As an entrepreneur sooner or later you’ll have to make decisions about how you’re going to fund things, normally one of the very first decisions actually. The implications can be massively significant to your business now and in the future.
As someone who has started my own business and worked with-in a business that’s got outside funding I know the difference. I believe bootstrapping is the best option. It won’t be glamorous and it will be hard work and it won’t be easy but it will make you a better and stronger business and these are the reasons why;
- Less Outside Influence; to raise outside investment means you’re going to attract attention to yourself and your business, it goes with the territory. This can be very glamorous and exciting when its happening, during the courtship period just before a deal is done. But your secret will be out and what may appear to be small and insignificant demands for change may be made to get the deal done. These never turn out to be insignificant! The advantage of bootstrapping is that you can stay below the radar which may make all the difference when negotiating with customers and avoiding or out manoeuvring the competition.
- Creative Freedom; Very similar this point to the less outside influence point but I think that it’s worth saying that the freedom that an entrepreneur has when managing a project is priceless. By bootstrapping a company, using your own funds without the stifling accountability of an investor who is only interested in protecting their financial investment you keep your freedom and retain control over your project, your product, your business.
- Faster Progress; less cash = less time to get your business off the ground. This will be a massive motivator to get your product to market. It may not be perfect but hey, you can always launch version 2.0 when you’re ready and then you can market that as an improvement. Outside investment will dull the need for speed giving you a comfortable cushion adding months to your perfect launch.
- Better (Way Better) Products & Services; limited cash and time will mean you will have the pressure of getting your products or service as right as they can be first time. Every penny/cent spent must make a return, to do this you are going to have to pay very close attention to your customers’ needs by being as right as you can. The nett result is great products and services and a great brand.
- High(er) Rewards; as the founder and only owner of a company being bootstrapped you will take the rewards undiluted. You retain control, you retain equity. By doing this you will be motivated for success; if the company succeeds so do you and at the highest multiple of reward.
- Better Margins of Profit; staying lean means profit and value will be at its highest. It’s a simple fact that companies with low overheads enjoy larger profit margins. The longer term view of this is that if an exit is being considered that profit margins are used as a multiple for valuation and higher margins means bigger pay-outs.
- Smaller = Vigilance; less start-up capital means you are forced into being careful about your assumptions before you choose to scale. Small means you understand much more intimately your products and services and your customers’ reactions and needs. And if you make a mistake (all entrepreneurs make mistakes) its smaller in scale and much easier to clear up.
- Being Smart; it’s your money so you will be cautious. You will never be as careful with someone else’s money as you are with your own. Bootstrapping will make you wiser, make you a better manager, incentivize you and force you to grow your business from a position of understanding customers and markets. Learning how you can do more with less (a key of the 21st Century business world) is one of if not the most important skill of an entrepreneur.
Each and every entrepreneur will be different and have a different, or even unique product or service. But the one constant of entrepreneurship is the ability to execute effectively. Bootstrapping makes you powerful, intelligent and vigilant providing you with a fulfilling and challenging way of executing you new business.
As always, thanks for reading.