Bootstrapping may be a viable option if you want to maintain full control of your company without providing equity ownership to outside investors, although this process will require extensive work and time commitment.
As part of this industry, this experience will also push you to be more frugal and resourceful with your resources, an invaluable skill.
1. Less Risk
Many successful companies started with limited funds. Bootstrapping forces entrepreneurs to be frugal when spending, which can help their company focus on creating revenue and developing a lucrative business model.
Bootstrapping may help entrepreneurs avoid some of the potential pitfalls associated with taking outside investment. In particular, should their startup fail, the entrepreneur will bear all financial losses without sharing them among investors.
However, bootstrapping may have some drawbacks. One is difficulty recruiting and retaining talent – as employees typically prefer working for well-funded firms with good reputations. Furthermore, this approach may limit growth potential because it is difficult to generate interest in a new business when your resources are limited.
2. Less Overhead
One of the leading causes of business failure for new companies is running out of money. Bootstrapping can help avoid this fate by allowing owners to invest their profits back into the business without needing additional investors or taking on debt.
As your startup gains traction and proves its viability to potential investors, bootstrapping can give it more traction and enable better bargaining power in future funding negotiations. This could result in higher valuation and funding deal negotiations down the road.
Bootstrapping your business also helps ensure full ownership even after rounds of fundraising, something important since angel and venture capital investors will typically demand ownership stakes in your firm. Loans may further dilute ownership if the business is yet profitable – bootstrapping allows you to prevent this and remain sole owner until otherwise decided upon.
3. Less Stress
Bootstrapping helps entrepreneurs develop self-sufficiency and establish businesses with lasting financial viability. In addition, this strategy fosters an environment of resourcefulness that makes businesses more responsive.
Startups must find a business model that prioritizes profitability and reduced costs, which can provide the foundation necessary for future expansion. Lean business models allow startups to validate product-market fit with customers while iterating on feedback to reduce risks related to investing in unproven ideas.
Bootstrapping allows founders to maintain full ownership, which provides motivation and focus. Conversely, companies which take out external funding may lose some decision-making powers or equity shares to investors and dilution can occur; all this can put undue stress on a business and hinder growth.
4. Less Time
Bootstrapping your startup means operating with a tight budget. As such, the focus must be on generating revenue and remaining profitable rather than spending money on additional employees or advertising campaigns.
There are various online tools available that can help save time and money in building your business, such as logo design services, website development platforms and bookkeeping services.
Bootstrapping requires hard work and self-assurance, but the rewards can be hugely satisfying if you put in the time and effort required to build your business.
If you’re considering bootstrapping your online startup, take care to carefully consider all its potential advantages and drawbacks. Raising outside capital comes at a price in terms of equity dilution. Furthermore, an effective plan should exist for dealing with cash flow fluctuations – otherwise your startup might end up struggling to make enough revenue to pay its bills!
