Bootstrapping is a term used to define the funding source of a startup which is fully backed and supported financially by the founders using their own money or money from close friends, or family. Almost all startups have an initial stage in their corporate life cycle where they bootstrap.
Bootstrapping for Beginners
In the beginning, when the idea has bloomed, and the roadmap has been carved, the first few steps have to be taken by the entrepreneurs themselves. They are entirely on their own and should use their own money for the first few steps.
This capital comes out of their own pockets or from friends and family. Sometimes, the entrepreneur saves for years before they start the business.
Bootstrapping Vs VCs
Venture Capitalists are organizations or individuals who fund startups and enable them to move forward or expand. Many companies are well established in their field and have enough money to invest in promising startups. These companies may be looking for profit or willing to explore a new sector by investing in a startup. Off late, Venture Capital has become a dynamic financial services market with a lot at stake and quite a few players are willing to invest in the future. VCs have become the most popular means for startups to get the capital that they need to sustain and expand.
However, relying too much on VCs can prove to be disadvantageous for a startup. VCs aim to make a profit out of their investment as soon as they can and may force the entrepreneurs to compromise on their vision to gain monetary benefit. This may lead to conflict within the company.
Bootstrapping, however, does not have that problem. So, some entrepreneurs would instead rely on themselves as much as possible before opting to go to VCs.
When Bootstrapping Takes You All The Way
There have been cases where Bootstrapping worked so effectively that no other means of obtaining capital was required. This is possible if the business is low or virtually zero budget, or is self-sustaining immediately after its inception.
Some firms like Spanx, GoPro, and Craigslist made it large using Bootstrapping. Their initial investment was the starting capital raised by the entrepreneur alone. It wasn’t until after they achieved success and mainstream attention that they began attracting investors.
Bootstrapping and Money Management
Building a successful enterprise solely out of Bootstrapping takes meticulous planning and precise execution. Money Management is key. A bootstrapped business becomes successful if it can fit all its expenditure within the initial capital raised. The budget must be airtight until the company begins to make a profit and becomes self-sustaining.
A Self-Sustaining Business
Bootstrapping becomes successful when the startup can sustain itself over a period of time. There is an initial investment involved, which is arranged by the founder. After the initial hiccups, the company starts making a profit out of its products and services. The turnover and profit can be used to carry the business forward.
There are some amazing examples of bootstrapping.
Craigslist’s status as a website dedicated to advertisements is almost iconic. Craig Newmark created it in 1995 as an e-mail newsletter for people in San Francisco, but quickly caught on as people started asking him to post ads for jobs and items on sale. It hit a million views per month landmark in 1997, triggering an unprecedented rise for an online firm at that time.
This was impressive, considering that he kept it aside as a side project for quite some time before focusing on it, and the fact that they did not opt for any sponsors till 2004 when eBay bought 28 percent of the shares for $32 Million. Craigslist was an iconic establishment, way ahead of its time, and it got there with bootstrapping.
GoPro has now become synonymous with screen less camera that is mounted on helmets, bikes or held in hand to get a first-person perspective. Nick Woodman founded the company in 2002, and the idea struck him on a trip. He understood the market demand for surfing and adventure sports, where these cameras were frequently used to film the action.
The inception of the company saw a budget that consisted of his savings and a $35000 loan from his mother. His company was bootstrapping till 2012 when Tech giant Foxconn invested in this firm. The first investment was $200 million, and they haven’t looked back since. The company opened up its shares to the public in 2014 and is said to have made $2.96 Billion according to Bloomberg.
Spanx is a thriving enterprise that sells women’s undergarments and is one of the prominent bootstrapping success stories. It is also an example of a startup that didn’t rely on innovating a new product from scratch, but managed to get a chunk of the existing market using their awareness of the target audience and marketing skills.
Sara Blakely, the founder of Spanx, started the company with her $5000 savings. She used only her own money to get the company going, and saved wherever she could. She even submitted patent applications on her own, saving her a lot of legal fees. In 2016, Spanx had a sale of around $400 million, and Sara Blakely owned one hundred percent of the shares of the company.
The reason why this company was successful is primarily credited to its insight into the needs and wants of the target audience. The founder was a woman making undergarments for women, and this is said to have had an impact on the products and the company itself. Growing solely from Bootstrap was also an incredible feat achieved by money management and smart business moves.
As your company grows, you have to look for means of funding to expand your business. However, Bootstrapping is a stage through which every startup has to pass through before it can be successful in its endeavour.
Also, in some cases, if the conditions are favourable, all you will ever need is your own money. Bootstrapping your way to success is possible, but only with a lot of hard work and a little luck.
All the best!
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