How Bootstrapping is crucial?
Bootstrapping is one of the crucial decisions an entrepreneur must make when it comes to outside funding through venture capital or investing via one’s own fund. Whatsoever the decision might be, the impact could be significant.
The chances of your company’s success, its long-term prospects, its scale and finally, its relationships with your company depend on how you fund your business.
Entrepreneurs who invest their own money believe that bootstrapping is the best option. According to them, while bootstrapping might not always be alluring or easy yet with its strategy, one could become stronger and a better entrepreneur with a more vibrant business.
Before you decide to bootstrap ask these questions
- How much money do I need to survive during the setting-up of the start-up?
- What is the opportunity cost and real trade-offs?
- Do I have personal resources to invest into my business? To fund a brand new venture should I risk my own money?
- The money I invest into the business will no longer be available for private emergencies such as buying a home, buying a car, dealing with unplanned medical expenses, funding education, or saving for retirement. Will that be OK?
- Will I survive if the business is a failure?
- During the first three years what is the bare minimum I need to live on?
- What can I do without?
- Will my partner/spouse be willing to support my efforts to succeed and make the sacrifice and take the risk with me?
If your answer is in the affirmative for all these questions, you could decide to bootstrap, and take fund from the personal sources like:
- The cash value of a whole life insurance policy
- Personal savings
- A personal loan
- A home equity loan
You could also use only savings as source of capital and reinvest all of the profits into future growth.
Fear of failure becomes your greatest motivator when you use your own money. To ensure that your business is a success you would do everything you possibly could.
Reduce risk through personal sacrifice
By downsizing the cost of your personal life you could reduce the risks of bootstrapping. Remember, you have invested your savings in the company and there is no salary coming in. To survive you must figure out how much money your family needs. You could cut your family’s expenses in half to build in a major margin for safety.
Here are some of the advantages of bootstrapping:
Creative Freedom: When you start a new venture you will have a lot of executive and creative freedom. When you bootstrap a company you are not accountable to anyone else. It is your investment and that protects the freedom to streamline your venture. You’re the creator and you are the voice. Even if you take outside funding later on, in those critical early days bootstrapping gives you far more control over your own business.
Smaller = Determined: You will be forced to start small, and then scale up after testing your hitches since you don’t have much capital to work with. You will be able to learn about your markets, products, and customers more closely along the way. All entrepreneurs make mistakes and you will too, but they will most certainly be lesser in impact and scale. Meanwhile, you will learn to become a more vigilant and determined founder.
Greater focus on products: A greater focus on your services and products is yet another advantage of a limited budget. You will be more focussed on your limited yet quality product or service. You will pay more attention to your customers because every rupee matters. You will be focused on building a superior offering taking your and their needs into consideration. You will be able to build a brand more quickly and also generate revenue because of your dedication and insight into your venture.
High risks, high rewards: As a founder and bootstrapper, you are your company’s one and only investor. This will enable you to retain equity and control of your company. Bootstrapping also aligns the success of the company with your incentive. If the company succeeds you will succeed, too. But if the company fails, you will fail as well. And when you succeed the stakes will be higher. This will also keep ownership manageable and clear; no other investors will hinder the important or hasty decision that you might have to make in the early days of the start-up or claim parts of the company.
Smarter Decisions: You will be more cautious about taking each and every decision because you are playing with your own money. Bootstrapping will incentivize you to intelligently grow your business and almost definitely make you a better manager.
Bootstrapping is best & why?
Profit is your focus: You will never look back once you make the decision to bootstrap. The positive side is that there is no burden on you to repay a loan. You don’t have to worry about risking your friend’s or relative’s money. Best of all there is no one doubting your business decisions and there are no equity investors looking over your shoulder.
You will have all the control over your business. You could operate the company according to your plan and you could hire people whom you feel competent.
Your productivity will increase if you have control over decision-making and business strategy. Since you are not answerable to anyone other than you, you will get more personal satisfaction.
One of the most important skills of an entrepreneur is learning how to do more with less. Bootstrapping will certainly teach you that if you are ready to take the risk. In the long run, it will fetch you rapid growth, and you will be able to put the profit back into the company for more growth.