What You Should Understand About Bootstrapping Your Business

Can you grow your company using your own money rather than outside financing? Here are some key benefits and strategies to bootstrapping your business.
June 03, 2015

If you think venture capital has to be the primary source for funding your business, think again. Research by the Kauffman Foundation shows that historically, fewer than 1 percent of U.S. companies have raised capital from VCs. Instead of spending a lot of your entrepreneurial energy trying to attract funding, you could consider an alternative route: bootstrapping.

Bootstrapping is using your own money to fund your company. It's building a business with your own two hands and relying on sweat equity. As the song goes, it's the "I did it my way" strategy. The benefits of embarking on this road are many. Here are three to consider:

  • You can bring your idea to fruition faster than having to wait for funding from outside sources that may never materialize. Instead of spending your energy on continually pitching, finessing your pitch and spending your time on the fundraising roller coaster, you can focus your attention on making the business work.
  • You have total control over the direction of the business. After all, you have a clearer view of your vision than anyone else and you don't need backseat drivers who have the power to change your direction.
  • Once you realize your vision, you won't have to relinquish any equity position or pay interest on a loan.

There are many avenues to finance your venture without chasing venture capital. The more common ones are drawing from your savings, your earnings or personal credit cards. You can also opt to go slower by working on the business on evenings and weekends, while holding onto your day job. If need be, you can get a second mortgage. You can also consider getting loans from family and friends or negotiating advances from customers.

Consider, as well, using the services of an incubator. These are entities set up to help the growth of entrepreneurial ventures by providing business resources and services that can range from physical space, capital, mentoring, coaching, financial and technical support services and opportunities to network with like-minded entrepreneurs. These incubating organizations are sponsored by private companies, successful entrepreneurs, and academic and government institutions. You can access more information on the hundreds of business incubators in the U.S. through the National Business Incubation Association.

Strategies for Successful Bootstrapping

Once you have your seed capital in place, follow some of the best practices for successful bootstrapping. Here are three to keep in mind:

1. If you can't work from home, or the proverbial garage, look for low-cost rent, or for sharing rent within a larger office. It's not unheard of for a business to blow some capital on unnecessary expenses for premises that are over and above what's needed. Don't be swayed by the prestige of having office premises to impress prospective customers.

2. Consider taking on a partner. Convince a friend, relative or like-minded associate to join you in running the business. Not only can it increase your seed money, and split the costs, it can also help you share the emotional load—both good and bad—of building your company. A partner can also be the fuel that keeps you in the game, through the highs and lows as you have someone else to be accountable to. Look for a partner with complementary strengths who can help you brainstorm ideas and be a hedge to prevent you from making a bad decision. 

3. Be super vigilant about expenses. The biggest one is over-hiring. Too many employees too quickly will sink your ship. Don't hire unless it's absolutely essential—unless the person you hire will work directly on developing your product or service, or on getting customers. Don't hire employees when a short-term contractor can do the same job. Consider university students, bright interns, family and friends. Pay lower salaries and add equity as an incentive for people to commit to the success of the company. Also consider outsourcing some of the work to freelancers.

Done right, bootstrapping can work. As entrepreneur Seth Godin put it many years ago, "I am a bootstrapper. I have initiative and insight and guts, but not much money. I will succeed because my efforts and my focus will defeat bigger and better-funded competitors."

Here are some inspiring examples of profitable companies that took the bootstrapping route and now have more than $1 million in revenues.

Bruna Martinuzzi is the founder of Clarion Enterprises Ltd., and the author of two books: Presenting with Credibility: Practical Tools and Techniques for Effective Presentations and The Leader as a Mensch: Become the Kind of Person Others Want to Follow.

Read more articles on financing.

Photo: Getty Images