One of the most crucial early decisions a founder will make when launching a company is whether they want to bootstrap — or self-fund — their venture, or if they want to seek external funding from investors or loans.
I bootstrapped Briogeo for six years before bringing on investors. During this time, I learned firsthand about the advantages of self-funding – as well as the risks involved – and want to pass along some of my learnings about what you can expect when you pay your own way.
Find an overview of the pros and cons of bootstrapping vs. seeking funding here.
What is bootstrapping?
In simple terms, bootstrapping involves using your personal savings, credit cards, or revenue you’ve already generated from your business to finance its growth. You can choose to bootstrap at the outset and then take on loans and/or investors later on, or you can bootstrap your business indefinitely. In order to determine whether bootstrapping is the most effective method of funding your business, consider the advantages and disadvantages you might encounter.
What are the advantages of bootstrapping your business?
Since you’re using your own money — and are not financially obligated to external parties — you hold the reins. When I was bootstrapping Briogeo, I had complete control and flexibility in making business decisions. Because I was working with limited funds, I was forced to think creatively, make strategic choices, and focus on delivering value to my customers.
Among the benefits to bootstrapping are:
1. You have full independence and control over your business
When you fund your small business yourself, you answer only to yourself. Since you have full ownership of and equity in your business and don’t need to answer to lenders or external investors, you can make your business decisions with complete autonomy. This freedom not only gives you plenty of flexibility, but it also fosters creativity. As your business needs and goals change, or as external circumstances evolve, you can pivot and adapt however you see fit. The evolution and growth of your business are completely in your hands and you can stay true to your vision.
2. You create more space to focus on your business
As you launch your business and shepherd it through its infancy with bootstrapping, you won’t have to worry about your obligations (like reporting, board meetings, financial reviews, and check-in calls) to a financial institution or investors, which can sometimes be time consuming to manage. Instead, you’ll be able to focus all of your energy on growing your business in a way that ensures its sustainability in the long run.
3. You develop financial discipline and methods to optimize costs
Bootstrapping encourages a frugal mindset, encouraging entrepreneurs to prioritize growth and optimize expenses. With limited funds and the knowledge that your own money is on the line, you’ll learn to become resourceful and mindful of spending. During the early days of Briogeo, I leveraged part-time consultants to provide flexibility on hours, since we didn’t always have a steady flow of work for parts of the business like creative and accounting. Instead of paying someone full-time (which also comes with payroll taxes and benefits) to do part-time work, leveraging freelancers and consultants for those areas of the business allowed me to minimize costs and ensure I was maximizing everyone’s time.
As you stay focused on generating revenue, you’ll develop a keen ability to find similar cost-effective solutions, and, as a result, foster efficiency and maximize profitability while creating a lean operation.
4. You build a customer-centric approach for your business
With limited financial resources for your business, you’ll undoubtedly be focused on delivering value to your customers. This is because by aligning your efforts closely with your customers’ needs and preferences, you make every dollar count, ensuring that the investments you do make provide maximum value and resonate with your target audience. This customer-centric approach will help you build a strong foundation of loyal clients who appreciate your personalized attention and quality offerings. In the early days of Briogeo, we launched a hair quiz on Briogeo.com that allowed customers to customize their hair care regimen based on their specific needs. By helping them choose the right products for their hair type and needs, we were able to not only optimize customer service resources, but we also prevented unnecessary returns.
As you, too, find creative ways to make the best of your existing resources, you’ll develop loyal customers who will allow you to build a sustainable business.
“Bootstrapping can offer you flexibility, autonomy, limited external pressures, and financial discipline that can allow you to weather changing circumstances and sustain growth.” – Nancy Twine
What are the risks and challenges of bootstrapping your business?
Like with any method of funding, bootstrapping can also come with its own set of disadvantages. As an entrepreneur, it’s important to be realistic about the risks and challenges you may face as a result of self-funding. These are the potential cons to bootstrapping you should consider:
1. You may have limited capital at the outset
If you’re bootstrapping, you’ll likely feel the cash crunch at some point, which can mean slower growth and tight resources for things like research, marketing, and production. Even when your business starts to pick up, hiring an experienced team to scale the business might have to wait until you have the funds to support the new expense. I’ve been there myself—without enough capital, I couldn’t hire the experienced leadership team I needed at a critical moment, and that left me stretched too thin, trying to cover all bases and keep everything running smoothly. Over time, bootstrapping can result in a tough balancing act.
2. Your personal finances will be on the line
By definition, bootstrapping means investing your personal finances in your business. This, of course, means taking on a financial risk. If your business fails to generate enough revenue or faces unforeseen challenges, it could have an effect on your personal financial stability. This is an important factor to consider as you launch and scale your business.
3. Your business may grow more slowly
Since you’ll be relying solely on your personal investments and revenue generated by your business, growth may take longer. Without the same resources as a business with external funding, it might be difficult to seize market opportunities that allow your business to grow more quickly. However, keep in mind that slower growth at the outset often means a more sustainable business in the long run. Remember that even some of the world’s most successful entrepreneurs, including Jeff Bezos and Steve Jobs, initially self-funded Amazon and Apple, respectively.
As you weigh the opportunities and challenges associated with bootstrapping your business, make sure to keep your unique circumstances in mind. Does your personal financial situation allow for self-funding? How long will you be comfortable sustaining your business financially? Does this method of funding align with your entrepreneurial goals and vision for your business? By keeping these questions in mind alongside the potential benefits and challenges of bootstrapping, you’ll be able to build a strong financial foundation for your business.
Tell us, what is the main reason you chose to — or plan to — bootstrap your business? Share your experience in the comments!
