And, as has been discussed ad nauseam, it was harder to build digital companies a few decades back. Bootstrapping today Go back in time to the dot-com boom, and it was normal for startups to spend early capital on physical hardware.
Without investors to keep happy, you'll have better control over the direction your company takes. If you want to try an alternate product design, shift your business model, or completely change where your company is headed, you won't have to worry about getting the go-ahead from anyone else. This control will allow you to focus more on building a strong foundation and perfecting operations through trials without worrying about the errors, which could help you develop more sustainable growth.
Bootstrapped companies may open a credit card to build business credit or make one-time purchases. But they're never reliant on outside funding to move operations along.
Most of the debt you accrue if any will be promptly paid off, so you won't have to worry about owing on a massive loan if things don't work out as planned. While bootstrapping is a great way to develop the company you want without incurring much debt, it can also be a stressful venture. These are three of the downsides of choosing this route for funding:. The most obvious risk with bootstrapping is putting your own money directly into the company. When your business takes a hit, whether due to lack of sales or an unexpected expense, it will impact you directly.
Despite having less debt to worry about, self-funded businesses are at higher risk for stagnant cash flow and running out of money altogether. Without backing from established investors, it can be harder to find the connections you need to build your brand, prototypes, and more.
You'll have to develop your customer base and find collaborators on your own without funding, guidance, or introductions from someone who knows the startup landscape well. Bootstrapped companies often aren't able to achieve exponential growth. You'll probably focus on developing your minimum viable product or otherwise keeping your operations afloat. As such, you may not have thousands of dollars to spend on Google, social media, and other marketing channels to generate interest.
At the same time, you might not want to generate too much interest when you're bootstrapping. With a relatively low budget, you may not be able to keep up with intense demand. Keeping your business's growth slow may be the safest option. Despite the downsides of the practice, bootstrapping is part of many business owners' success stories. Here are two real-world examples of companies that made it big without outside financial help. It's when you're not beholden to someone else for capital.
That's a lesson also born of living through two downturns of the internet -- and it's why I focus so much on profitability. Bootstrapping makes you appreciate your business more because you have so much personally invested. It creates a culture where exceptional performance becomes the norm and team members are fully accountable to each other to meet this goal.
Lean times may be rough, but it will make each success that much more rewarding. Related Video: Embrace Being Broke. Justine Beauregard. Nathan Miller. Jaime Schmidt. Eric Hanson. Skip to content Profile Avatar. Subscribe to Entrepreneur. Magazine Subscriptions. By John Suh November 1, You can have an amazing and much needed product or service that people love. Though, if you run into a crunch for just a month or two you may never realize the potential of your startup.
If budgeting shows you that outside capital is the way to go at one point then be prepared have ready 15 to 20 slides with your story to convince investors quickly. For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel see it here that I recently covered. The main reason that entrepreneurs go out to fundraise lots of capital is to scale big and fast. For many that is their strategy to survive and thrive.
All of that can stunt growth potential. Cash is actually just one of the benefits of fundraising for startups. It may not even be the most significant. Enrolling others with a vested interest in your success can bring top level help. It can put board members, shareholders, influencers and big deal makers with the keys to sizable sales channels in your corner, and going to bat for you. Your stock options might not mean much. They say their hiring success is all about getting great people who are really passionate about the vision and mission, and who want to work somewhere they can have a visible impact.
When you have a leaner team, and you are a gung-ho entrepreneur out to hustle to get traction, it can often mean basics get second priority. Like bookkeeping, taxes, and systemizing processes. Those can really bite you back later when it comes to filing with the IRS, trying to scale, and if you decide you do need to or want to raise money.
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