Pros and Cons of Bootstrapping Your Startup
Guerilla style bootstrapping is one of the most common paths aspiring entrepreneurs take. No matter what kind of business you’re in or whether you succeed or not: everyone respects those who put in the hustle. Bootstrapping is a romanticized idea. But, even though it can help you make it big, it also has its pitfalls. Here are the pros and cons of bootstrapping.
Going solo means you get to keep the whole company. Even if you’re sharing equity with a co-founder, it’s still much larger than it would be after getting Venture Capital or Angel investor capital in the equation. Bootstrapping doesn’t make you dilute your ownership.
That is especially important for smaller businesses. If you want to start a family business, this may be the right path for you. Otherwise, your investors may try to turn you into an employee in order to achieve a sizeable exit.
Control Over Direction
Business founders who raise capital form outside money interests are often subject to exterior pressure. In such a situation, you have the obligation to satisfy the interests of others. And, their vision can be vastly different from yours.
When giving up equity, super-voting rights and other solutions may help you retain more control. But, if your top priority is artistic direction, then bootstrapping may be the better choice.
When you’re the top boss, you choose the direction. There’s no one else to bog you down.
Building a Business Model That Works
With bootstrapping, you’re forced to develop a sustainable business model, and that’s a good thing here. At least on paper, a lot of big valuation, fast-growing startups are losing money. This even goes for some initial public offering or IPOs. It’s a different strategy. Even though it can pay off, a lot can go wrong.
But, if you’re the one funding your company, you have no choice but to quickly develop a business model that’s foolproof. One that will bring in profits and positive cash flow straight away. You can scale and build everything else from there.
You don’t just get to be creative with the artistic direction of your company. You also get to be creative with investing. For instance, if you cannot afford a shop at the moment, you can start selling door to door, from market stalls, or on eBay.
Self-funding makes you think outside of the box. You can even become an investor of your own and raise capital that way. If you are able to get a good grip on market psychology and overcome the learning curve, you can start trading on the stock market to earn some extra income This is something you can try if you are good at risk management and have a knack for research and analysis.
Crowdfunding is another alternative which can help you retain equity and avoid debt. Aside from acquiring the necessary funds, crowdfunding helps you create brand awareness, validate your idea, and earn social proof. By employing a bit of creativity, you can earn widespread support of your target audience, as well as the necessary funds.
Responsibility and Sense of Accomplishment
You maintain sole responsibility as the sole investor. Most entrepreneurs give it their all when they’re fully in charge of their own startup.
Your company is your baby. Who is more apt to take care of it than you? Being 100% in control gives you a greater sense of significance. The ability to say “I built that!” is priceless.
The Cons of Bootstrapping your Startup
Many startups fail simply because they ran out of funds. Great products and services can’t make up for cash flow shortages. You might never realize the potential of your endeavor if you run into a crunch for just a couple of months.
To stay afloat, you need careful budgeting. If you’re running a big valuation startup, you need to move quickly and most individuals don’t have that kind of capital. And, your budget may show that you need outside capital to get where you’re going.
No matter how adamant you are about bootstrapping, you have to have a backup plan in case you need emergency funds. To be able to convince investors quickly, prepare 20 slides that tell a compelling story.
It’s important to maintain a good credit score in case you need an emergency loan. For that purpose, many businesses take our company credit cards even when they don’t need them. They use them and they pay their dues in time.
Top Level Help
On-hand cash is not the only benefit of successful fundraising. For instance, Angel Investors are usually willing to offer you their experience in order to ensure their Return On Investment or ROI. Shareholders, influences, big deal makers, and board members can offer solutions that will help you reach sizeable sales. When you’re all alone, you don’t have access to outside resources. And, the truth is, you’re not the best at everything. You’ll benefit from bringing a market expert who has a vested interest in your success.
If you have a unique startup that offers people innovative solutions to their age-old problem, you can rest assured there is a right funding option that’s ideal for your business. But, what that option is, depends on you and your business.
You’re the one that knows your business inside and out. While bootstrapping has many perks, it’s important to wage the pros and cons of every funding option before you set down a certain path.