how to bootstrap a business
there are a few steps that entrepreneurs can follow in order to bootstrap a business we highlight them in this section below before bootstrapping their startup company business owners should first assess whether bootstrapping makes sense for their operations it may not be financially feasible to bootstrap a company that requires high upfront capital investments to form some businesses may also have a slower turnaround of inventory meaning bootstrapped cash may be tied up for a longer period if bootstrapping makes sense an early step for a business owner is to form a business plan this business plan should include a financial budget that outlines the expected cash inflows and outflows for the next few years a business owner may decide that at different stages of company growth a varying amount of capital needs to be bootstrapped a critical aspect of the bootstrapping plan is to determine how revenue will be cycled through a company for example during the start up phase 100 of operations may be funded by bootstrapped cash until the company earns revenue from customers an owner should decide upfront how that revenue will be used such as to channel business growth or to reimburse the owner the main risk is extracting cash too soon not fully developing the company and leaving both the company and owner at risk of loss to bootstrap an owner needs to decide where resources will come from and what options of bootstrapping they want to pursue for example the owner may decide to use their they may also choose to adjust business practices to accommodate the growth period the business owner must be mindful that each of these options has detriments for instance capital may be lost time cannot be recovered and limited business may stunt company growth bootstrapping is often the stage of a company where the big business idea has been created but the underlying resources to foster the idea aren t available yet bootstrapping strategiesnot all bootstrapped operations employ the same strategies there are different opportunities that startups can use to temporarily get the resources they need until operations are more robust here are some of the more common bootstrapping strategies a company often needs upfront capital in the initial stages one of the most common forms of bootstrapping is for the business founder to contribute personal capital as an initial financial investment into the company depending on the industry and business operating strategy a founder must sometimes supply capital at various stages during the early days of a company if an owner or founder doesn t have enough capital on hand they may decide to take out personal loans to finance the company the company likely can t receive a loan or receive nearly as favorable loan terms because it does not have the same established financial history as the founder because this bootstrapping method results in personal debt the owner is personally liable and may have personal assets seized should they go bankrupt and default on the loan the owner may bootstrap during the early days of the company by limiting spending for example the owner may personally deliver goods to customers in their local area instead of paying extra for delivery services in this bootstrapping strategy the owner is not limited to what is done rather it is limiting how things are done most often this strategy results in a trade between capital and time this means the owner is willing to sacrifice their time as capital may be low a company may also decide to pull in third parties or other investors to help with the financing of the operations though this is often a more permanent long term investment sometimes owners rely on short term agreements to temporarily finance the business for example a third party may buy stock or issue debt to earn a short term return though this agreement puts the third party at risk it is less of a risk than a long term investment without defined payback or liquidation terms companies often bootstrap by temporarily limiting what the business can do for instance it may only a founder must be strategic in the benchmarks it hopes to achieve before unlocking other aspects of the business operations bootstrapping is not required to start a business a founder may accumulate resources before starting their company to have its needs meet from the company s first day advantages and disadvantages of bootstrappingbootstrapping often allows an owner to retain control over the company though one of the options is to pursue short term financing from a third party most forms of bootstrapping rely on just the owner s resources this means the owner doesn t need to sacrifice long term flexibility due to short term constraints this strategy may lead to greater short term profitability as the owner is hyper conscious of costs for example the owner may intentionally avoid costs in the short term though these expenses like software and infrastructure are necessary in the long term an owner usually also has a lower barrier of entry into an industry when they bootstrap as an owner may not have all of the capital needed upfront instead the owner can slowly build resources through resourcefulness and deliberate actions relating to the business not all aspects of bootstrapping are great especially in the long term because the financing of the company may not be 100 secured there is an increased risk that the business may fail especially if a large unforeseen expense arises as there are many areas a company may fall short such as a supplier not following through or equipment breaking a company may find it needs capital sooner than it may originally expect by definition bootstrapping means that a company operates with limited resources this may prohibit how much a company can reinvest into the company as opposed to paying back the owner the owner simultaneously tries to raise business for the company and return its capital both of which compete for the same capital another pitfall is that a company may face short term branding and image issues consider a company that self delivers its products by driving around town since this is untraditional some prospective buyers may feel it demonstrates the small scope of the operations investors and suppliers may resist interacting with the company due to the heightened risk of interacting with an immature company may give an owner greater control of the companycost avoidance measures help reduce business expenseslower barrier of entryplaces a heightened emphasis on business operationsincreases financial risk as a company may not be able to cover emergency or unexpected costsrequires a company to operate with limited resourcesmay diminish how customers suppliers or investors view the companyexamples of bootstrappingmany companies start with humble beginnings and limited resources one example is jeff bezos personal software development for amazon amzn which operated out of his garage with just a handful of employees when it sold its first book in 1995 2other founders take even more nontraditional routes to finance their companies gopro founder nick woodman reportedly borrowed 35 000 from his mother and went as far as to use her sewing machine to craft early designs of gopro devices 3a more popular and sensationalized means of bootstrapping was meta s meta humble beginnings mark zuckerberg launched the social media site in 2004 from his college dorm room 4