TL;DR - Advantages and disadvantages of bootstrapping a startup (no outside investment)
Helpfulness - 5
Tags - bootstrapping, self financing, pros and cons of bootstrapping, entrepreneurship, initial capital, growth of startups
- What is bootstrapping?
- What are the pros and cons of bootstrapping a startup?
- What do entrepreneurs need to do if they are going to bootstrap their startups?
- Bootstrapping a startup, if successful, may bring founders even more rewards.
- However, it also has downsides, so it is important for founders to know the trade-offs.
- Bootstrapping a startup means starting lean without outside capital and fueling growth internally from cash flows produced by the business.
- Bootstrapping a startup means the founder can continue to own 100% of the businesses - even with a much smaller business and revenues, the founder’s share may be worth more than if he/she raised outside capital to achieve a billion dollar valuation
- Control over direction
- Bootstrapping means no exterior pressure and responsibility to satisfy other parties’ interests that may be different from the founder’s vision and values.
- Although solutions like super-voting rights can give the founder more control when raising outside capital, bootstrapping gives the most control over decisions.
- Keeping a lifetime/multigenerational business
- Outside investors normally put founders on a clock for achieving a sizable exit within about 10 years.
- Sense of accomplishment
- For many entrepreneurs, building a successful venture independently gives a greater sense of accomplishment than using the help of outside capital.
- Building a business model that really works
- Founders bootstrapping their startups are forced to quickly build business models that work and can produce positive cash flows and profits right away.
- Lower chance of survival
- One of the most common reasons for startup failure is cash flow shortages.
- Some founders never get to realise the potential of their startups because they do not have enough budget for their startups to stay afloat due to limited financial resources.
- Outside capital allows founders to scale big and fast.
- Without outside capital, founders have limited options in terms of marketing, customer services, product development, etc, which can stunt growth potential.
- Top level help
- Raising outside capital can bring not only cash but also top level support/guidance for startups.
- Hard work
- Founders bootstrapping their startups need to work more hours and manage more roles.
- Staying organised
- Founders bootstrapping their startups should also make sure basics such as bookkeeping, taxes, and systemizing processes are covered
- They can make a big difference when it comes to filing with the IRS, trying to scale, or raising outside capital later.
Follow up links:
- How to bootstrap a business, https://www.entrepreneur.com/article/305600
- Bootstrapping guide, https://neilpatel.com/blog/bootstrap-startup/
- When to Bootstrap vs. Raise Equity, https://www.lightercapital.com/blog/bootstrapping-vs-raising-equity/
Interviews with successful founders who bootstrap their businesses,