To finance any idea or product, there is a moment when you have to give up some equity. However many entrepreneurs find it hard to give up control over their businesses. One way to tackle this dilemma is startup bootstrapping!
A study found that 79% of startups with bootstrap funding experience slower but long-term growth (source). Therefore, if you want to grow your startup solely and are okay with average to slower growth, bootstrapping your startup might be the best for you. We have discussed the challenges and opportunities of bootstrapping to help you decide whether it is the best for your startup.
What is Bootstrapping in a Startup?
Bootstrapping is the concept of starting something from scratch. Startup bootstrapping is the process where entrepreneur(s) build their startup business from scratch without any external investment. So, bootstrapping your startup means financing your startup by yourself rather than involving any third party for loans and equity investments. It is one of the most popular options among entrepreneurs who want complete autonomy of their business operations and have a finance source to kickstart the startup.
Bootstrap funding comes from diverse sources like personal finance/savings and revenue generated from the startup. It is a high-risk business model with an equal probability of success and failure. Let’s look at some challenges and opportunities that can help you decide whether you should be bootstrapping your startup.
Bootstrapping Challenges
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Financial Risk
Finance is risky but a vital factor for any startup, especially if it is bootstrap funding. You are putting your finances at risk with a limited guarantee of success. In case of failure, you might suffer heavy losses and risk going broke. Therefore, you must be careful with the amount and limit how much personal finance you’re investing in bootstrapping your startup.
Additionally, you need to pay extra attention to where you are using your financial resources. While planning your marketing strategy or forming a partnership, carefully evaluate your options before making the final call. It ensures that you recover the amount you have spent with added profits.
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Slower Startup Growth
Every startup founder wants their startup to grow fast. However, with limited financial resources, your growth will be slower. You must focus on where your finances are going and how to generate profits to keep your startup afloat. For example, while the other startup might focus R&D on improving their product, startups with bootstrapping need to focus on generating revenue.
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Access to Limited Resources
Bootstrap funding is limited. Thus, there is a constraint on your access to other resources. With financial limitations, you need to prioritize which resources to access and what operations you want to focus on. You have to learn how to manage your office expenses, operation budgets, and marketing budgets to keep your startup running and earn profitable revenue.
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Hindrance in Expert Guidance
While bootstrapping your startup, you miss the expert guidance coming along with the external investment. Investors often give mentorship and guidance to help you make better business decisions. Additionally, you miss the networking opportunities these investors bring. Therefore, you need to pay extra attention to networking and learning the best business practices to make better decisions.
How to Bootstrap Your Startup
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Create Partnership
Finding partners is one of the most efficient ways of growing the financial resources needed for bootstrapping your startup. With partnership, you can have someone to share your burden and make better decisions. Find someone as passionate as you, a partner who believes in your idea enough to join hands to help you in startup bootstrapping.
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Focus on Low Expenses
When bootstrapping your startup, every penny counts. So, focus on where to spend your expenses. With lower expenditure, you can increase the profit margin and focus on reinvesting it to keep your operations running. Focus on managing your office expenses and avoid any unnecessary costs.
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Manage Your Revenue
Focus on running operations that generate profitable revenue. It helps you keep the startup afloat and focus on growth with stability. Manage your expenses and focus on improving the profitability from the revenue. With a revenue-focused operation, you can build a sustainable brand without worries of rounds of investment. You need to prioritize sales and R&D to generate more revenue with time.
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Network Effectively
Networking can make a huge difference when it comes to bootstrapping your startup. When you have good relationships in the industry, finding reliable partners and getting advice becomes easier.
Additionally, networking can boost your revenue by creating diverse income streams and streamlining your sales. 21BY72 offers networking events to help you generate authentic leads for your startup and find reliable business partners to improve your operations.
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Create Multiple Streams of Incomes
Cutting costs will rarely take you further in the journey. So, instead of cutting expenses, focus on expanding your revenue source. Leverage your expertise and create diverse income sources from social media and courses. Various social media allow you to generate revenue from your activity. So, you can build your community online while generating income. Additionally, you can offer educational material to engage your users and build the community.
Conclusion
Bootstrapping your startup has its perks and prickles. If you like complete control of your operations, startup bootstrapping might be more suitable. We discussed the challenges and opportunities of bootstrap funding and management. Manage your expenses and revenue to generate more profit and limit the personal finance you use for bootstrapping your startup. You can rely on personal networking to find mentorship and partnerships to manage your operations better.
If you are looking for a networking opportunity to generate leads, network with fellow entrepreneurs, and learn from industry experts, you are in the right place. 21BY72 organizes a Global Startup Summit attended by entrepreneurs, industry leaders, and investors from across the globe. Check our website to learn more about the events and its attendees.
FAQ
1. What are the ways of bootstrapping your startup?
You can use your savings to finance bootstrap funding. Furthermore, you can use part of the revenue to re-invest in your startup to keep the operations running.
2. Is startup bootstrapping the right choice for me?
If you have a product and the right product-market fit to generate revenue immediately, you can opt for startup bootstrapping. However, if you need industry guidance and research time for creating the MVP you might want to opt for external investment. Additionally, you should consider the investment needed for the startup to manage the daily expenses and occasional large expenses before making the final decision.
3. What is the success rate for bootstrapping your startup?
In a study, it was found that startup bootstrapping has a 61% success rate over the once backed by venture capital. The control over operations helps you stay accountable and make more profit.
