Do you know how much venture capital (VC) firms had invested in startups in the last year alone? Over 85 billion dollars! Ironically, almost 90% of the startups that received this funding are bound to fail in the next two years.
In fact, experts suggest that startups – which are not funded – are more likely to become successful. They hold the point that this happens because startup founders who have their own funds at stake (bootstrapping a business) are more likely to work in their startup to get their funds back.
From Day One, a bootstrapped business has no choice but to make money. There’s no cushion in the bank and not much in the pockets. It’s make money or go home. To a bootstrapped business, money is air. – Jason Fried
What is Bootstrapping?
In a bootstrapped financing model, the business founders use their own savings, investments, and earnings to finance their business. The bootstrapped business model keeps the founders off debt and allows them to control expenditures and spendings.
This model is different from the funding model where investors fund a company to get a share in its equity. When investors invest money in a startup, they share the company with the founders, and therefore founders are less likely to work hard. It also builds a cushion for them and most of them think that they have enough funds in stock, so they shouldn’t worry about the financial costs.
Harvard Business Review (HBR) sums it up as, “Learning to improvise like that is essential to startup success, and it’s hard to learn unless it’s forced upon you. Bootstrapping does just that.”
Why Bootstrapping a Business is Necessary?
By bootstrapping business, you eliminate outside influences from your it. This means you are free to focus on building relationships with businesses of your choice. You can partner with other businesses or hire resources that you think will help grow your business.
Most tensions emerge between investors and founders because often they are not on the same page. Where founders have one vision and would like to take the startup towards that, the investors have another vision and tend to get things on that path.
One should also note that a VC firm or an individual investor, whoever is investing the money, is eager to take the product out in the market fast. They focus on generating revenue so that they can double their investments in a short span of time. However, serious founders, who own the idea, want to build something sustainable, impactful, and resourceful. When both these conditions don’t align, it triggers a messy environment that can lead to tensions within the startup. That is also a reason why most startups fail in the first place.
Pros and Cons of Bootstrapping a Business
Just like another business model, bootstrapping has its own pros and cons. It is perfect for people who have enough financial stock at hand and love to pursue their own dreams. Let’s weigh these pros and cons to understand which one will fit your business and why.
Pros of Bootstrapping
- Investors can’t influence your business:
Bootstrapping your business gives you the power to be your own boss. In a funded startup, even the CEO has to listen to investors and other stakeholders. But when you are the founder of a bootstrapped startup, you don’t come under the influence of stakeholders.
- You don’t have to worry about equity:
Startup founders hate sharing equity with someone else. But when they get funding from someone else, they have to share the equity with these stakeholders. However, this is not the case with a bootstrapped startup.
- You can take risks:
As mentioned above, there are occasions where startup founders might not agree with each other, and this can reduce the vision of the startup founder. But when the startup is bootstrapped, the ball is in your court. You can take as many risks as you can and steer your startup in any direction you want.
Note: You will have the full liability of your business. This means if the startup fails, you will lose all your money.
Cons of Bootstrapping
- You have to search for mentors:
One drawback of bootstrapping your business is that you don’t get mentors from the package provided by the VC firms. When investors and VC firms partner in your business, they try to help you bring in more revenue. To do so, they will employ the services of mentors, startup experts, and financial gurus. You don’t get these services if you are bootstrapping a business.
- Your growth will be relatively slow:
Bootstrapped startups don’t grow as fast as the funded startups grow. This is because they have fewer resources. But that doesn’t mean you shouldn’t work hard. In fact, Neil Patel has shed light on how one bootstrapped startup, MixPanel beat his startup KissMetrics.
- You may have to hire talent at a lower cost:
Another drawback of a bootstrapped startup is that you may have to hire cheap talent because of the lack of funds. This doesn’t necessarily mean that you should hire cheap talent. Instead, you can give your hirees a share in your business instead of higher wages.
Tips from Startup Experts for Bootstrapping a Business
Learn how successful startup founders bootstrapped their businesses. Read about their experiences, the mistakes they had made and how they overcame them to launch successful bootstrap startups.
