Bootstrapping a business

by Admin
Updated: June 28, 2018

Bootstrapping a business means starting a new business from scratch using almost no money

Bootstrapping is the ultimate low-risk way of getting started in business - in general terms as well as in any specific area of business you might want to concentrate on.

Bootstrapping is named from a 19th century expression, “to pull oneself up by one’s bootstraps” referring to the straps used to pull boots on and the (old) joke that with enough strength or ability you could achieve the impossible task of lifting yourself off the ground.

It basically refers to something that is built using itself (booting a computer, for example, is short for bootstrapping and refers to the small piece of code used to start the whole system).

In business this essentially means using as little startup capital as possible, relying instead on hard work plus early positive cash flow.

Advantages

Bootstrapping has many exciting advantages:

  • Low financial risk - You use so little money to get started that it’s not a great concern if it fails and you lose all of it.
  • Uncomplicated/staged development - You can start with a simple structure and focus on what the business does.
  • Business experience - You have to pay attention to every detail of running the business.
  • Practical experience - You can (and should) get hands-on experience of every job related to the business.
  • Practical credibility - People you employ in future will have some confidence you know what their job entails.
  • Business credibility - You’ll be due full credit for success and starting from nothing means the growth curve will be steep.
  • It’s quick - You can have an idea, create a business plan and be up & running within one day.
  • It’s agile - You can adjust and adapt in response to the market without waiting on a long chain of command.
  • 100% ownership - It’s all yours from the beginning (which gives you more leverage for raising finance down the line).
  • It’s fun - It’s creative, educational and rewarding (even without a great financial return).

In my opinion, the main advantage from doing this the first time is the detailed experience of running a business. There is no substitute for it.

Disadvantages

Certain types of business really need a strong marketing/sales push in order to break through and a bootstrapped business (one that is strapped for cash) usually cannot do this. In my opinion however, this only forces you to be more creative.

There is an argument that you might lack credibility at the outset because no outside investors are interested in your venture. If this affects you, it should still be possible to gain some kind of endorsement to compensate. Once again, be creative.

If you are directly involved in production there’s a danger of finding yourself stuck in self-employment and unable to develop a proper business.

If your business takes off it can do so quite suddenly. It’s always a good idea to have a plan for bringing in people & cash when this happens.

Minimum requirements

Starting from nothing in the purest way is unnecessary (it is also impossible). At a minimum, you probably need a smart phone and some working capital.

Maximize cash flow

Get money in as early in the sales process as possible. Require down-payments and stage-payments.

Delay money going out for as long as possible without hurting your suppliers. This can take the form of trade credit, leases & purchase agreements, deferred loans and credit card offers. It’s generally best to pay people promptly.

This is good practice for any business.

Maximize profit

Your cash flow will not be very positive if you are not very profitable. It is essential for any bootstrapped business to be profitable from the very beginning.

This is good practice for any business.

More info

Origin of the term bootstrap at etymonline.com.

There is is plenty of advice about bootstrapping a business that is either conflicted, misleading or downright wrong. Learning how others already did it is one way of filtering out the dross, e.g. “... Bootstrapping Entrepreneurs Share...” on foundr.com.

“Bootstrapping Makes You A Better Entrepreneur” at forbes.com lists some of the advantages of starting small and lean.

Internal links

The graph of success Buying a business Cash flow Go to Articles
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