The Pros and Cons of Bootstrapping

Posted by Travis Levell on 2014-09-02

Many entrepreneurs require funding for their company or idea. Although funding may not always be a necessity as early on as many founders think the large benefit that it does offer is the fact that with funding, things can executed either much more quickly, be launched on a much larger scale, or both. Before deciding what type of funding that you may need, it is important to discover what type of funding options you have.

In our Startup Funding Demystified, series we uncover the inner workings of one of the most sought after things in entrepreneurship. Funding. Whether you are only an aspiring entrepreneur or have already started a company we are presenting some valuable information that will help anyone in their journey.

So what is Bootstrapping?

Quick Definition: According to Investopedia, bootstrapping is “A situation in which an entrepreneur starts a company with little capital. An individual is said to be boot strapping when he or she attempts to found and build a company from personal finances or from the operating revenues of the new company.”

Analysis: Bootstrapping is the most attainable option for first time entrepreneurs to move forward with their ventures. This often inspires creativity as bootstrapping entrepreneurs don’t have the resources that well funded ventures do, but they still plan to make it as successful as possible. This forces entrepreneurs to reach their goals by other more creative means, which require little to no money. Here is a list of pros and cons to evaluate when considering bootstrapping.

PRO: Greater Focus

Bootstrapping can also take out another pressure point of many startups which is having to impress investors to raise funding. This often will split an entrepreneur’s time between focusing on creating a great product that customers love, and focusing on trying to impress investors. Entrepreneurs that are bootstrapping essentially only have to focus on pleasing one group; their customers. If an entrepreneur can successfully bootstrap, they will often end up with a great product and loyal customers. It can give you greater control over your project.

CON: Time

When bootstrapping a company, time is usually a large obstacle that you have to overcome. You often have to keep your day job and work on your project on the side. This leaves a minimal amount of time for you to devote, especially if you have other obligations in your life. This then leads to your project taking a longer period of time to execute; sometimes years.

PRO: Easier Pivoting

Without pressure from investors, stakeholders, and a board of directors you can pivot much more easily. Having executive power over your project can prove to be beneficial as you continue to get customer feedback.

CON: Lack of Investor support

More times than not, investors provide more than just money. They usually provide valuable and strategic connections to people such as additional investors, possible team members, advisors and even to larger organizations which my buy your company. In many cases, the connections made through investors have played a key role in the success or failure of a companies.

PRO: You don’t dilute your ownership

In connection to the lack of pressure from investors, you also enjoy the benefits of not having to give up equity in your company. If you become successful bootstrapping you can seek additional funding whenever you need it, but in most cases investors will end up taking less of your company while doing so on your terms. This is due to that fact that your company will be in a later stage, and will have already achieved a certain level of success, which makes the investment much less risky for investors.

CON: Personal risk

When bootstrapping you stand to gain a lot more if your company is a success, but you also stand to lose a lot more if things go south. Your venture often will require some monetary investments which, of course will have to be taken care of by you. On top of that, many entrepreneurs at some point take the leap to pursue their project full time; which can be more risky for you especially if your company doesn’t yet have enough profit to pay your bills.

Bootstrapping a startup can be a very beneficial option for many entrepreneurs if they can execute it successfully. These are some pros and cons that should be weighed if considering bootstrapping instead of seeking funding immediately.

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