The Co-founder & CSO of Cloudways said:
1) It is a marathon, not a sprint!: Don’t rush, don’t try to overachieve, don’t burn yourself out … bootstrapping a startup is like slow food: find the right healthy ingredients. mix them with craft and be patient to get an outstanding result. Time is in your favor. A funded startup needs to rush to grow to be able to get to the next raise in shape to repeat the cycle again … time is against them.
2) A fool and its equity are soon parted: Again patience. As you bootstrap your business and grow it nicely, opportunities will pop up to get funding, sell … Think carefully and time it properly and don’t take the money if you don’t know what you will do with it. A typical and very reasonable option would be liquidity for the founders. Build relations to make it happen when and how you want it happening.
3) Be unforgiving when hiring: In hindsight, I think this is key. Of course for every kind of company, but bootstrapped startups have a very short runway. Mess it a couple of times or in certain positions and you are mostly done. Research on best hiring practices, don’t take shortcuts, don’t settle for “good enough”.You need outstanding people with complete culture fit and vision alignment to get where you want. Take this as your main job (among a zillion others) as a founder.
It’s easy to burn through a lot of cash trying to figure your business out. Bootstrapping (especially in a recession) has forced us to focus on what works, and on gaining traction.
The right time to make money is when you have something that works and you want to blow it out of the water with explosive growth. Taking money too early often hurts more than it helps, and looking back on our growth, we believe that would have likely been the case with us.
Focus hard and focus on your core. Almost anyone can make anything great if they focus on it and dedicate their life to it. If all you did was think about how to make one specific thing awesome every day, you would succeed.
Entrepreneurism is glamorized and romanticized, but at the end of the day, it’s really, really hard work, and it requires a lot of sacrifice—not just from you, but from the people around you. Make sure your friends and family are ready to support you and then jump in. Don’t let the fear keep you from doing it. You only live once, so if this is what you’re passionate about, don’t have any regrets looking back on your life. Just do it.
The Co-founder of Cloudways has said:
1) As you would not need to go to any VC or Private Equity, you may end up being the smartest person in the room (without BTDT) which is VERY dangerous. Make sure to plug the outside wisdom from Advisors/Coaches as soon as you reach 100K$ MRR.
2) Being bootstrapped, the moment you are scaling (i.e validation, initial traction has done) and having very good cash flows, you would try to balance your personal risk (withdraw money for yourself) vs the re-investments you should do in growth, people, research, etc. Make sure you don’t end up hurting the business at the cost of your personal needs. Go with minor liquidity if this is the case so you keep re-investing and stay healthy (both personal and business)
3) Remember John Doer’s quote: “ Entrepreneur does more than anyone thinks possible with less than anyone thinks possible.”
Take a Chance With Cloudways
Try out the demo first before you decide.
The CEO and Co-Founder of GitHub said:
Do it, but be smart about it. Use your brain. Think about what makes the most sense for you. Worry about every dollar you spend before (and even after) you’re profitable. Focus on the things that matter and don’t waste time endlessly redesigning your site or tinkering with new technologies.
The CEO of MobileMonkey has said:
1. Be (somewhat) delusional in your goals: When I created the business plan for my first company, WordStream, I projected $26,000,000 in revenue in 5 years. 99% of the candidates for hiring and investors looked at it and said: “this is crazy.” Maybe 1% looked at the plan and were inspired. These are the believers — the 1% of people you need who can turn your crazy vision into a reality. In the end, WordStream ended up beating my projection! The goal wasn’t even big enough!
2. Find your unicorn growth hack: It’s a fact that 70% of your growth can be attributed to the top 3% or 5% of your campaigns. A fraction of your blog posts and social posts drive the most traffic and get the most engagement. You want to look for those rare and remarkable opportunities that offer insanely high conversion rates. Look to your past to find your unicorn growth hack. Everyone has a unicorn.
3. Make unicorn babies: When you’ve found your unicorn growth hack, replicate that same idea. This may seem pretty obvious, but in my experience, 95% of marketers favor new, unproven ideas over tested, proven ideas. I think it’s totally the wrong way of thinking. If something worked in the past, it will probably work again in the future. Make unicorn babies with your successful unicorns. Be a Unicorn in a Sea of Donkeys!
