Even just a few years ago, the process of getting a startup off the ground went something like this: gain experience, come up with a great idea, find a team, shop it around to venture capitalists, raise money, and build a company and then a product. However, The Dot Com Bust, the rapidly falling price of building a web company, and new seed firms such as Y Combinator have changed how startups launch.
Bootstrapping is the art of building a startup with little to no venture capital. You’re creating your company as leanly, efficiently, and cheaply as possible. Perhaps it’s because you need a viable product before you can obtain investment or because you don’t want to give away 20% of your company to a VC. Regardless, bootstrapping is becoming a more popular option for many entrepreneurs.
It’s not the right option for everybody though, and it certainly can backfire. Bootstrapping isn’t easy and can drain a person dry of his or her energy. Not only that, but you’re limited in what you can accomplish. Consider the risks of bootstrapping carefully.
First, let’s be clear: you will have a better chance of success with venture capital, even a small amount, than without it. Without cash flow, a business dies. You cannot bootstrap forever – you will eat into your savings faster than you expect. VC or seed money allows you to hire smart team members and utilize their connections. Having money is simply easier than not having money.
Bootstrapping isn’t applicable for everybody. You need the skills internally to build your product. If you’re a non-engineer trying to bootstrap a web startup, it won’t work. Facebook and Google started out as bootstrapped companies, but their founders had engineering talent. You either need an engineering co-founder or money to hire outside contractors, which will dry you of funds even faster.
It’s also not an easy lifestyle choice: if you have a family to support, having no income can be a real strain. You have to save money wherever you can to reduce your “burn rate” – the amount of money you’re spending on your business and yourself. Many bootstrapping entrepreneurs go out less, cook at home more, and live in a cheaper place as they try to get their dream off the ground. Be comfortable with this before you bootstrap.
With all of those warnings aside though, bootstrapping is often necessary, especially when you’re looking to raise money. Many VCs nowadays want to see a working prototype or some momentum for your startup. Smart entrepreneurs find ways to make the bootstrapping lifestyle manageable. Some keep their full-time job and work on their start-up on the side (
12seconds.tv started this way), some save a fund just so they can survive those few months, and some work fast so they can either get to the next stage or realize that their product won’t succeed as they had hoped.
This entrepreneur’s advice is simple: bootstrap only when necessary and work fast and hard while you’re doing it. It’s tougher than many first-time entrepreneurs realize, but the rewards of trading in your blood, sweat, and tears for a successful company and product is indescribable. Just be smart about it.