GrabOn, Zoho, HappyFox, QuackQuack, and Kayako.
Do you know what is the one common feature among all these companies?
Yes, all of these companies are from various niches but the common feature among them is that all these five successful companies are bootstrapped.
What is Bootstrapping
We all know that we need capital to start a business. Some entrepreneurs opt for investments from venture capitalists or angel investors, while others opt for bootstrapping.
Startup Bootstrapping is establishing a business from scratch using personal savings. Bootstrapped businesses receive very little or no outside funding and are majorly funded by the entrepreneur.
For example, GrabOn is the largest affiliate eCommerce brand in the country. The company was established by Mr. Ashok Reddy in 2013. It is one of the biggest success stories in bootstrapping.
The company has made the online shopping experience affordable for millions of people in the country by offering deals and discounts on reputed brands.
Basics of BootStrapping
A bootstrapping company is started with very little or no assets. The founders depend on sweat equity, personal savings, quick turnover, and lean operations to establish a business and achieve success.
For example, if an entrepreneur has an innovative product to offer his customers, he may first take preorders and use these funds to create and deliver the product to his customers.
Startup bootstrapping has its share of advantages and disadvantages.
Advantages of Bootstrapping
- The entrepreneur has full control of the business. He can independently take all the business decisions. There is no pressure of investor opinions and the entrepreneur can work on his terms.
- The entrepreneur can focus his time and energy on the business instead of pitching to investors
- There is no time delay in waiting for the investors, you can immediately start the business once the plan is ready and get all the necessary licenses.
- It is easier to attract investor funding once the business starts performing and demonstrates value.
Disadvantages of Bootstrapping
- The entire financial risk is on the founder.
- The businesses that started with bootstrapping rely on internal sources of financing, loans, credit cards, and mortgages and have very limited funds.
- Lack of sufficient funds can inhibit the growth of the business.
- Bootstrapped businesses sometimes face credibility issues as there are no well-known investors to boast of.
Different Stages of Bootstrapping Business
A bootstrapped enterprise usually goes through these three stages –
- Initial Stage
The initial stage is the beginning stage of the business. The founder uses his personal savings or borrows money from family and friends to start the business.
- Funded by Customers
In this stage, the entrepreneur generates customer orders and uses the funds to manage the business expenses and fuel growth. Some businesses start with this stage while others encounter this in their growth phase.
The credit stage starts when the entrepreneur looks for venture capital, external investments, or loans from banks and financial institutions to finance certain activities for the growth and expansion of the enterprise.
Difference Between Bootstrapping And Fundraising
While bootstrapping is starting a business with your personal funds, fundraising on the other hand is seeking investors to fund the company. Both the options have their own pros and cons.
You have to choose the right strategy to fund the business based on various factors such as your business goals, exit strategy, and the growth potential of the business.
Bootstrapping Vs fundraising
|1||Flexibility in timelines||stringent timelines|
|2||More financial discipline due to the availability of limited resources||Less financial discipline due to abundance of funds|
|3||The entrepreneur can take independent decisions||The entrepreneur is influenced by investor demands and expectations|
|4||Slower growth due to financial constraints||Faster growth due to investor support|
|5||The entrepreneur has to work hard to build credibility||Association with famous venture capitalists and investors gives readymade credibility|
|6||Difficult to survive in a competitive market||Easy to survive in a competitive market|
Strategies to Bootstrap Your Startup
Once you have set your mind on starting your business, the first step is to decide whether you want to bootstrap or go for fundraising.
Startup Bootstrapping is quick as you can instantly start the business without waiting for investor approvals.
Here are some key strategies to bootstrap your startup
- Opt for Business ideas That Require Low Start-up Capital – Put on your thinking cap and brainstorm to come up with business ideas that require low startup capital. Conduct thorough market research to understand the market dynamics and choose the right product or service. For example, if you want to start a food chain, start with a food truck or opt for food delivery out of your home. You can expand the business once you make enough profits to finance a restaurant.
- Choose a Business With Quick Turnover – Use your capital to start a business that generates quick funds. The business must be market-ready and must have the ability to get quick returns. Accumulate the income generated and use it to fund the growth of the business.
- Create a Business Plan – Even if you are bootstrapping, it is essential to have a business plan. A business plan provides the right direction for your business. It will provide you with the right vision to achieve business goals and ensures that you always remain on the right path. The business plan will also be your guide to face contingencies.
- Test The Waters Before Jumping – It is always advisable to test the waters before you quit the job hoping that your business will be a runaway success. While it is possible in some cases, most businesses need time to pick up the pace. Start your business part-time and measure the results. Once you are satisfied with the performance, you can dive in.
- Partnership Is a Good Bootstrapping Strategy – Search for a business partner who is interested in your vision. Partnering with others will help you to bring additional capital as well as different skillsets to the table. Moreover, it also becomes easy to manage time with two or more people on board.
- Cut Down the Operating Costs – For bootstrapped enterprises, it is crucial to keep the initial expenses as low as possible at least until the business starts to generate sufficient revenue. For example, you can work from home or rent a shared working space instead of renting an office, you can work with part-timers or freelancers to cut down employment costs. Avoid unnecessary purchases that may negatively affect the cash flows. There are many other similar steps to reduce operating expenses.
- Invest in Image Building – Your brand image plays a crucial role in the success of the business. It is important to build a good brand image both online and offline. Provide high-quality products at the right price. Good customer service also helps to build a good brand image. Ensure that you have a professional website that provides adequate information about your enterprise.
- Plan ahead For Growth and Expansion – Starting small does not mean there is no scope for expansion. Prepare a strategic business plan outlining the growth and expansion plan. You can always opt for external capital for the expansion of the business. And the good news is, you can easily find investors for a business that delivers revenues and is growing well.
Startup bootstrapping is a tough decision. You will require discipline, focus, guts, and sharp business acumen to ensure that the business does not fall short on funds and suffer setbacks.
However, with the right strategies, many bootstrapped businesses have proven to be successful and grown into multi-million dollar enterprises like Zoho, GrabOn, and HappyFox.
Let us know if we missed out on anything in this article Bootstrapping Your Startup Business and share your thoughts in the comment section.