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The CEO of Cardswitcher said:
I’ve worked with bootstrapped businesses in the past and my current start-up, Cardswitcher, is a bootstrap business. Here are three pieces of advice I swear by:
1) Get in the right mindset: You might be a seasoned entrepreneur, but I can assure you that setting up and running a bootstrap company is completely different from the conventional ones. It takes a very specific mindset to succeed – a DIY attitude that combines effective prioritization with exacting financial scrutiny.
2) Obsessively track profitability: Unlike those businesses lucky enough to have an angel investor or venture capitalist behind them, all of your capital is going to come from what you can directly input yourself when you’re bootstrapping. So you’re going to be acutely aware of getting as much bang for your buck as possible. That means you need to keep very close track of your overall profitability. After all, a bootstrap business needs to be profitable right away or within a matter of months – not five years along the line, like other businesses.
3) Know when to ask for help: You can often develop a siege mentality when you’re bootstrapping a business, just relying on your own resources and ingenuity to solve challenges, but sometimes that won’t necessarily be enough. Everyone needs help or advice occasionally, so don’t be afraid to approach other friendly entrepreneurs or groups for advice about how to solve particular problems. Your bootstrap will help you in the long term.
Bootstrapping is a force function for creativity and breakthrough. It’ll challenge you to think outside the box and to do things differently.
In order to get the most out of bootstrapping, you need to learn to become an expert in scarce resource utilization. The key is to find clever ways to maximize the value of every resource you have. It’s important that bootstrapping be a tool in service of the objectives you care about the most, not the objective itself. It takes constantly questioning oneself to make sure these two are continuously aligned.
The Founder of Startupily said:
1) You need to have a kick-ass co-founder: If you are going to bootstrap a business then you and your co-founder need to be passionate about the business. Your skills should complement each other. Focus on where your strengths lie and work on what each person can do. If you or your co-founder don’t have the drive, passion or work ethic of making your business successful, then it will have a negative impact on the business and you won’t go far.
2) Promote, Promote, Promote your business: The only way for customers to get to know about your business is by marketing and promoting it. You should try all avenues of marketing to see what works and what doesn’t. Scrap the strategies that don’t work and focus on what does. Try to get your business out to the world as soon as possible. Speak to online blogs, websites, media sites, PR to write articles about your business, create videos and get featured on as many publications as you can. This will help you get customers and will be good for marketing.
3) Patience, passion, dedication and hard work: You need to be excited about your business. Put in the hours, have patience as there will be times where you would want to quit, but don’t. It takes time to build and grow a business. Stop listening to people who say your idea won’t work because they are just there to put you down. Believe in your abilities and just go for it.
The CEO of My Corporation said:
1) Go into it prepared. When a business is bootstrapped, that means it is completely self-funded. Figure out what your course of action will be to finance the business, whether it’s through savings or using personal credit cards, and what your strategy will be to budget and stick to that plan.
2) If you have any existing debt, pay it off in full before you begin bootstrapping a startup. You will need every dollar you can get!
3) Maintain a positive attitude. Bootstrapping means crunching every possible number and sticking to a very tight budget. It can be difficult to penny pinch this much day in and day out, so try to see the benefits that bootstrapping ultimately provides your business in the long run.
The CEO of Brand Alignment said:
1) The key to successful bootstrapping starts during the idea phase of the company. If your business model is not built for low overhead, then you will run out of personal financing very fast.
2) Rather than hiring employees, pick shareholders that have jack-of-all-trades skills. If you are starting an online business, then marketing and programming experience is invaluable and will save a lot of money in freelance costs and unnecessary ad spend.
3) Experience. Experience. Experience. If you already know the lay of the land, then you know which expenses to avoid, and which expenses they require.
The CEO of Heuro said:
I think using the angel money might risk your company to fail because of the many obvious reasons, but bootstrap has to move very carefully because you might get only one shot, so here is my advice:
1) Save the arsenal: Try to budget the initial cash flow and have some cash savings, it will tight your spending as well as you will act creatively and have some arsenal for the downtime.
2) Focus on early community and brand ambassadors of your company: As AOL founder said in his book, The Third Wave, now it’s all about the community, so make the community and not the market.
