and growing a business requires a strong combination of confidence, risk tolerance, self-discipline, determination, and competitiveness.
Bootstrappers take an idea and, with talent and professionalism, turn it into a profitable business without the help of investors and with little or no start-up capital. To achieve success in this manner, you must be extremely dedicated, have a strong work ethic, and be completely focused. Some of the most successful entrepreneurs, such as Sam Walton and Steve Jobs, exemplify these traits.
Bootstrapping is a business term that conveys the minimalist approach to starting a new business in which the business owner uses personal funds rather than outside funds for the initial startup. A bootstrapping entrepreneur may use personal savings, customer funding, or sweat equity—the exchange of services for a non-monetary benefit—to launch their business (like shares). The term "bootstrapping" is derived from the colloquial phrase "pulling yourself up by your own bootstraps," which means achieving success on your own without the help of others.
There are a few benefits of bootstrapping a business, including:
Lower Financial Risk: Avoiding the costs of hiring expensive services to build your business is an exercise in efficiency and frugality that can result in you spending less of your own money on day-to-day expenses.
Full Control: Without being indebted to investors, business owners are free to run their own show and make all of their own decisions.
More Time: When you start your own business with your own funds, you don't have to spend time securing venture capital, giving you more time to focus on the core elements of your business. You will be able to devote more time to developing relationships with your customers, who are the primary financiers of your company.
The process of bootstrapping is not without its difficulties. The following are some disadvantages of bootstrapping a business:
Issues with Cash Flow: Although not receiving upfront money from venture capitalists may give you more control, you may not have enough money if initial sales do not meet your projections. While some small businesses can deal with this issue, larger businesses may have difficulty accessing the funds they require to profit and support their entrepreneurship.
Takes Time: Due to a lack of helpful resources that investment capital can provide, bootstrapped businesses can take a long time to get off the ground. While this may be acceptable for those who already have day jobs, it can be a long wait for those who want to go all-in on their creative business ventures, and it may even increase debt in the end.
High Risk of Failure: Many things can go wrong when starting a business, and taking on the majority of the responsibility yourself increases the risk of failure. While the bootstrap process allows you to save money and retain control, the onus is on you (and your co-founders, if any) to keep everything afloat, which can be difficult for new entrepreneurs or those with limited experience.
You eliminate outside influences from the business by bootstrapping it. It frees you up to focus on developing relationships with businesses of your choosing. You can collaborate with other businesses or hire resources that you believe will help your company grow.
Most conflicts arise between investors and founders because they are not always on the same page. Whereas the founders have one vision and want to steer the startup in that direction, the investors have a different vision and tend to steer things in that direction.
It should also be noted that a VC firm or an individual investor, whoever is investing the money, is eager to get the product to market as soon as possible. They concentrate on generating revenue to quickly double their investment. Serious founders, on the other hand, who own the idea, want to build something long-lasting, impactful, and resourceful. When both of these conditions are not met, it creates a chaotic environment that can lead to tensions within the startup. That is also one of the primary reasons why most startups fail in the first place.
Make a Business Plan: A business plan with a clear goal can help you stay focused on the big picture while also keeping track of all the minor details that may fall through the cracks.
Start Small: Bootstrapping a big idea may not be feasible, depending on your available savings. However, you can begin with ideas on a smaller scale—products or services with a faster turnaround, such as an e-commerce store. Choose a home-based business that won't require a lot of expensive equipment or rental space at first.
Barter: To save money, try bartering products or services (of equal value) with another company.
Be Ready to Multitask: As the founder of a company, you should expect to wear many hats. You may not have the funds to hire employees or assistants in the early stages of your business, so you must handle every aspect of it yourself.
Conduct Market Research: You should be well-versed in your chosen field before starting a business. Conduct surveys to better understand the dynamics of your venture and prepare for all of the pitfalls that come with this type of business.
Create a Presence: Create a website that defines your company clearly and passionately. Increase your online presence and reach by using blog posts, social media, and digital marketing techniques.
