There has been a recent shift back to startups bootstrapping their way to success. Learn why that will likely continue during these uncertain times and how it could be the best funding option.
What is bootstrapping?
Bootstrapping is starting a business without the help of outside capital, venture capital (VC), angels or otherwise. It is another term for self-funding and means getting through launch to the point where the business can sustain and generate profits to reinvest in growth. It has to be done with minimal human and financial resources. It has been described as “entrepreneurship in its purest form. It is the transformation of human capital into financial capital.”
Why do it?
Rewarding, in several ways
It will be hard work. You will not only be the CEO, but the creative director, head of marketing, HR manager, customer service manager, and any other job that needs to be done. If successful, however it will all be worthwhile. Not only will it make you a more resourceful entrepreneur, some of the companies that began life bootstrapping their way with no outside investment, at least in the early stages, include eBay, TechCrunch, MailChimp, Craigslist and many others.
The allocation of resource and cash in a young startup is key to survival and any process where it can be saved could determine a business’s eventual success. A recent report from CBI Insights found that money - and how it is spent - was cited as the reason for failure by 29% of startups. In their analysis of 101 startup failures it was the second most common reason cited, after ‘no market need’.
Startup Genome published a survey in April, at the height of the global lockdown restrictions, reporting that 41% of startups globally are threatened by having just three months or less of cash runway left. Before the coronavirus outbreak only 29% were in that situation. You could have a great idea or product but if you run out of money before you get a chance to take it to market, it won’t matter. Bootstrapping is a chance to elongate runway – the time you have before needing more funding.
You won’t have pressure from shareholders for the first few years of the business’s lifecycle. The direction of the business is up to you, and it will force you to create a business model that works. The aim is to get to the point where your startup has a positive cashflow and is self-sustaining - bootstrapping will force you to either find this model quickly or pivot.
Taking a long-term view
A VC funded startup is under immediate pressure to grow - and grow quickly. There are high expectations for rapid progress so it can meet the next round of funding. This can lead to decisions being made for short-term gain and corners being cut which in turn lead to problems down the line or failure. In addition, relying on outside money gives the founder little control over their firm’s destiny.
Low barrier to entry
By definition the bootstrapping method is cheap – if you do have a great product, you may not need a large amount of money to get it from idea to profit. You will be working lean, keeping costs down.
Putting it into practice
Robin Bennett-Freebairn, founder of Immersive, is developing a new startup, Joost, a brand engagement platform to drive sales, lead generation and data insights. Robin and his fellow founders have so far bootstrapped their way. Covid-19 has slowed their journey but has given them time to get extra prepared for the initial round of funding.
Bennett-Freebairn, said, “So we've been working for a number of months now. Trying to have as many conversations as we can with potential clients, potential customers, and also potential investors. To help shape the proposition to really kick-off all the rough edges before we get to that stage where we go out for an official round of funding, which we are we are rapidly approaching. So, up until now, we’ve bootstrapped.”
He added, “So we're now looking at our initial first round of funding, we’re using the extra time that we've been given to try and get ourselves extra prepared.”