Updated on: November 29th, 2024 11:42 PM

Bootstrapping for Entrepreneurs

Bootstrapping is not a jargon that is behind one’s comprehension. Businessdictionary.com has defined bootstrapping as “A type of business funding that seeks to avoid relying on outside investors. By not relying on outside sources of funding, the business will not have to dilute ownership through issuing equity, and will not rely on outside banks for debt. This type of funding increases the level of risk for the business owner, since the money for the business is coming more or less out of own pocket”.

In simpler words bootstrapping is starting a business on a small scale with your own money. A business started on credit or borrowed funding also calls for money to be paid back. It’s always advisable to try and arrange for money from own sources. This helps avoid paying high interest to banks or percentage on profit sharing with venture capitalist etc.

There are several entrepreneurs who will agree that they are self made and the business success is owed enormously to bootstrapping. To start a business requires risk tolerance, self discipline, motivation and a competitive edge. It takes enormous efforts to take an idea and convert it into a worthwhile business. The extreme sparseness and simplicity with which a new business set up functions will invariably result in higher chance of success and high returns.

Who should bootstrap

A startup company in its early stages should not take a plunge into obtaining large capital. It’s highly advised that startup companies not borrow capital money from outside sources. This will allow the company to be flexible and grow at its own pace without having to worry about repayment. A serial entrepreneur can also bootstrap by using the funds or profits generated from other business.

 

Success stories of companies that bootstrapped

• Varun Shoor in his interview with Sramanamitra candidly speaks about starting his business with nothing just like his father and grandfather did. CEO of Kayako, Varun Shoor is one such entrepreneur who bootstrapped when he launched his business and eventually led the company to success.
• Shradha Sharma states in the “beginning of a new chapter at your story” on yourstory.com how her idea of starting a venture that would tell the stories of unknown entrepreneurs was received by experts as well as fellow entrepreneurs. Shraddha Sharma bootstrapped for seven years. She firmly believes along with several other bootstrapped entrepreneurs that this style of operating a new business start-up has not earned much recognition as much as the hype fundraising has.
• FastSpring an all-in-one ecommerce and merchandising site is presently worth forty-five million dollars in revenue. The company was started by four successful entrepreneurs from their previous startup. They realized that to take care of customer’s service and use new technology was essential for FastSpring and so the founders agreed to bootstrap and contribute thirty thousand dollars from their own pockets. Of the four founders, three founders worked without salaries living off of their profits from the previous business and one lived off of his savings. With all the groundwork done by them today, FastSpring is ranked amongst top forty-five fast-growing companies. All four founders have managed to work out a good pay for themselves.
• Goldstar is famous as the world’s largest online seller of half-price tickets. Goldstar was started with 1000$ by Jim McCarthy, Robert Graff and Rich Webster. The trio has wasted funds and seen losses from the funds received from a venture capitalist for different business and hence was determined to not seek outside funding for Goldstar. Goldstar started as a bootstrapped company only to work with 4000 venue partners today.
• Plentyoffish was founded by Markus Frind from his apartment. Recognized as one of the famous online dating sites Frind site attracts more than 38 million users. Frind grew his company later but it remained investor free.

Bootstrapping myths

There are companies that bootstrapped and made it big. But that does not mean that no initial fund was invested. When an entrepreneur states that “I started my business with no money at all” it should not be literally taken as such. Even a bootstrapped business will require investments towards business registration, setting up of basic infrastructure, obtaining licenses etc.

Bootstrapping is good, but before you plunge into starting a business its imperative you check if it is ideal to bootstrap the business you plan on starting. Most bootstrapped businesses like EBay, Facebook, HP and others started it small and developed their business during the various phases which led to their success.

• These businesses started with one good idea and evolved over time.
• As the business grew the core values of working, enthusiasm and the zeal to advance along with the need for investment changed.

Therefore you will still need to brainstorm on whether an online business or a traditional business shop would be best run by bootstrapping. While bootstrapping gives entrepreneurs the independence to control and rule the pattern of operating their business- it should not be a barrier for making use of resources from outside when the necessity arrives.