Show Confidence When Selling: Be enthusiastic about your endeavor, and make sure that others can see it. Entrepreneurs must have unwavering confidence. Consumers buy from companies they trust, and this display of trust will signal to your business that it is trustworthy, which can translate into revenue.
Let's explore how successful startup founders bootstrapped their businesses. Read about their experiences, mistakes, and how they overcame them to launch successful bootstrap startups.
Cloudways' Co-Founder and CSO said:
1) It is a marathon, not a sprint: Don't rush, don't try to overachieve, don't overwork yourself... Bootstrapping a startup is a lot like slow cooking: you have to find the right healthy ingredients. To get an outstanding result, combine them with craft and be patient. Time is on your side. A funded startup must rush to grow to be ready for the next round of funding and repeat the cycle... time is running out.
2) A fool and its equity are soon parted: Again, patience is required. As you bootstrap and grow your business, opportunities to get funding, sell... will arise. Think carefully and carefully time it, and don't take the money if you don't know what you're going to do with it. Liquidity for the founders is a common and very reasonable option. Create relationships to ensure that things happen when and how you want them to.
3) Be unforgiving when hiring: In retrospect, I believe this is critical. Of course, this is true for all types of businesses, but bootstrapped startups have a very short runway. You only need to mess it up a couple of times or in specific positions to be done. Investigate the best hiring practices, avoid shortcuts, and don't settle for "good enough." To get where you want, you need exceptional people who are completely culturally compatible and share your vision. As a founder, consider this to be your primary responsibility (among a zillion others).
Threadless CEO said in a Q&A session with TechCrunch:
It's easy to spend a lot of money trying to figure out your business. Bootstrapping (especially in a downturn) has forced us to concentrate on what works and how to gain traction.
When you have something that works and want to blow it out of the water with explosive growth, which is the time to make money. Taking money too soon often hurts more than it helps, and looking back on our development, we believe that would have been the case with us.
Focus on your core. Almost anyone can achieve greatness if they focus their efforts and devote their lives to it. You'd be successful if all you did every day was think about how to make one specific thing awesome.
Entrepreneurship is romanticized and glamorized, but at the end of the day, it's hard work that necessitates a lot of sacrifices—not just from you but also from those around you. Check to see if your friends and family are ready to support you before jumping in. Don't let fear prevent you from taking action. You only have one life, so if this is what you're passionate about, don't look back with regrets. Just do it!
According to Cloudways' co-founder:
1) You might end up being the smartest person in the room (without BTDT) because you wouldn't need to go to any VC or Private Equity. As soon as you reach $100,000 in MRR, make sure to incorporate outside advice from advisors and coaches.
2) If you're bootstrapped, you'd try to balance your risk (withdrawing money for yourself) vs. the re-investments you should make in growth, people, and research when you're scaling (i.e., validation, initial traction, etc.). Make sure you're not putting the company's interests ahead of your own. If this is the case, go with minor liquidity so you can keep re-investing and stay healthy (both personal and business)
3) Remember John Doer’s quote: “Entrepreneur does more than anyone thinks possible with less than anyone thinks possible.”
According to MobileMonkey's CEO:
1) Be (somewhat) delusional in your goals: I projected $26,000,000 in revenue in five years when I wrote the business plan for my first company, WordStream. "This is crazy," said 99 percent of the hiring candidates and investors who looked at it. Perhaps 1% of those who saw the plan was inspired. These are the believers, the 1% of people who can help you turn your crazy idea into reality. In the end, WordStream outperformed my expectations! It wasn't even a big enough goal!
2) Find your unicorn growth hack: It's a fact that the top 3 percent or 5 percent of your campaigns account for 70% of your growth. A subset of your blog posts and social posts receive the most traffic and engagement. You want to look for those exceptional and rare opportunities with insanely high conversion rates. To find your unicorn growth hack, look to your past. Everybody owns a unicorn.
