It’s common for startup entrepreneurs to raise capital through equity financing and, in some cases, debt financing. And it makes sense―especially for investor funding. Who wouldn’t want to partner with seasoned investors who fund their entrepreneurial endeavors, provide access to business contacts, and bring a wealth of business expertise and experience?
The trajectory of venture capital has spiked with the increasing launch of new startups. And eventually, you’ll want this for your business. Depending on your circumstances, you may even need investor financing to continue operations. But before entrepreneurs can make it into an investor meeting, chances are they’re growing lean.
Additionally, financing doesn’t come free. You’ll need to give away a portion of your startup’s equity, potentially lose control over your business, and deal with additional pressure from your investors’ performance requirements and expectations. And lastly, if you raise cash too soon, you run the risk of burning through it too quickly.
Starting your own business is an exciting time. If your goal is to enjoy greater flexibility and have full control over your startup, bootstrapping may be a more viable option. Here’s what you need to know about successfully bootstrapping:
What is Bootstrapping and Why Should You Consider It?
You may know many successful entrepreneurs and business owners whose stories revolve around equity financing, but that’s certainly not the only way to achieve business growth and success. It’s possible to start, build, and grow your startup without outside investment. And that’s exactly what bootstrapping is all about; you rely on your own personal funds and business revenue to operate the startup and expand your operations.
The money used to fund the business, in this case, could be from your savings, credit cards, personal income, or proceeds from your sales. You may even take some money from a few of your friends and family and use it to finance the startup. The idea here is to “pull yourself together by your bootstraps” and fuel business growth internally without outside financial support.
Although it’s not an easy thing to do, it’s incredibly rewarding. First—and probably the biggest benefit for any entrepreneur—is that you get to own 100 percent of your business and maintain full control over your startup. You won’t have to worry about paying off loans, giving away equity, or satisfying shareholders’ and/or investors’ expectations.
Second, when the startup grows and becomes profitable, you’ll feel a great sense of accomplishment. You can dictate the direction your startup takes because you’re the one behind the steering wheel. And what’s more fulfilling than having the ability to say, “I built it from the ground up.”
There are many startups that chose to take this route and have achieved their desired growth and success. They include:
- Tough Mudder
- SparkFun Electronics
So, What Does it Take to Successfully Bootstrap Your Startup?
Bootstrapping a startup isn’t as easy as most entrepreneurs think. The story of each of the aforementioned businesses involves innovative thinking, resilience, commitment, and smart decision-making. Therefore, you can’t rush into bootstrapping. Preparation is key. With that in mind, here are five tips to help you successfully bootstrap your startup.
Create a Business Plan
Just because you aren’t immediately rushing towards investors doesn’t mean you shouldn’t create a business plan. A business plan helps you outline your business goals, creates accountability within your company, highlights market data, sales trajectory, and much more. Lastly, if you eventually decide to move forward with funding, you’ll have a head start. Begin with a startup business plan template to commit your business mission and company offerings to paper.
Choose the Right Co-Founder
Self-financing a business doesn’t come with the networking opportunities, business support, and guidance that traditional investor funding offers. Plus, you’re likely to have limited resources during the early stages of launching your startup. This means you’ll have to put in extra effort and work harder to take your business to the next level as a solopreneur.
Bringing a co-founder on board can make a major difference. First, you get to have someone with whom you can pull your resources together, increasing the funds available for starting and running the startup. Secondly, you’ll now have multiple perspectives on how to strategize and approach different issues that may arise.
Finally, you’ll have someone to share the workload with, thereby lessening the burden over your shoulders and keeping your expenses low. Make sure you pick a cofounder who not only complements your skills but also one who’s diligent and committed to the success of your startup.
Validate Your Startup Idea Before Building
No matter how brilliant or revolutionary you believe your startup idea is, if you don’t take the time to analyze and examine whether it has a demonstrable target market, it’s unlikely your startup will survive. The last thing you should do is blindly invest your personal savings and limited resources in a business that lacks market research.
Market validation offers proof that your idea or product offering will meet your market segment’s needs and your business will be profitable. Go the extra mile to produce measurable evidence that informs and justifies the financial commitment you’re about to make.
Find Creative Ways to Cut Costs
Just because you choose to bootstrap doesn’t mean you have to dump all your life savings, personal income, and business revenue into your startup ideas. Avoid making sloppy and risky moves when it comes to spending your money. The good news is that you can always study what other startups and companies are doing or have done to minimize their expenses.
If possible, consider renting a co-working space to decrease your rent expenses. Only outsource or hire if you have too much on your plate, and consider outsourcing time-consuming operational tasks like list building and research. Buy used equipment when necessary, regularly review your operating expenses, and take a DIY approach to PR and marketing.
Create a Business Model that Maximizes Your Cash Flows
Ask any successful entrepreneur who self-funded their business and they’ll tell you one of the things they had to do is to keep their customer acquisition costs as low as possible. Keep this in mind as you create your business model. First, commit to providing your target customers with genuine value and exceptional customer service. Happy and satisfied customers will always talk and share their experiences with other customers. And that’s good for your business. Healthy cash flow is only possible when your startup’s operations run smoothly and efficiently, providing value to customers and ensuring their complete satisfaction.
Nothing is Impossible to Learn
Finally, the best thing you can do for yourself when bootstrapping your startup is to be open to learning new things. Don’t be quick to dismiss something simply because you think you don’t know how to do it. You’ll be surprised at the skills and knowledge you may end up gaining if you only took up new challenges every day. Nothing is too difficult to learn. So, if you’re looking to become successful in your bootstrapping journey, start learning—and keep learning every day.
Dave Lavinsky is an internationally renowned expert in the fields of business planning, capital raising, and new venture development. He is the co-founder of Growthink, a business plan consulting firm that offers industry-leading business plan writing services. Growthink has helped over 1 million companies develop business plans to start and grow their companies.