3) Delay the VC money: Like in the first point the more you delay the VC money the better secession your company will take. Once the big momentum starts driving your company then you will have the cheap capital, which you can use for the exponential growth of the company.
The Head of Growth, Ormi Media said:
1) Try to spend as little as possible on costs that don’t generate a return on investment (RoI). So for example, if you don’t NEED a new PC don’t upgrade. Instead, invest in your marketing.
2) Collaborating is a great way to grow your business when bootstrapping. Can you skill swap or barter with another company? Find ways in which you can be resourceful through collaboration.
3) Be prepared to put in the elbow grease and put in the extra hours to generate free publicity. It will cost you time, but it pays off for your business.
The COO 0f Rizknows said:
We raised a small angel investment in 2016 but other than that we’ve completely bootstrapped our business. In my mind, there are several advantages to bootstrapping a business. First, the owners retain complete control over the business, meaning they don’t have their hands tied by investors or boards when it comes to major decisions.
Additionally, the owners retain 100% equity in the business meaning they receive 100% of the profits and 100% of the proceeds if the business ever sells.
1) Establish a litmus test: When bootstrapping a business, you have to come up with a litmus test to determine what to spend money on and what to ignore. For example, ask yourself whether the particular investment in equipment or supplies is necessary to operate the business? If the answer is yes, then spend the money. If the answer is no, then ask whether the purchase will help the business grow? If the answer is yes, then again spend the money. If the answer is once again no, then you should probably hold onto the cash.
2) Review financial statements on a monthly basis: You’ll want to keep a close eye on your financials. As such, I’d recommend conducting a financial review at the end of each month. This way you can gain a better understanding of what expenses you can cut down and make timely adjustments if needed.
3) Hire slowly: Don’t feel pressured to run out and hire quickly. It’s okay to take your time. I learned this lesson the hard way. In short, we needed to hire additional employees very quickly over the past couple of years due to growth.
The problem I ran into is that I was so focused on growing the company that I didn’t take the time to properly vet and interview candidates. I just wanted to hire as quickly as possible and plug them into the machine to keep the things moving. However, after a couple of weeks, it was apparent that I had hired the wrong candidates. Whether they didn’t possess the skills necessary to succeed in the position or didn’t fit into the company’s culture from a personality standpoint.
These hires actually hindered the company’s growth, which is quite ironic given I was aiming for the exact opposite. Needless to say, I now take hiring and training much more seriously, and spend a good amount of time vetting candidates, calling their references and exploring their backgrounds to determine whether they’d be a good fit.
Consultant & Media Guru of Transformpreneur said:
1) Instead of squandering money on things like fancy offices and elegant furniture, invest your resources in providing the best possible experience with your product or service
2) Start from the ground up, as a socially conscious company that uses its products and services to address core issues like, how to turn hunger and poverty into sufficiency, war into peace, and catastrophic climate change into planetary balance
3) Market that commitment–and market differently to different audiences.
Hassan Al Nassir
The CEO of Premium Joy said:
1) Use Free Business Tools: As a bootstrapping startup, you should seize all opportunities to use free tools for your business. For SEO and keyword research, you can utilize Google Keyword Planner which is totally free rather than throw money into a paid app like SEMrush or Ahrefs, which costs almost $100 monthly.
2) Utilize a Free Website Theme: If you want to reduce your startup costs while setting up your business website, look into employing a free theme rather than doing a custom design, as most popular web platforms (e.g. Shopify or WordPress) do offer complementary templates which can be customized to your liking.
3) Learn How to do any Tasks Needed Yourself: Try as much as possible to learn about all the tasks needed for your business to implement them yourself, instead of hiring someone and paying money unnecessarily. You can find all the knowledge necessary for running a business freely available online, whether it’s about analyzing the market for opportunities, sourcing products from overseas, setting up your company website, or doing internet marketing.
The CEO of Blue Corona said:
1) Don’t run out of cash. You’ll make a lot of mistakes starting a company. Your mistakes will help you learn the lessons from them. There’s only one mistake you can’t make-don’t run out of cash!
