By definition, the term bootstrapping generally refers to a “self-starting process that is supposed to proceed without external input.” In the world of entrepreneurship, bootstrapping a startup refers to launching the enterprise without external funding. But for most founders, bootstrapping a startup really means launching without seeking venture capital, angel investors or other types of investment capital.
And although the majority founders I’ve met talk about wanting to secure investment via venture capital or angel investors, the fact is that most startups are bootstrapped. The numbers show that more than three-quarters of new ventures are bootstrapped, with founders using personal savings, retirement plans or other personal assets to launch. When including funding from friends and family, the percentage of founders bootstrapping a startup jumps to more than 80%.
More often than not, most founders have very little choice but to bootstrap because it’s just not that easy to secure funding to launch a startup. But bootstrapping a startup at the beginning doesn’t necessarily mean “once bootstrapped, always bootstrapped.” Once they get operational, have strong traction and are looking to scale, founders typically look towards more traditional types of funding such as bank loans, lines of credit, revenue-based funding or similar.
The whole idea of bootstrapping a startup sounds scary and challenging – and it is, but it also doesn’t mean that it is impossible. In fact, going through the process of bootstrapping a startup could turn out to be a rewarding experience that can bring immense lessons for you as an entrepreneur and can even serve as good enough training for handling many future stumbles you may encounter later on.
So how do you go about successfully bootstrapping a startup? Here are some tips!
- Reduce overhead costs as much as you can. Overhead expenses are the number one money-drainer of any new business. So with limited funding, your first priority is to keep your expenses lean. Instead of renting out an office space, opt for a co-working space instead. It will not only save you a huge amount of money from monthly rent but also the additional expense of retrofitting an office space with furniture. Also, be more discerning about hiring; salaries can be a major drain on a business’ finances. Finally, be careful about credit card spending. The last thing you want to do is to rack up debt that will ruin your credit score with sources of potential growth funding sources.
- Keep things within the team. Part of reducing costs is doing as much as possible by yourself. Outsource only for critical jobs that can take you away from the core of your operations. Instead, turn to digital technology and learn to maximize the wide assortment of apps and tools at your disposal to perform certain tasks. For instance, develop your business plan and pitch deck with the help of Bizplan or use marketing apps like LeadPages to design landing pages for your website, Planable to help you customize and plan your social media content, ShareTribe to build out a marketplace MVP, or Track, an accounting app that can help you do your own taxes.
- Manage an income stream. You can only go so far with your initial savings, so until you have the results that will give you the confidence to approach an investor or other outside funding source, make sure that you maintain a stable income stream while you build your startup. This could mean making a minimum viable product that you can introduce to the market and even hope to bring in steady, if not high, revenue while you continue to pilot test other ideas. It could also mean keeping a regular day job to ensure that steady money comes in.
- Focus on the other things that matter. While it’s important to keep costs as low as possible, spending on your website is a necessary and justified expense. Don’t skimp on this if this will give you the online presence that can be crucial for your business. Similarly, do not forget customer service. As a starting venture, you as need as many satisfied customers to get the word out about your brand.
- Use freelancer sites to find quality, reasonably-priced talent. Successfully bootstrapping a startup requires founders to get creative how they get things done. Fortunately, there are dozens of sites that can help founders bootstrapping a startup find the talent they need to perform an unlimited number and type of tasks. Upwork and Fiverr are two of the most widely-used platforms for finding freelancers. Whether it’s creating content, mobile app development, building a minimal viable product (MVP), finding a digital marketing assistant or just about any other type of task a startup needs to launch, there is a freelancer who can do the job. Before choosing a freelancer though, be sure to review ratings and work portfolios to make sure you’re choosing one with the talent that best suits your needs.
- Ask the question, “Is this really necessary?” Founders typically come to me with massively bloated budgets for launching their startups. When reviewing these budgets, many look more like a child’s holiday wish list than a pragmatic, well-crafted budget that outlines the funds and resources necessary to get from Point A to Point B. Before adding a line item to your startup budget ask yourself if the expense is really necessary and more important, be certain you know what the return on that investment will be and how it will help you move forward. Don’t add expenses to your budget unless they really are necessary.
As an entrepreneur and a founder, I have mostly bootstrapped all of my new ventures. It’s never been easy, but for me, bootstrapping a startup was the way to go with each. I also found the process beneficial because it forced me to be creative and develop no-cost or low-cost options for moving my startup forward. Interested in talking more about bootstrapping a startup? Contact me today and let’s talk.