Bootstrapping-Startup funding stage #1
Reshma Kanase | Aug. 23, 2020, 5:04 a.m.
The Bootstrapping term is derived from words of many different origins. Here, we are not talking about software-related Bootstrap program nor about booting up. Although the term can be said to be derived from ‘booting up’ used with respect to computer programs which means starting a program or a computer.
Bootstrapping in finance and entrepreneurship is quite comparable to the straps on long boots used to lift them up without using any other aid. Similarly, bootstrapping here is about beginning a start-up and pulling it up using only personal or family's or close friend’s finance and without any capital from official investors or agencies.
More precisely bootstrapping does not only means starting a venture with personal finance, but also using the personal finance and profit capital obtained from the business for further re-investments or expenditures required in the venture and not using any other financial assistance from any other source.
There are many entrepreneurs who had kicked off their business with bootstrapping and continued with it for a long period of time until they made it profitable or got investors. The duration of bootstrapping can vary according to the financial status of the company and consumer demands. While starting a business, it’s founder has two options, either to bootstrap his business or take financial assistance from other sources. But, it is always preferred to bootstrap a start-up. Since bootstrapping, one can start at a small scale with personal finance, and find out the customer needs, get feedbacks for developments. Also, since the investment would be small, any loss which occurs will be bearable. Further, after improvements, a founder can check out the sales of the product or service and the capital he has, and then accordingly decide whether to continue with bootstrapping or uptake external funds for stabilizing or scaling up the business.
Previously, many skill-developing resources were not available online as much they are now, therefore there was a need to hire a number of professionals in different fields, which used to increase expenses of the company. Now, much knowledge is available online and is also accessible for free, like graphic designing, website development, social media marketing, etc. can be learned and worked upon by the founder himself during the initial stages of start-up, which can help to save money. Since during the initial stages of start-up, capital distribution is the most essential step and it should be done, considering all permutation and combinations, such that the founder is still able to resolve any financial issues that may arise in the future.
Just like every coin has two sides, bootstrapping also has its own advantages and disadvantages.
ADVANTAGES :
1.Since personal finance is used all equity is yours and no need to share equity. Therefore, no financial assistance means, no need to share profit capital.
2.All finances are yours, then all profits are yours; so you can reinvest profit and not have to carry the burden of any loans or debts.
3.Since no other financial assistance taken, the founder can take his own decisions independently at any point of time and has no investor control and pressure.
4.Founder can try out different changes required in the product according to him, without any interference of other's opinions and ideas for product development.
5.Limited capital is available, which is used wisely. While when more funds are available that is when outside finances used, there is a possibility of an entrepreneur to become carefree and spent a lot unnecessarily.
6.Small losses are better than huge debts before scaling up.
7.No time and energy is wasted in finding financial assistance and convincing investors.
8.No time is wasted in completing the training programs provided by funding institutes.
DISADVANTAGES :
1.Personal finance at stake, therefore the entrepreneur is under mental pressure and worries.
2.Limited capital is available for product development and other expenses.
3.Since limited resources are available the founder can’t scale up faster, therefore slower growth of the enterprise.
4.Bootstrapping requires profits for reinvesting, if there are no profits made in the early stages of start-up, then how will the founder reinvest unless he has kept capital aside for reinvestment.
5.Venture capitalist or funding agencies provide connections with experts in different fields, which provides more recognition to the product, and also their expertise indeed helps a lot.
Here are some examples of companies that believed in bootstrapping their start-up; Go pro, Coco-Cola, Apple, hp, Dell, Microsoft and many more are the successful ones.
So go for the way that best fits you.