2) Your success or failure comes down to the early team. Hire people who see problems as puzzles. Hire people who are really good at a lot of different things and who are totally excited and bought into your vision and mission.
3) Build a marketing machine. One of the most important assets on your path to viability is a marketing machine that generates new customers/clients at an acceptable cost. In order to do this, you need to adopt a mantra: track, test, tweak, repeat.
The of CEO, TeamUP said:
1) Get specific with your product and service. Find where the gaps in the industry are, and then identify the people who can use your product the most! The more specific of a problem you can solve, the easier it is to find the right client or find someone who knows that client.
2) Make the calls yourself. It may terrify most business owners to actually pick up the phone themselves and call their prospects. Use that to your advantage! While most people are sending LinkedIn messages or emails, pick up the phone and call your prospects and say you only want 15 minutes of their time.
3) Talk to everyone. Tell the world what you’re doing. Go to local networking events, knock on local business doors, tell all your friends, etc. The more people you talk to and the more specific your product is, the more likely someone will remember you and pass your contact information over.
The Co-founder of Kommunicate said:
I have co-founded and successfully bootstrapped Applozic Inc. and Kommunicate. I firmly believe that funding has killed more startups than it has helped to grow but other than this thought, my tips for bootstrapping entrepreneurs will be:
1) Don’t hire for senior sales position such as VP of Sales: It will only increase your burn rate as it will not bring in the value that you perceived. At an early stage, you are the best person to sell your product as no one knows it better than you. So be involved in sales even if you are a techie.
2) Value your Product and Team: Do not give your product for free (unless you have a freemium model). You might come across many startups who will play the startup card asking you to offer your product for free. Don’t accept unless you get something in return. If everyone starts giving their product for free. In the end, there will be 0 customers and 0 revenue.
3) Growth is the only KPI: Keep a track of your weekly growth rate. As long as you are growing by 5-7% every week, you will probably not need any external funding. Growth is the only thing that matters and all your decisions should focus on growth targets.
The CEO of Plan Beyond said:
When we work with the founders of bootstrapped businesses, we always make three core recommendations.
1) Rather than bringing on full-time marketing employees, consider leveraging a distributed workforce and contractors as much as possible to keep overhead costs low. This allows you to frugally test your way into activities that will work for your business before bringing in full-time staff to support them.
2) Leverage your network to its fullest for new customer acquisition. Do you know people who can use your services? Do you know people with strong social media followings who can talk about your business? Word-of-mouth is an extremely effective and cost-efficient way to build awareness and interest in your business. Use it!
3) Make sure you always have a way to test the efficacy of any marketing program you do. Building the right foundations in your business so you can always measure and assess how effective your marketing campaigns are, is the only way to know if you’re spending your marketing budget wisely.
The Co-founder of Format said:
Being a bootstrapped startup founder, I can understand. My three points for aspiring startup founders are:
1. Get a good co-founder: There’s too much to do and literally no money so make sure you find a good partner. It will be a long time before you have people in dedicated roles, so find someone who is well rounded and isn’t afraid or too proud to do any job. Ideally, find someone who enjoys doing the jobs you hate.
2. Develop financial discipline: personally and professionally. If you’re bootstrapping a startup you’re going to need savings and financial discipline. You live and die by your cash flow so make sure you can deal with both emergencies and sudden opportunities. Missing on either of these can deal a fatal blow. The flip side of this is learning when you’re wasting money or missing an opportunity by not hiring someone, not outsourcing certain tasks, or using some cheaper alternative instead of the tool you actually need. Make sure you’re investing for success instead of just survival.
3. Never forget your customer: Your early customers are the most precious asset you have. Not only are they your source of revenue, but they’re the source of essential feedback and, hopefully, they’ll be your first evangelists. Make sure you’re always listening to them, being of service to them, and being real with them. Getting this right can really prime the pump on multiple fronts.
The CEO of Startup Life said:
With four businesses to my credit, I know from personal experience how to launch, brand and build a business without spending a lot of money, or wasting a lot of time.
1) If you have an accelerator program in your community, preferably a non-profit/free program – apply to it. Accelerator programs provide training to newbie founders, provide mentors to give you much-needed advice and feedback, provide a structured setting to help founders focus on their business and a support system with other business founders.
