If you are a budding or a prospective entrepreneur you should be knowing what is bootstrapping. So, before giving you an inside let me tell you what is bootstrapping.
Bootstrapping is using own fund as capital for your business.
As an entrepreneur you have two options in your hand for funding your business, you can start with your own finance or you can collect finance from outside. It is an important decision to take. If you are a startup, it is very difficult to collect investments from outside sources, isn’t it? When you are starting a business the best thing you can do is to bootstrap.
It is just the opposite of approaching and collecting fund from Angel Investors or Venture Capital Firms. Instead, it is to invest your own fund, sweat equity and reinvest cash flow from daily business operations.
You will be known as a bootstrapped startup if you invest your own fund, your valuable sweat equity and lean operations, you have a smart team who will ensure maximum productivity with minimum resources and you cycle your operating profits.
In the initial phase, you can go for a bootstrapping because it has a great importance for your business.
The Pros are:
- Freedom of ownership: As you will be the only investor, then you can be your own boss. You will be accountable to only yourself and you can freely follow your path.
- Independence of decision making: you can take any decision related to your business independently. You don’t need to think about others point of view.
- Great learning exposure: You will be solely responsible for your business and it will create you a more matured person. You will be starting from the grass root level, so it gives you a great learning exposure where you will learn the worst and how to overcome it.
The Cons are:
- Stagnant Growth: Your scope of growing will become stagnant as your capital is too less to expand your business. It is not possible for you to go for bootstrapping for a longer time. You have to take outside fund if you want to grow.
- Greater Risk: You will be exposed to a greater risk as there is no other investor except you who can take up the burden of losses. Chances of failure are very high.
Image Source: Themanager.org
But I think, you should always start up with bootstrapping as it will help you to develop your business and once your business is stable, developed and starts generating money, approach venture capital firms and angel investors for growth and expansion. You can also issue initial public offerings, equity to raise capital. But you should always keep some amount aside as bootstrapping fund for the unforeseen.
In today’s business scenario the venture capital firms or the angel investors become so choosy about funding a business. They are not ready to invest any startup. Many startups are shutting down due to lack of fundraising. You must have a concrete business plan as well as backed up by financial planning to ensure raising fund. So, not only for initial investments but for sustainability you need bootstrapping. Before starting up a business you must see you have the fund to sustain at least for first 1 year where it is really difficult even you can say impossible to raise fund.
It is always better to think big and start small.