Starting up a new business involves taking an idea and transforming it into a real business that solves real needs in the society. At one stage you will need to obtain funding to scale your idea into a big enough and sustainable business. The common ways are to obtain external fundings from banks or investors, but there is another way to get the funding you need – Bootstrapping.
Bootstrapping, according to Investopedia, is a situation in which an entrepreneur starts a company with little capital. An individual is said to be bootstrapping when he or she attempts to found and build a company from personal finances or from the operating revenues of the new company.
Now, bootstrapping does not mean that you start up cheap so that you can start up with little capital. A more appropriate way to bootstrap a startup is to get enough PAYING customers early in the stage so that the revenue you collect from them is sufficient for you to scale the business.
Advantages of bootstrapping
- Your share of the business remains undiluted due to lack of external funding
- You remain in control of your business. Without debt obligations or obligations to maximise value for outside investors, you get to stay on track with your original idea.
- Its the cruelest form of product validation. Without external funding, your source of capital HAVE to come from customer. If you can successfully bootstrap a startup, congratulations, you have a product that people want.
Disadvantages of bootstrapping
- It is very very very difficult to start something up without external funding. Your product needs to be the RIGHT product at the RIGHT time, and customers need to be willing to pay for it even in its early stage.
- It will typically take longer for a bootstrapped startup to grow due to lack of marketing dollars. (It doesn’t mean it can’t be done though, many companies use growth-hacking to creatively advertise their business without spending too much)
Some common ways to bootstrap a company
- Hire “affordable” part-timer, or free-lancer with passion and energy
- Use equity-option instead of paying cash to your employees
- Outsource wherever possible
- Encourage customers to pay-upfront by giving discounts etc
- Apply for Government grants or Programmes – check out 1Malaysia Entrepreneur Fund and SME Bank Young Entrepreneur Fund
Examples of bootstrapped company
- Mailchimp – an email marketing service provider, which has 7 million users that collectively send over 10 billion emails each month. ( We use Mailchimp to send out our Weekly Newsletter )
- TechCrunch – a news website focused on information technology companies
- Basecamp – formerly known as 37signals, a company best-known for its project-management tools
- Github – a repository for programmers to share anything from word files, web-design templates to complex lines of codes
Here’s an interesting article on how a Bootstrapped Startup made it through its first two years.
Here’s an inspiring story about how this entrepreneur – Tracy DiNunzio used a non-traditional approach to fund her own start-up.