2) Enter pitch competitions. It is the best exercise to prepare a founder to speak clearly and succinctly in front of a crowd about his or her business model and value proposition. Pitches provide free advice and expert feedback from seasoned entrepreneurs and investors; an opportunity to increase brand awareness; you can win money and/or complimentary services; networking at the event can create introductions and open doors to secure new hires, attorneys, seed funding, etc.
3) Hire a bookkeeper! Founders are strapped for time and need to carefully manage cash flow. The bookkeeper can take care of payroll, taxes, and provide the most important tool for a business owner: a monthly cash flow statement.
The CEO of Raven Protocol said:
I’m a serial entrepreneur who has both bootstrapped businesses and raised funding. There’s an unspoken sign of respect when you meet someone who is bootstrapping.
1) Be proud of bootstrapping: If you can get through this, with minimal resources, you will be successful. This is infinitely harder than having the cash to solve your problems.
2) Define what success means to you: It’s easy to blur your vision with the Techcrunch stories of another company in your space raising $80M. You start to question yourself. Should you have raised money? Having an internal metric for success means you can be happy about your accomplishments.
3) Reinvest in your business: Since you never raised any funding, cash is always tight. Use your revenues wisely. It will pay off long-term.
Best Bootstrapping Examples for Entrepreneurs
There are thousands of stories of bootstrapped startups that have become successful. But since we can’t list all of them, here are four of the best bootstrapping examples for your motivation.
Our first bootstrapping example is of Sara Blakely, who came up with the idea of now-famous spandex undergarments when she was getting ready for a party. The whole thing took off with a slacking undergarment. In the end, she chopped off the legs of her pantyhose.
Later, when she was 27, she started her company using all $5,000 of her personal savings. Today, her startup is about $400 million. She owns 100% of the startup and did not take a single penny from investors or VC firms.
Nick Woodman, the founder of GoPro, found a gap in the sports camera niche while surfing in Australia and Indonesia. He noticed that the surfers wrapped cameras on their wrists to photograph their adventures. But most of the cameras ended up breaking loose and fell into the water.
Hence, Nick had to use his personal savings and took $35,000 in loans from his mother to launch GoPro – initially known as Woodman Labs. He bootstrapped the business until 2012 when a tech firm Foxconn injected $200 million into his business. Two years later, the business was valued at more than $2 billion.
Craig Newmark, the founder of the world’s biggest classified platform ‘Craigslist’. He started the service as a newsletter in 1995. His purpose was to update his friends about interesting events in and around San Francisco. Soon, the word spread about his newsletter. Keeping the demand in perspective, Newmark was posting jobs and lists of items for sale. He first hit a million page views in 1997.
Still believing the business as a side project, Newmark didn’t register his company until two years later.
He kept running the business by his own funds until 2004 when eBay finally invested $32 million for a 28% share of the company. Fast forward to 2016 and Craigslist has made over $690 million in revenue.
MailChimp, the email automation software, has an interesting bootstrapping story. It was started in 2001 as a marketing automation software. But the startup didn’t receive any special attention from investors. Therefore, the founders Dan Kurzius, Ben Chestnut, and Mark Armstrong kept running it by pouring-in funds from their own pockets.
They kept enhancing their API and improving the overall software. The big break came for them when they switched to the freemium model in 2009. The company was finally successful and managed to earn huge profits. Now it has over 12 million customers. Last year it made more than $400 million in profits.
Is Bootstrapping Model for You?
If you are starting a business for the first time, then it is better to go bootstrap. Because by bootstrapping a business, you can learn everything about startup finances, costs, and budgeting. Confidence is the key for you. Believe in yourself and you are good to go.
If you are a serial entrepreneur and know that your business will bring in more revenue, then you can also opt for funding. In fact, many serial entrepreneurs get funding for their businesses even during the ideation stage, because they are sure that the business will succeed.
Arsalan, a Digital Marketer by profession, works as a Startups and Digital Agencies Community Manager at Cloudways. He loves all things entrepreneurial and wakes up every day with the desire to enable the dreams of aspiring entrepreneurs through his work!