So, you have an absolutely cracking business idea. But now what? Well, now comes the actual laborious process of implementing your idea. And I guess you know what the most important factor in this process is. Well, yes – money! But what is bootstrapping a business? Wait up, we are here with all the answers.
Budgeting is one of the most challenging aspects of starting a business. And as we know, essentially, a startup’s budget originates from either funding or bootstrapping a business. Let me quickly walk you through the difference here! See, while funding refers to investments from outside investors, bootstrapping refers to funding your own business from the start.
If you have ever started your own business or thought about it, you are probably familiar with what bootstrapping involves. It is one of the most popular ways to start a new business.
Did you know that bootstrapping is the primary source of funding for as much as 66% of European startups?
So, perhaps it is time to dig a little deeper into what bootstrapping is all about?
That is why, in this article, we will be walking you through the stages of bootstrapping and its associated benefits and challenges.
So pull yourself up by the bootstraps and let’s dive right in! (You see what I did there? )
Bootstrapping a Business: What is the fuss all about?
Talking in general terms, bootstrapping is the process of financing your own business without the help of outside investors. If you are bootstrapping your company, you cannot raise money via the usual financing methods.
These financing methods that I just mentioned, include:
Venture investors
Bank loans
Crowdfunding and so on.
Instead, what you can do is – you can pool your personal savings or borrow money from friends and family. A little further down the line, you can even use the income generated from initial sales. Smooth and simple, right?
I know it can seem a little overwhelming at first. That is why TheCodeWork is here to solve all your funding-related queries. We are launching India’s first ever STARTUP ECOSYSTEM, where you will get access to just about anything startup related.
It is fair to say that self-funding your company can be difficult. But the good news is, many startups have done it successfully. In fact, some pretty well-known examples of bootstrapped companies are GoPro, Shutterstock, Zoho, Github, and GoFundMe. Cool, right?
Well, that speaks volumes about the viability of bootstrapping, doesn’t it? As per SmallBizTrends’ data, one-third of small companies are founded with capital below $5,000. In fact, personal savings and finances fund about 77 percent of small businesses! That is quite a large number, don’t you think?
Source: Startup Statistics
But unfortunately, only 40 percent of these new businesses are reported to be profitable.
So what makes the difference between a successfully bootstrapped company and one that…isn’t so successful?
Some would say that the key is knowing the ins and outs of startup funding. This is why we have collated everything there is to know about bootstrapping, so you don’t have to!
Read on to know more!
Stages of Bootstrapping
A bootstrapped business goes through several stages. Here are the most important ones:
Stage 01: Initial stage
The initial stage begins with some money saved/borrowed/invested from friends. This is also known as the pre-seed funding stage. For example, you may continue to work on your primary job while also launching a business. Or you may pitch in your savings towards your business.
Makes sense, right?
Stage 02: Funded by customers
This is the next stage of bootstrapping. By this stage, you have already made some sales. Now you can use the money from your buyers and initial sales to run and grow your business.
Stage 03: The credit stage
During the credit stage, you may focus on funding specific activities such as hiring employees, upgrading equipment, and so on. This is the stage where you can look for loans or seek venture capital for expansion.
Talking of seeking venture capital, reach out to us at TheCodeWork. We are building India’s first ever startup ecosystem to help budding entrepreneurs get past their roadblocks.
Now that you are aware of the stages of bootstrapping, let us take a look at its pros and cons.
It is really important to know what you are getting yourself into when bootstrapping, so stay tuned for this part!
Bootstrapping is often considered a big no-no for budding entrepreneurs (we’ll tell you why, just wait a tad bit). But in reality, bootstrapping is not as bad as it is often portrayed. However, like most things, it has its own set of advantages and disadvantages.
Pros of Bootstrapping
1. You are in charge of your company
No one gives you deadlines to meet or expects you to have immediate results. You have complete control over your company. You have the final say over who and what you want in your team. Bootstrapping your startup also allows you to keep control of the direction in which your company is headed. Pretty sweet, isn’t it?
You may have a co-founder, but in this scenario, you will work as equals and as a team.
2. Saves your time (and gives you lesser headaches)
Since it’s just your money in the game right now, you don’t have to look for investors or make effective pitches. And that’s a real advantage, don’t you think? So you can save yourself a lot of time and stress by just financing your company yourself.
However, if you want to get external funding, reach out to us. We will connect you to our partner investor group and include you in the startup ecosystem.
Cons of Bootstrapping
1. Bootstrapping is risky
Did you know that self-funded businesses are more likely to run out of funds and find it difficult to scale? This can make it difficult for any startup to achieve its full potential. You have to pay extra attention to budgeting when you are the one financing your startup.
Traditional financing methods provide more capital, true. But in addition to that, they also provide networking prospects with top-level personnel. This includes board members, shareholders, and influencers. How cool is that?
Starting a business on your own can limit access to all of these connections. This in turn can reduce the credibility of your business. You will have no cash, advice, or referrals to fall back on. As a result, you will have to establish your client base and discover partners on your own. And trust us, that is no mean feat!
3. It requires a lot of planning
If you are planning to self-finance, you have to be extra careful with just about everything. Don’t you agree? You have to know all business-related legalities. Plus you have to make sure that your books are in perfect order, so you don’t run into any problems later on.
But worry not, because TheCodeWork’s STARTUP ECOSYSTEM has got your back there. Reach out to us to know all about networking and building the right connections.
4. It slows down the growth
Bootstrapped businesses often struggle to experience exponential growth. Since there are so many things to look into, it will not be possible to invest in every aspect of your business at once.
You will have to concentrate on creating and maintaining the viability of your product at first. Consequently, you might not have the necessary budget to invest in Google ads, social media, and other promotional channels to spark interest.
5. It is demanding work
Bootstrapping entrepreneurs must work harder and take on more roles in the beginning. This is to make up for the limited resources and connections. But don’t feel too intimidated! Reach out to us at TheCodeWork and we will help you iron out all the crinkles in your bootstrapping journey.
As you can clearly see, the cons of bootstrapping outweigh its pros by far. It is true–bootstrapping a business is nothing less than an adventure. But self-funded startups often face an additional number of challenges.
So, if you are planning on building your startup soon, ensure that you make the right decision regarding its finances. Consider what’s at stake here. You will probably have to give up a steady income, operate with scarce resources, raise brand awareness, hire and manage a team, handle legal formalities, and so on.
Sounds like a lot of work? That’s because it is. But TheCodeWork’s STARTUP ECOSYSTEM is here to lighten the load. So stop worrying and reach out to us for a free consultation now!
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