3) Make unicorn babies: Replicate your unicorn growth hack once you've discovered it. It may seem self-evident, but in my experience, 95% of marketers prefer new, unproven ideas to tried-and-true ideas. I believe it is a completely incorrect way of thinking. Something that has worked in the past is likely to work again in the future. With your successful unicorns, make unicorn babies. In a sea of donkeys, be a unicorn!
Cardswitcher's CEO said:
I've previously worked with bootstrapped businesses, and my current start-up, Cardswitcher, is one of them. Here are three pieces of advice that I always follow:
1) Get in the right mindset: Even if you're a seasoned entrepreneur, I can assure you that starting and running a bootstrapped business is nothing like what you're used to. To succeed, you need a very specific mindset: a do-it-yourself attitude that combines effective prioritization with meticulous financial scrutiny.
2) Obsessively track profitability: Unlike those businesses that are fortunate enough to have an angel investor or venture capitalist on their side, when you are bootstrapping, all of your capital will come from what you can directly input yourself. As a result, you'll be keenly aware of getting the most bang for your buck possible. That means you must keep a close eye on your overall profitability. After all, a bootstrapped business must be profitable right away or within a few months, not five years down the road, as other businesses are.
3) Know when to ask for help: When you're bootstrapping a business, it's easy to develop a siege mentality, relying solely on your own resources and ingenuity to solve problems, but this isn't always enough. Everyone requires assistance or advice from time to time, so don't be afraid to approach other friendly entrepreneurs or groups for advice on how to solve specific problems. Your bootstrap will benefit you in the long run.
There are thousands of examples of successful bootstrapped startups. But, because we can't list them all, here are four of the best bootstrapping examples for your inspiration.
Our first bootstrapping example is Sara Blakely, who invented the now-famous spandex undergarments while getting ready for a party. The whole thing started with a sloppy undergarment. Finally, she snipped the legs of her pantyhose.
Later, when she was 27, she founded her company with all of her personal savings of $5,000. Her startup is now worth around $400 million. She owns the entire company and has not taken a single penny from investors or venture capital firms.
While surfing in Australia and Indonesia, GoPro founder Nick Woodman noticed a gap in the sports camera market. He noticed that the surfers were wearing cameras around their wrists to document their adventures. However, the majority of the cameras became detached and fell into the water.
As a result, Nick had to use his personal savings and borrow $35,000 from his mother to launch GoPro, which was initially known as Woodman Labs. He bootstrapped the company until 2012, when Foxconn, a technology firm, invested $200 million in it. Two years later, the company was worth more than $2 billion.
Craig Newmark is the founder of 'Craigslist,' the world's largest classified platform. In 1995, he launched the service as a newsletter. His goal was to keep his friends up to date on interesting events in and around San Francisco. His newsletter quickly became well-known. Keeping the demand in mind, Newmark was posting job openings and lists of items for sale. In 1997, he reached a million page views for the first time.
Newmark didn't register his company until two years later, still believing it was a side project.
He continued to run the company with his own money until 2004 when eBay finally invested $32 million for a 28 percent stake in the company. By 2016, Craigslist had earned over $690 million in revenue.
MailChimp, an email automation software, has an interesting story about how it got started. It began in 2001 as marketing automation software. However, the startup received no special attention from investors. As a result, the founders, Dan Kurzius, Ben Chestnut, and Mark Armstrong, continued to fund it out of their own pockets.
They continued to improve their API and the overall software. In 2009, they got their big break when they switched to a freemium model. Finally, the company was successful and made a lot of money. It now has more than 12 million customers. It made more than $400 million in profits last year.
If you are starting a business for the first time, bootstrapping is the way to go. Because you can learn everything about startup finances, costs, and budgeting by bootstrapping a business. You must be self-assured. Believe in yourself, and you'll be fine.
If you are a serial entrepreneur and believe that your business will generate more revenue, you can also seek funding. In fact, many serial entrepreneurs receive funding for their businesses even before they have an idea because they are confident that the business will succeed.
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